Wednesday, January 30, 2013

1973 And The White Male

“The typical white male worker in this country is making in real terms what he was making in 1973” and “the average worker is making what they were making in 1996.”
- David Axlerod

David Axelrod says typical white male worker is earning no more than in 1973
As the 2012 elections loom and President Barack Obama pushes for his jobs plan, a key issue is how middle-class families have fared over the past generation.

Politifact

Obama and other Democrats would like to see the Bush-era tax cuts expire for couples making more than $250,000 and also raise taxes on hedge-fund millionaires paying relatively low capital gains tax rates. For their part, Republicans claim Obama is engaging in “class warfare” against job creators.

In a Sept. 27, 2011 speech at St. Anselm Colleges New Hampshire Institute of Politics in Manchester, David Axelrod, one of Obama’s top strategists, said there has been a “hollowing out of the middle class in this country” in recent decades as “wages have essentially flat-lined” for many workers.

“There was a census report just a couple of weeks ago, and what it said was that the average white male worker, the typical white male worker in this country, is making in real terms what he was making in 1973,” said Axelrod, a former White House aide and now a senior adviser to Obama’s political campaign. “In total, the average worker is making what they were making in 1996, but we know prices haven’t gone along accordingly.”

If true, that’s quite a ride back in time. Asked for substantiation, Katie Hogan of the Obama campaign referred us to a U.S. Census REPORT released last month, and articles in the New York Times and the New Yorker website crunching some of the numbers.

The report itself didn’t have the precise numbers to back up Axelrods first claim—that the typical white male worker made the same amount—adjusted for inflation—in 1973, when Richard Nixon occupied the White House.

But a related census SPREADSHEET shows that real wages have not only failed to grow but have actually declined slightly for white males working year-round and full time.

But first, a semantic point near and dear to the heart of economists. Even though Axelrod said “average” in his statement, it’s clear by his subsequent use of the word “typical” and the reports to which we were referred that median income, not the mean, is what applies here.

In 2010, according to census data, the median earnings for a full-time white male worker were $50,074. By comparison, in 1973, the median for that category, in 2010 dollars, was $50,513. So Axelrod not only was correct that white men were no better off, adjusted for inflation, in 2010 than they were 37 years ago, they were taking home about $8.44 less per week.

And when measured by the purchasing power of those dollars, the gap is even bigger. Because wages havent kept up with prices, as Axelrod asserted, the typical white male worker’s purchasing power has eroded by almost 11.5 percent in 37 years.

Heidi Shierholz, a labor market economist for the Economic Policy Institute, a liberal think tank in Washington, said Axelrod’s statement about white male workers is “unambiguously true,” and that wages havent kept up with major gains in productivity.

“The growing wealth of the country actually didn’t translate into higher standards of living or wages for typical workers,” she said. “Where it [the wealth] went was to the top.”

In the second part of Axelrods statement—that “the average worker is making what they were making in 1996”—it appears that the Obama strategist got some numbers mixed up.

A census table shows that median earnings for all full-time workers who clocked at least 50 weeks of labor increased by about 7 percent in real terms between 1996 and 2010, to $41,919. This came as earnings by women, and their participation in the labor force, grew at a faster rate than that of men, though the female-to-male earnings ratio was still 77.4 cents to the dollar in 2010.

Given the report Hogan, the Obama campaign press aide, cited, however, along with a number widely reported in the press last month, what Axelrod apparently was referring to when he spoke of average workers making what they did in 1996 were census numbers that showed total household income, adjusted for inflation, has barely increased. Median household income in 2010 was $49,445, only a $333 increase, or 0.7 percent, in inflation-adjusted dollars from 1996.

Some important factors are at play in household income numbers. For starters, households are smaller now, meaning there are fewer wage-earners to be counted. But women’s participation in the labor market has also increased. What that means, essentially, is that wage-earners in middle-class American households are working more to maintain the same level of income.

“One of the ways families made up the difference was more work,” Shierholz said of the stagnant wage issue. “Its largely an hours story.”

A paper Shierholz co-authored after the new census numbers were released also showed that median income for working-age households fell by more than 10 percent in the past decade, to $55,276.

Given such factors, she said the second half of Axelrod’s statement “captures the flavor” of what the EPI and others have labeled a “lost decade” in terms of income.

Our ruling

Axelrod was on the money in talking about the erosion of earnings for white male workers since the early 1970s, and basically on track in comparing how things stand today for the typical American family compared to 1996. We rate his statement Mostly True.

SOURCE

Tuesday, January 29, 2013

Lessons From Venezuela

Poverty versus Progress: Comparing the US and Venezuela
What Does it Mean to be “Third World” in 2013?

By Eric Draitser
Stop Imperialism
January 29, 2013

If we are to take the traditional definition of the term, then “Third World” refers to those (non-white) countries that struggle to attain high levels of economic development and which, for the most part, are reduced to the periphery of the global economy.

However, since the onset of the economic crisis beginning in 2007-2008, many of the economic problems of those traditionally poor countries have become ever more apparent in the so-called developed world. Socio-economic maladies such as extreme poverty, hunger, and unemployment have skyrocketed in advanced capitalist countries like the United States, while politicians and the media continue to trumpet the mirage of an economic recovery.

Naturally, one must ask for whom this is a recoveryfor the poor or for Wall St? Moreover, it has forced the world to examine what progress looks like. One way of doing so is to analyze what the statistics tell us about the United States versus Venezuela. In so doing, one begins to get a much clearer picture, free from the distortions of media and politicians alike, of just how much progress has been made in the Bolivarian Revolution while the situation of the poor and working classes in the US continues to deteriorate.

What Is Poverty?

Before one can reach any definitive conclusions about poverty in the US and Venezuela, it is essential to first establish the stark difference in the way in which poverty is measured in the two countries. With respect to the US, poverty is measured purely by household income, with a certain threshold known as the “poverty line” determined by the Census Bureau. This measurement, based on a purely arbitrary delineation between poverty and non-poverty, is the one by which many make determinations about the state of the poor in the US. As should be self-evident, this system of analyzing poverty ignores the obvious fact that there is little tangible difference between the lives of those slightly over and slightly under the poverty line in that both live in a constant state of privation. Moreover, as increasing inflation, decreasing wages and other factors continue to impact the purchasing power and actual lives of the poor, the poverty line becomes even more problematic.

In contrast, the Venezuelan government has a distinctly different set of MEASUREMENTS TO DETERMINE true poverty including: access to education, access to clean drinking water, access to adequate housing, and other factors.

Essentially then, in Venezuela, poverty is not a measure of income, but of quality of life. By measuring poverty in this way, the Venezuelan government provides a far more comprehensive picture of the socio-economic situation in the country. It is important to note also that, unlike in the United States, poverty statistics in Venezuela are one of the primary driving forces behind the formation of government policy. While in the US, poverty has become a dirty word (as evidenced by the subject’s total absence from last years presidential debates), Chavez and the Bolivarian Revolution have made it the centerpiece of public policy in all aspects.

What the Numbers Show

When one examines the statistical data compiled by the Census Bureau in the United States, many very troubling facts emerge. First, itҒs critical to note that, in 2012, the POVERTY LINE for a typical family of four was at a combined gross income of $23,050. Note that this indicator is derived from gross income as opposed to net income, so it doesnt even reflect the gravity of the situation faced by these families.

Anyone who has even a rudimentary understanding of the current costs of living in the United States can immediately surmise that the “poverty line” is a cruel joke. This level of income means abject poverty, it means a lack of basic necessities for human life. So, in essence then, we’re not talking about “the poor,” but those on the verge of death with problems such as malnutrition, serious illness from treatable conditions, and countless other hindrances to basic existence. In addition, it should be noted that median family income (for all families, not just those in poverty) CONTINUES TO DECLINE dramatically, with a decrease of 8.1% since 2007. Therefore, it becomes apparent that, not only is poverty widespread, it is growing.

California, long touted as the most economically vibrant state in the US, is now known as more than just the home of Silicon Valley and beautiful coastline, it is also home to the highest levels of poverty in the United States. According to the SUPPLEMENTAL POVERTY MEASURE of the US Census Bureau, CALIFORNIA boasts a 23.5% poverty rate which, if included with those who do not technically fit the poverty measure but who still live very much on the economic margins, shows that poverty is fast becoming an epidemic in California.

As University of Wisconsin Madison economist Timothy Smeeding explained, As a whole, the safety net is holding many people up, while California is struggling more because it’s relatively harder there to qualify for food stamps and other benefits. Essentially then we see that, in the nation’s most populous and, arguably most economically important state, the situation of the poor is a dire one as more and more people become dependent on government programs just for survival. This is, of course, against the backdrop of austerity or so-called ”ENTITLEMENT REFORM” championed by both Republicans and Democrats, which would cut these same programs which are becoming ever more critical for millions of Americans.

Income cannot and should not be seen as the only indicator of poverty and economic status. Indeed, there are many other factors including access to proper nutrition, particularly important for children growing up in situations of poverty. In fact, the most recent data from the USDA suggests that at least 18 million households in the US were FOOD INSECURE as of 2011. This is merely the tip of the iceberg when one considers that there are millions of households who are not categorized as “food insecure” but who cannot afford high quality food and the still more families who are only food secure because of government programs such as the Supplemental Nutrition Assistance Program (SNAP) formerly known as food stamps. Lack of access to highly nutritious foods is characteristic of poor, urban neighborhoods where primarily people of color struggle to feed their children with something other than fast food or low quality food purchased at the corner store.

What becomes apparent in even a cursory examination of this information is that food security and poverty are not merely indicators of economic hardship, they are class designations. The United States is home to an ever-expanding underclass, one that is encompassing more and more formerly working class people and white people, but which still afflicts communities of color most acutely. In every major city and more and more formerly affluent white suburbs, poverty has become an ever-present reality, one that remains hidden as Americans engage in the collective self-deception of “economic recovery.”

The Venezuelan Model

In contrast to the United States, Venezuela continues to make tremendous strides in eradicating poverty from a nation that, for decades, had been one of the poorest and most exploited in the Americas. Despite vast oil wealth and abundant resources, Venezuela was characterized by extreme poverty, particularly among the indigenous and peasant populations. This was the product of the colonial and post-colonial system wherein a small, light-skinned elite dominated the country and kept the rest of the people in abject poverty. This situation began to change with the ascendance of Hugo Chavez and the Bolivarian Revolution. Immediately Chavez, already a hero to poor Venezuelans, set about implementing his socialist model that would make the fight against poverty the centerpiece of his public policy. Indeed, this is precisely what has happened in the fourteen years since he took office.

As mentioned previously, Venezuela uses a comprehensive set of criteria to measure poverty including access to education, clean drinking water, adequate housing, households with more than three people living in a room, and households where the head of the household had less than three years of education. Using this rubric, known as the Unsatisfied Basic Needs system (NBI), the statistics are intriguing. In the last ten years, the number of Venezuelans living in extreme poverty (those who experience two of the five indicators of poverty) has decreased from 11.36% to 6.97%, a reduction of almost one half. At the same time, life expectancy and total population have increased significantly, showing the impact of better and more comprehensive health care services. One particularly important piece of data has to do with indigenous people, the group most marginalized historically. In the last ten years, their numbers have grown significantly as well, now making up almost 3% of the population. This shows that, not only have the quality of health programs and related services increased, but access to them has grown as well, particularly for those traditionally disenfranchised segments of the population.

It should be noted that one of the centerpieces of the anti-poverty programs of the Chavez Bolivarian government has been the exponential increase in construction of public housing and affordable units. President Chavez announced the GREAT HOUSING MISSION (GMVV) in 2011 to combat the extreme poverty that so many Venezuelan families faced as they lived in inadequate or unsafe homes. As of September 2012, MORE THAN 250,000 homes had been constructed and given to poor Venezuelan families. This number is surely set to increase in the coming year as the program continues to expand and housing becomes ever more accessible and plentiful.

In the midst of a worldwide economic crisis, the Chavez government continues to expand spending on anti-poverty programs such as housing construction and health care while much of the so-called developed world engages in the mass hysteria of austerity. The Bolivarian Revolution set before itself the task of reducing and ultimately eradicating poverty in a country where poverty was a historical tradition and a seemingly immutable reality. The post-colonial era of Venezuelan history is one fraught with domination and oppression by the United States and subjugation to multinational corporations while the poor and working classes lived in wretched conditions. Chavezs commitment to reversing that legacy is what has, more than anything else, enshrined his legacy in the hearts and minds of Venezuelans.

Conversely, the advanced capitalist economies of North America and Europe are desperately trying to maintain their hegemony and economic survival by means of austerity programs which shift the burden of the depression from the wealthy financiers and speculators who created it to the poor and working class who must pay for it. Draconian cuts to necessary social services upon which millions of Americans depend for their very survival serve to illustrate this point further. Unlike in Venezuela, the Western imperial powers seek to destroy the social safety net and drive their populations into further destitution and desperation. This is, to put it another way, the crisis of advanced, post-industrial capitalism - an economic system which must expand the divide between rich and poor, create extremes of wealth and poverty and generally perpetuate itself on the misery and poverty of the lower classes. Seen in this way, Republicans and Democrats, President Obama and House Speaker Boehner alike are culpable for the massive suffering and despair of the poor in the US who can look to Venezuela and the Bolivarian Revolution as a model for a truly progressive vision of the future.

SOURCE

Mortgage Reform 1

Obama OK’s Subprime Borrowers For Prime Loans

By Paul Sperry
Investors Daily
January 14, 2013

New mortgage rules issued last week by the administration will have the effect of forcing lenders to approve prime loans to borrowers who would normally only qualify for subprime loans carrying higher interest rates and fees to cover the added risk of default.

Banks are already under renewed pressure from federal prosecutors and regulators to make home loans to low-income borrowers with blemished credit as part of the administration’s stepped-up enforcement of anti-redlining laws.

Before the mortgage crisis, lenders were able to hedge losses by placing such homebuyers in higher-cost subprime mortgages something the government at one point actually encouraged as part of a strategy to expand credit opportunities for lower-income minorities and close the racial “mortgage gap.”

But under the new mortgage rules, loans with subprime features do not fall under the official government definition of “qualified mortgages,” and therefore do not provide a “safe harbor” against lawsuits and other action.

As a result, analysts warn lenders may end up having to “subsidize” riskier borrowers at the expense of other customers.

The Consumer Financial Protection Bureau, the Dodd-Frank Act-created agency that wrote the 800-page mortgage regulation, has decreed that the way to distinguish a prime loan from a subprime loan is by the interest rate charged, even though the main distinguishing feature of a subprime loan is a sub-660 credit score.

“Under its tortured definition of ‘prime,’ a borrower can have no down payment, a credit score of 580, and a debt (-to-income) ratio over 50%,” as long as the borrower is charged a prime rate, said former Fannie Mae chief credit officer Edward Pinto.

Mortgages carrying a prime rate, or one within 1.5 percentage points of the national average, will have the strongest level of legal protection, according to the regulator. Analysts say this rule effectively limits lenders’ ability to price for risk. Lenders who charge rates above the 1.5-point threshold open themselves up to legal liability.

Starting in January 2014, when the new rules take effect, borrowers who default on nonqualifying home loans will have the power to “raise a foreclosure defense” against banks, according to Joseph Barloon, a lawyer for Washington-based Skadden Arp.

Pinto, now a fellow for the Washington-based American Enterprise Institute, agrees: “CFPB’s definition will force a lender to either subsidize risky loans to get the presumption of affordability (for lower-income borrowers), or subject itself to a rebuttable presumption (by charging subprime rates), which will bring certain litigation from the tort bar at every attempt made to foreclose.”

In addition, lenders who underwritesuch nonqualifying loans could open themselves up to federal charges if recipients are minorities.

CFPB has the power to enforce “fair lending” laws, and is already coordinating lending-discrimination cases against banks with the Justice Department.

As part of recent consent decrees, Justice has ordered several bank defendants to approve prime-rate mortgages for African-Americans and Latinos who otherwise would not qualify for them.

For instance, First United Security Bank of Alabama must set up a “special financing program” for African-Americans.

According to the 25-page federal order, the program must offer them interest rates and other terms “more advantageous to the applicant than it would normally provide” even if the applicant “would ordinarily not qualify for (a discounted) rate for reasons including lack of required credit quality, income, or down payment.”

SOURCE

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Bank of America Bombshell: Whistleblowers Reveal Orchestrated Coverup and Massive Borrower Harm
Obama promised justice to abused American homeowners. Have they gotten it?

By Yves Smith
AlterNet
February 18, 2013

On January 7, 2013, ten servicers entered into an $8.5 billion settlement with the Office of the Comptroller of the Currency and the Federal Reserve, terminating a foreclosure review process which was set forth in consent orders issued in April 2010. Borrowers who had had foreclosures that were pending or had completed foreclosure sales in 2009 and 2010 could request an investigation by independent reviewers, selected and paid for by the servicers but subject to approval by the OCC.

Some experts argued that the 2009 and 2010 time range was too narrow and excluded many borrowers who had been treated improperly. These professionals also questioned whether the investigators would operate independently and fairly. Nevertheless, the reviews were touted as delivering a measure of justice to abused homeowners, since any found to be have suffered wrongful foreclosures were to receive sizable monetary awards, and smaller payments would be made to those who experienced other forms of abuse. As HUD Secretary Shuan Donovan proclaimed:

For families who suffered much deeper harm who may have been improperly foreclosed on and lost their homes and could therefore be owed hundreds of thousands of dollars in damages - the settlement preserves their ability to get justice in two key ways.

First, it recognizes that the federal banking regulators have established a process through which these families can receive help by requesting a review of their file. If a borrower can documentthat they were improperly foreclosed on, they can receive every cent of the compensation they are entitled to through that process.

Second, the agreement preserves the right of homeowners to take their servicer to court. Indeed, if banks or other financial institutions broke the law or treated the families they served unfairly, they should pay the price and with this settlement they will.

Yet the foreclosure investigation was halted abruptly, with the OCC and the Fed failing to identify any methodology for how the portion of the settlement allotted to cash awards, $3.3 billion, would be distributed to homeowners who might have been harmed in 2009 to 2010, an astonishing lapse that will almost certainly result in small payments being made to large numbers of borrowers, irrespective of whether they deserved vasty more or nothing at all.*

But except from its hamhandedness, this outcome was no surprise to astute observers. The OCC consent orders had been launched in an unsuccessful effort to render the ongoing 50 state attorney general/Federal negotiations moot. Critics described how these orders were regulatory theater, with Georgetown law professor Adam Levitin comparing them to promising in public to spank a child, then taking him indoors and giving him a snuggle. Leaks during the course of the reviews confirmed these concerns, revealing deep-seated conflicts, limited competence among the review firms, half-hearted efforts to reach eligible homeowners, and aggressive efforts by the banks to suppress any findings of harm.

As grim as this sounds, the conduct was worse than the leaks suggested. After extensive debriefing of Bank of America whistleblowers, we found overwhelming evidence that the bank engaged in certain abuses frequently, in some cases pervasively, in its servicing of delinquent mortgages. This is particularly important because Bank of America has been identified in previous settlements as far and away the biggest mortgage miscreant, paying over 40% of last yearגs state/federal mortgage settlement among the five biggest servicers.

This settlement, as intended, was yet another significant bailout to predatory servicers. As we will demonstrate over our upcoming series of posts, conservative estimates of damages due to borrowers under the consent order who suffered improper foreclosures from Bank of America exceed $10 billion. That contrasts with the cash portion of the settlement amount for Bank of America of $1.2 billion.** The amount owing for other abusive practices would have increased this total further.

The OCC gave two rationales for shutting down the reviews. The first was that they were costly to Bank of America and other serivcers, potentially diverting funds from borrowers. This argument is spurious. Those expenses were always contemplated as being in addition to compensating borrowers for the considerable damage they suffered. Moreover, as we will demonstrate, the high price tag for undertaking the reviews was due not only to fragmented and poorly documented borrower records and the servicers long-standing disregard for legal requirements, but significantly to an inefficient, poorly designed review process. The fees to the major firms engaged to conduct the reviews are so patently out of line that Caroline Maloney, a senior member of the House Financial Services Committee, has launched an inquiry.

Professional service firm clients, particularly ones as powerful as major banks, when faced with such egregious levels of cost overruns, would normally demand significant reductions in the bills from their vendors. Instead, the Fed and the OCC let Bank of America make its cost problem their cost problem.

The second reason given for shutting down the reviews is that the regulators claim few borrowers were harmed by impermissible foreclosure practices. A recent American Banker article quoted Morris Morgan of the OCC, who was overseeing the reviews from the regulators’ side:

“Do I think there were a significant number of people who were foreclosed on where the banks did not have a legal right to foreclose on them? At this point in time I don’t think that was a significant number,” he said. “But I would go further to say a very few number, and you could even argue one of those, is too many.”

This is both disingenuous and as we will demonstrate over our series, patently false. Borrowers could suffer wrongful foreclosures due to predatory or negligent foreclosure practices for reasons well beyond the servicer not having the “legal right” to foreclose. Moreover, the servicers were ordered to look well beyond that issue. The whistleblowers saw ample evidence of abuses of that could and typically did result in the loss of home within the scope of the reviews they performed. Moreover, they also presented evidence of persistent, sometimes pervasive, impermissible conduct at Bank of America which was simply not addressed in the tests or captured in related information gathering, yet clearly fell within the scope of the consent orders. As we will discuss, some of these abuses would likely result in an impermissible foreclosure or serious borrower harm.

Turn the issue around: why would the banks be willing to down the reviews if indeed they were finding so little in the way of damage to borrowers? They would be well served to spend a few billion dollars to be able to say that with a fair and exhaustive process, hardly any borrowers were harmed. If this claim was true, the costs of finishing the reviews still would have been lower than the cost of the settlement plus the expenses of the reviews to date.

The settlement is also a bailout for the ԓindependent foreclosure reviewer, Promontory Financial Group, which also played this role for Wells Fargo and PNC. Promontory occupies a unique role in Washington, DC. The firm, headed by former Comptroller of the Currency Gene Ludwig, is heavily staffed with former senior and middle level banking and securities regulators. For instance, former OCC chief counsel Julie Williams (who Ludwig hired when he was at the OCC) has just joined Promontory, and her replacement, Amy Friend, came directly from Promontory.

As we will demonstrate in later posts in this series, even making the most generous interpretation possible of the role played by Promontory, Promontory’s review at Bank of America completely omitted significant categories of borrower harm that were explicitly discussed both in the OCC consent order and Promontorys engagement letter with Bank of America.

Scope of Our Investigation

We interviewed five contract workers at the largest Bank of America site where the foreclosure review work took place, Tampa Bay, Florida. All had worked on the project from relatively early on, and all had considerable knowledge of mortgage and foreclosure processes and documentation, with the least experienced having worked five years as a paralegal in small real estate-focused law firm. The majority had over ten years of relevant experience. Together they performed significant tests on over 1600 borrowers in a ғlive mode, and ran preliminary versions of the tests on hundreds of additional borrower files (actual customer records from Bank of America systems, not dummied-up data) in the attenuated start-up phase.

The reviewers also provided comprehensive documentation from some of the major tests designed by Promontory and operated on its CaseTracker software program as well as other documents provided by Bank of America. We provide a brief overview of the various roles in the Tampa Bay and other Bank of America locations at the end of this post, in Appendix I, and a description of the major tests in Appendix II. We have reviewed the information and documents presented by the whistleblowers with recognized legal experts in foreclosures and securitizations, and have also reviewed relevant OCC materials and Bank of America disclosures.

Overview of Findings

The foreclosure reviews showed persistent, widespread efforts by Bank of America to avoid any finding of borrower harm. These efforts were supported and enabled by Promontory. The whistleblowers, all told their role would be to act as investigators and help borrower get compensation they deserved, described the review process as seriously flawed. Yet even with those obstacles, they saw abundant evidence of serious damage to borrowers.

We asked our five whistleblowers to estimate the amount of borrower harm they saw for the borrowers whose cases they reviewed, and what portion of that was serious harm (all reviewers will be described as male irrespective of gender):

Reviewer A: 90% harmed, with 30% to 40% suffering serious harm

Reviewer B: 30% harmed, including instances of serious harm; described multiple instances of serious harm on other tests performed on his borrowers but could not readily quantify

Reviewer C: 67% harmed on his test; like B, saw multiple instances of serious harm in the borrower history not captured on his test as harm; could not readily quantify but specific examples cited during interviews alone exceed 10%

Reviewer D: 95% harmed, with 30% to 40% suffering serious harm

Reviewer E: 100% harmed, with 80% suffering serious harm

This level is consistent with the findings of a never-published GAO report on the foreclosure reviews that the rushed settlement appeared intended to terminate. The GAO review selected a random sample of foreclosure files and found an 11% error rate. The files the reviewers saw came (depending on the reviewer) at least 80% and in most cases 100% from borrower requests for review through the IFR process or an executive request for review. One would expect to see a markedly higher level of serious problems in these files.

As we will describe in detail, these estimates considerably understate the actual harm suffered due to defects in the test design, active efforts to suppress findings of harm, and major gaps in Bank of America records. As one reviewer stated:

“I really kind of went into it very naively, I guess, as a lot of us did, that we were actually there to do good and were being welcomed there to do good for people I mean, I had gone from pretty gung ho to, Hey, you guys need to knock this crap off. You guys are just - you’re, just, you’re turning this into a sham.”

Note that Bank of America and Promontory are likely to claim, as they did late last year when ProPublica published an article questioning the independence of the foreclosure reviews, that Promontory was doing the reviews and the contractors employed in Tampa Bay and other locations were simply doing documentretrieval. In later posts, we will discuss in depth why this claim is ludicrous in light of how the organization was structured, how Bank of America managers interacted with the reviewers, and how the tests were designed and the reviewers were trained.

Overwhelming evidence of widespread, systematic abuses. No interviewee estimated harm as occurring in less than 30% of the files they reviewed; one put serious harm at 80%. The interviewees did not simply describe individual borrower suffering in graphic terms (as one put it, I saw files that would make your stomach turn.) Multiple interviewees would describe widespread, sometimes pervasive patterns of impermissible conduct.

The reviews confirm what both servicing experts and foreclosure defense attorneys have seen since the crisis: Bank of America’s servicing standards were poorly designed and thus unable to handle the deluge of troubled borrowers (suspense accounts, modifications, bankruptcy, etc.). In addition, BofA had a low level of competence in their servicing area and, as a result, the problems with their servicing was made worse. For instance, reviewers gave examples of types of behavior where Bank of America practices were clearly contrary to the law, yet the banks personnel confidently maintained that they were proper

OCCҒs badly flawed review structure compounded by complex, chaotic, and undermanaged implementation by Promontory. By delegating so much of the review process to independentӔ firms (many of whom had little or no experience with servicing and foreclosure), the OCC doubled down on the same incompetence and poor standards that Bank of America and the other servicers already had in their servicing departments. Many of the flaws in the review process (compartmentalized reviews, conflicted supervisors, poor senior review for issues or disputes) were mirror images of the problems at the servicer. These problems were made worse by a bizarre management structure and frequent changes to test content and directives.

Concerted efforts to suppress finding of harm. The organizational design, the way the reviewers were managed, the elimination of areas of inquiry, and evidence of records tampering with Bank of America records all point to a multifacted, if not necessarily well orchestrated, program to make sure as much damaging information as possible was not considered or minimized. To give one example: state law issues were eliminated from the in G test, which covered loan modifications (see Appendix II below), reducing it over time from 2200 questions to 500.

Dubious role of Promontory. Promontory was a poor choice to perform the review. It had virtually no internal expertise in serivcing, provided little or no supervision, and, either by design or incompetence, managed to politicize the review process rather than make it independent.

Promontorys recent accomplishments include telling MF GlobalҒs board that it had robust enterprise-wide risk managementӔ five months before it failed and finding only $14 million of Standard Chartered wire transfers in a money laundering investigation to be out of compliance, when the bank eventually admitted the amount was $250 billion. That is no typo, that is an over four order of magnitude difference.

Why does Promontory prosper despite such implausible, indeed, embarrassing performances? Its because financial firms are eager buyers of extreme management-flattering positions that are seldom subjected to scrutiny thanks to Promontory’s roster of former regulators. Indeed, Promontory occupies a position no firm holds in any other heavily regulated space, that of being the dominant shadow regulator. As we will demonstrate in later posts, the claims made by Promotory about the review process as to its independence and completeness are at odds with considerable evidence on the ground.

= = = = = =

* While the OCC maintains that some borrowers may still receive the maximum payment under the foreclosure reviews, $125,000, the abrupt termination of the foreclosure reviews at Bank of America and other banks and the dismissal of trained staff indicate that not further investigation will be made. That, in combination with the efforts we will describe to show how evidence of harm was not considered, minimized, or suppressed, suggest that the only people who might receive that level of payout will be ones that suffered not just egregious but easily identified harm and were also fortunate enough to get through the review process before the settlement was finalized.

** We attribute very little value to the required other amount of assistanceӔ of $1.6 billion, which Bank of America can satisfy by extremely low cost actions, such as writing off deficiency judgments on foreclosed borrowers. A deficiency judgment occurs when, after a foreclosure, the borrower is still liable for the difference between the amount owed on the mortgage when it exceeds the amount recovered in the foreclosure sale. People who undergo foreclosures are almost always under severe financial stress (we have discussed elsewhere that the incidence of strategic defaultsӔ, ex on second homes, is greatly exaggerated). Banks historically have not pursued deficiency judgments; the cost of going after the borrower greatly exceeds what they might collect. At best, Bank of America might be able to sell them to debt collectors for a few cents on the dollar.

SOURCE

Still Trapped In Unemployment

They’ve fallen out of the middle class. Turned in cars, gone on food stamps, taken kids out of college and faced foreclosure. There is no comparison to being unemployed for six months and being unemployed for 99 weeks. Your needs change in a drastic way. The change is the mind. That two years of unemployment erodes your self-confidence, your self-esteem. It separates you from your profession, your education, whatever you might have done previously.
- Joe Carbone, Platform To Employment

The argument that rapid technological change may be generating labour market problems is given a lift in an interesting new ebook by Erik Brynjolfsson and Andrew McAfee, entitled Race against the machine. The opening chapter attempts to cast the book as a means to understand present high unemployment, which is a little unfortunate; most of current labour market weakness can be explained by weak growth, and weak growth is WELL EXPLAINED by weak demand. It is, however, a useful contribution to the discussion of what has gone wrong in the American economy in recent decades.
- Race Against The Machine, November 2011

Getting The Unemployed Back To Work

CBS Chicago
January 28, 2013

IN FEBRUARY 2012, Scott Pelley of “60 Minutes” devoted a segment of the “60 Minutes Overtime” show to the status of the long-term unemployed. The focus was on whether those unemployed felt discriminated against because they were in such a state. The responses were surprising to Pelley as the short answer was a resounding “yes.” The question now is whether things have changed for this group.

The TRAUMA of losing a job is BAD ENOUGH. The added STRESS of finding another line of work has been considerable over the last few years. According to the Bureau of Labor Statistics, as of December 2012, the U.S. unemployment number was at 12.2 million. OF THAT NUMBER, 39.1 percent was made up of those LONG-TERM UNEMPLOYED (jobless for 27 weeks or more).

While the economic trend seems to be slowly reducing the number of unemployed, those who have been out of work the longest may find that the reality of being unemployed for an extended period of time can still count against them. Statistics suggest that companies like to hire people who are currently working. It doesn’t seem to matter that so many jobs simply disappeared in the last few years and that quite a few of the unemployed have long work histories and desired skills.

What Scott Pelley discovered during a “60 Minutes” segment on jobs almost a year ago is largely still true.

Except for New Jersey, Oregon and the District of Columbia, there are no legal protections against eliminating long-term unemployed applicants from job interviews. That was the case when “60 Minutes” aired its program in February of 2012, and that is still the case today. Since the segment, no national law has been passed that prevents discrimination relative to long-term unemployment.

The type of job offered can make a difference as well. There are some jobs that require current employment, as the job itself doesn’t offer pay. The compensation may be free rent, as in the case of a property manager, in exchange for limited duties, or other types of compensation that offer space, goods or access rather than money. In these cases, the person applying for the job would need to be employed in order to even be considered.

Small businesses differ from the larger ones, as does the type of business. A small bike shop looking to hire a sales person/bike mechanic is more likely to be interested in the applicants actual skills rather than how long the person has been out of work. Bob Molinari, owner of Placerville Bike Shop in California, a small family-owned business, said that his focus would be on the skills, as that is what his business needs.

A larger business may see things differently. There may be an entry-level training program that would offset a rusty skill set and a break in employment may not mean as much. Getting in at a higher level would require a more advanced and current skill set.

Conversely, the I.T. field is driven by up-to-date skills in the broad spectrum of computer programming at all times. New hires are simply expected to be able to program right from the start. A substantial hiatus from programming, in any computer language, would not be welcomed.

Commissioned sales jobs want proven sales ability. Being unemployed for an extended period of time won’t provide those numbers. The unemployed, once again, are at a distinct disadvantage.

The statistics for the long-term unemployed remain less than optimistic. According to the Bureau of Labor Statistics in December 2012, 4.8 million people have been out of work for 27 weeks or more. The average time someone is out of work is about 40 weeks. For the last year and a half, those numbers have remained pretty constant.

Employers apparently feel that currently employed applicants have more appeal. In an environment that is essentially an employers market, there is more room for using paper screening with a wider variety of circumstances to ELIMINATE JOB SEEKERS from an interview.

Until the economy recovers enough to draw down the number of people out of work, the long-term unemployed are likely to remain out of luck, caught in the same situation illuminated by “60 Minutes” and Scott Pelley a year ago.

SOURCE

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Recession, Depression or Jobless Recovery? Long-Term Unemployment under “Neoliberal Capitalism”

By Alan Nasser
February 1, 2013

We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come - namely, TECHNOLOGICAL UNEMPLOYMENT. This means unemployment due to our discovery of means of economizing the use of labour outrunning the pace at which we can find new uses for labor. John Maynard Keynes, Economic Possibilities for Our Grandchildren, 1930

There is a useful but neglected way of distinguishing a recession from a depression or major economic downturn. After a recession the economy goes back to the “normal” of the previous expansion, whereas after a severe downturn the economy is reconfigured in some significant respect.

Nineteenth century American capitalism was in recession or depression almost as often as not, featuring three major depressions and a continuous series of bankruptcies in the period’s major industries, railroads and steel. After the dust had settled, capital had learned to preclude these kinds of ongoing crisis by consolidating, centralizing and mechanizing on an unprecedented scale and virtually banishing cutthroat competition. What emerged was what’s now called organized or oligopoly or monopoly capitalism. The Great Depression was followed by the next new configuration, Keynesian capitalism with its sundry forms of civilian and military government contribution to economic growth and income distribution. With respect to economic security, these were the best years ever for US workers.

Alas, then came, in the 1970s, the elite revolt against the “welfare state,” with declining labor income, a corporate revenue squeeze, accelerating credit inflation, rising inequality and financialization. That prelude to crisis eventually gave rise to the ensuing meltdown of 2007-2008 and the attempt by business and government to reconfigure the old Keynesian settlement into the shape of Microeconomics 101. The world after the current depression will neither look nor feel as it did in the lifetimes of those of us who grew up in the 1950s, 60s and 70s. Persistent inequality and lowered living standards will be among the highest costs of NEOLIBERALISMN, a return to a peculiar fusion of key features of the capitalism of the 1920s (unregulated, free markets and dramatic inequality) and 1930s (high unemployment and lowered living standards).

Long-Term Unemployment, Job Polarization and the Disappearance of Middle-Skill Jobs

NEOLIBERALISMN intensifies a labor-market trend under way since the beginning of the postwar period, during which the short-term unemployed have been a shrinking percentage of all unemployed. Since the late 1960s long-term unemployment has been steadily rising. Looking at the business cycle over the last forty years, an ominous trend is evident: in each business-cyclical expansion, the long-term unemployment rate remains either at or above the level of the previous expansion. In a word, for the last forty years the short-term unemployed have been a declining, and the long-term unemployed an increasing, percentage of all unemployed. Most importantly for the purposes of this article, the persistence of unemployment is closely related to the disappearance of middle-pay jobs. The result has been that low paying jobs comprise an increasingly large percentage of all jobs.

Is there a structural (1) explanation of the disproportionate proliferation of low skill, low paying jobs? A key to an illuminating explanation is the remark, in the New York Times last summer that “The disappearance of midwage, midskill jobs is part of a longer-term trend that some refer to as a hollowing out of the work force” (Majority of Jobs Pay Low Wages, Catherine Rampell, Aug. 30, 2012) A “hollowing out” implies a polarization, an emerging structure of inequality within the labor market. The job market is bifurcating into high skill, high paying, advanced-education jobs at one extreme, and low skill, low paying, low education jobs at the other. Disappearing are occupations in the middle of the skill and pay distribution. Much research in recent years (2) throws light on this phenomenon and implicitly calls into question common explanations, that this job shedding is due largely to offshoring and outsourcing, that it is concentrated in manufacturing and that is the result of a mismatch between skills required by employers and the skill-level of job seekers. The citation from Keynes at the head of this article is closer to the truth.

In both the natural and the social sciences new insights are often the fruit of perspicuous categorization. It’s a certain type of job that is disappearing but the categories low skill, high skill, manual , cognitive, high paying, low paying fail to uncover the systemic mechanisms generating increasing labor market polarization. What is important is that it is routine jobs that are vanishing. These are jobs involving tasks consisting of a specific set of activities accomplished by workers following well defined instructions and procedures. These are not merely manual or “blue collar jobs” in production and maintenance like mechanics, machinery diagnostics, machine operators and tenders, meat processors, cement masons, dress makers, fabricators and assemblers. Routine occupations also involve “cognitive” activities in sales and “office and administrative” support such as secretaries, retail salespersons, some workers in law offices, bank tellers, travel agents, mail clerks and data entry keyers.

Vanishing Jobs, Automation, Robotization and Computerization

It is in these types of routine occupation that automation, robotics and the use of computers facilitate the replacement of human labor with machines. In some cases labor is entirely eliminated and all the work is done by machines or computers, but in the typical case technology reduces the demand for a portion of mid-skilled labor. Most of us are familiar with the replacement of bank tellers by ATMs, secretarial work replaced by personal computers and/or SIRI, Apples intelligent “personal assistant” integrated with the iPhone, self checkouts in grocery stores, self-service terminals in airports, video stores replaced by web-ordered DVD shipping and cable access and telephone customer service replaced by voice menus and web-based FAQs. An office in the 1980s employing 40 people working without computers may require, in the early 1990s, only 4 workers using 4 computers. The productivity - output per unit of labor input - of the office can be further enhanced not by adding skilled workers nor by replacing less productive workers with more productive computers, but by replacing less powerful computers and software with more powerful ones. In the initial case, actual workers were replaced by computers. In the latter case potential workers were kept out of the workplace by better computers. Thus the notable reduction in the demand for office workers.

Automation and robotics have had similar effects. The aggregate effects of all kinds of mechanization is felt across the entire labor market. In manufacturing the demand for machinists and machine operators is trending downward. Routine work in transportation and warehousing is also disappearing. All this is a portent of the broad range of jobs that are liable to permanent loss due to increasingly labor-saving advances in the development of the means of production. Right now this is most evident in the computer electronics industry. Robots do nearly all the work in making the most valuable part of computers, the motherboard, housing microprocessors and memory. Workers slip in the batteries and snap on the screen. A long-time analyst of the industry predicts that [Robots} will replace most of the workers, though you will need a few people to manage the robots. (Catherine Rampell, When Cheap Foreign Labor Gets Less Cheap, The New York Times, Dec. 7, 2012.)

Welding is virtually ubiquitous in widget production. Job loss in this occupation is rampant, due exclusively to the widening use of robotic arc welding to replace manual welding. Robots do the work in half the time it takes workers. The loading and unloading of machines has been made much more efficient by robots. A machine that is manually loaded “waits,” i.e., is unproductive, longer than one that is robotically loaded. A robot is faster than a human operator because it does not have to wait for a cutter or a part to stop moving, or for a door to open. Instead, the robot accesses parts through the top of a machine and unloads them immediately upon their completion. In one study, robotically loaded machines turned out 545,000 parts annually, while operators produced only 445,000. And robots dont take lunch or other breaks, so the employer gets 8 hours of work out of them daily, not the 7.5 demanded by workers. And not a single robot has gone on strike.

Until very recently, most commentators have concurred that since human beings are not machines, there is a limit, set by factors such as pattern recognition and complex human communication, to how much human labor can be automated. There is surely such a limit, but it is not as insurmountable as many of us have thought. Producers of capital goods seek ever greater possibilities of reducing the human contribution to productivity, and successful experiments in the last two years reveal the spectacular potential of digital technologies and the rapidity with which advances are achieved.

In 2004, a driverless vehicle was built designed to navigate a 150-mile route through the Mohave Desert. No people, no structures, just sand and space. The vehicle failed before 8 miles and took hours to traverse that short distance. In 2010 Google succeeded in fully automating a fleet of Toyota Priuses. These cars navigated over 1,000 miles of road with no human intervention at all, and over 140,000 miles with only minor human involvement. Driving in traffic had long been cited as a paradigm case of a task requiring complex pattern-recognition skills not amenable to digitalization.

A classic case of complex communication is translating from one human language to another, requiring as it does a degree of emotional sensitivity and the capacity to deal with ambiguity. However, language used for common business services is less reliant on these abilities. The translation services company Geofluent in partnership with IBM sought to provide automatic translation good enough for business purposes. They developed techology capable of translating online chat messages sent by Spanish and Chinese customers to English-speaking employees. 90 percent of the senders found the translations useful.

Was it possible to pose even more demanding challeges to the machine, combining the previous accomplishments in pattern recognition and complex human communication? A supercomputer called Watson was designed to provide the questions yielding the answers posed to the computer. I.e., Watson was asked to play the popular game Jeopardy. The machine executes a remarkably complex series of searches and comes up with candidate answers which are in turn subject to a series of answer-scoring analyses. This is done with such speed and accuracy that the two most accomplished contestants in the television show’s history were defeated by the machine in a televised contest.

These examples illustrate not merely how easy it is to replace routine workers with machines, but also how non-routine work hitherto relatively unaffected by computers, automation and robotics may now be reduced or done away with through technological advance. These are the causal factors accounting for the job polarization in evidence since the early 1980s. A recent study by the Federal Reserve Bank of St. Louis (3) reveals that employment has been increasingly concentrated in the highest- and lowest-paying occupations, with middle-skill and middle-pay jobs steadily disappearing. Just about all of these vanishing jobs involve routine mid-skill tasks, many of which are increasingly done by machines.

Since the 1970s the percentage of workers performing routine manual and cognitive tasks declined, not only in the US but in Europe as well, and the proportion doing nonroutine jobs rose. These shifts in labor input were not evident in the precomputer decade of the 1960s. But in each subsequent decade the shift accelerated. In 1984 routine work accounted for 54.6 percent of all employment, in 2011 for 44.0%. As a share of the total labor force, it has fallen from 50.4 percent in 2000 to 44.6% in 2011.

Jobless Recoveries And The Disappearance Of Routine Jobs

We have in recent years been introduced to the cynical notion of the “jobless recovery.” For most of US economic history this term would have been dismissed as self-contradictory. That it is now part of common economic discourse is testimony to a major conceptual revision in the discourse of propaganda: that the economy is recovering is no reason to expect unemployed workers to find work. Economic recovery is now treated as consistent with declining standards of living. Lowered expectations and acquiescence in long term working-class hardship are now built into what we are told to regard as recovery. This political-economic innovation demands closer scrutiny. We want to know why recoveries since 1990 have been jobless, and what it is that makes them jobless. This will give us a clear picture of exactly what is happening in the “jobless recovery” that distinguishes it from the normal postwar cyclical recovery.

The key lies in the greatly heightened importance of a particular kind of unemployment, referred to by Keynes in the citation above as “technological unemployment,” and correlative to the advance of mechanization described above. This is not the kind of unemployment that attends a garden-variety recession, which disappears as the economy recovers. Peter S. Goodman correctly projected in The New York Times that the recovery following the 2009 recession would not bring sufficient jobs to absorb the record-setting ranks of the long-term unemployed. (The New Poor: Millions of Unemployed Face Years Without Jobs, February 21, 2010) He describes the new poor as people long accustomed to the comforts of middle-class life who are now relying on public assistance for the first time in their lives - potentially for years to come. What is distinctive about the jobless recovery?

Let’s look at the last 6 recoveries -after the recessions of 1970, 1975, 1982, 1991, 2001 and 2009- and compare the jobs lost during the downturns with those restored in the subsequent recovery. After the recessions of 1970, 1975 and 1982 both production and employment recovered. The jobs lost during the recession, including routine jobs, were regained in the recovery. Routine jobs were the largest single category of work in this period. It is the disappearance of precisely these jobs that distinguish the recessions of 1991, 2001 and 2009 from previous recessions. By the time of these recessions, routine jobs were more than 50 percent of all jobs and accounted for virtually all the job loss. Most importantly, this type of employment never recovers beyond its trough peak, nor does it approach its pre-recession peak. The permanent decline of middle-skill employment as a proportion of all employment has occurred nearly every year since 1984. The 1991, 2001 and 2009 recessions were the first to exhibit jobless recovery. The jobless recovery, then, is due to the disappearance of routine work, or, alternatively, to the polarization of the job market during these years.

What has accounted for the loss of these jobs? There seems to be an erroneous CONSENSUS on the Left that offshoring/outsourcing explains THIS PHENOMENON. About a third of all manufacturing work, some 6 million jobs, has been lost since 2000. But the exporting of jobs fails to explain most of this. While many of these jobs were lost to competition with low-wage countries, even more vanished because of computer-driven machinery that can do the work of 10, or in some cases, 100 workers. (Adam Davidson, Skills Don’t Pay the Bills, The New York Times, Nov. 20, 2012) This is permanent job loss, and contributes to the inequality endemic to labor-market polarization: Those jobs are NOT COMING BACK, but many believe that the industry’s future (and, to some extent, the future of the American economy) lies in training a new generation for highly skilled manufacturing jobs - the ones that require people who know how to run the computer that runs the machine.

The Times article does not ask what will happen to the millions of workers left over after the far fewer new skilled workers have been found. If the “jobs are not coming back,” there will be workers, lots of workers, whose only recourse will be long-term unemployment or low-skill, low-pay work. There you have it - neoliberal austerity for the masses. That’s the long-run prospect.

Investment, The Business Cycle And The Loss Of Routine Work

Some researchers have noted that the accelerating loss of routine jobs occurs exclusively during the downward phase of the business cycle, concluding that these job losses are essentially, but not exclusively, a business-cyclical phenomenon. The tendency of mainstream economists to associate unemployment trends with the cycle is probably what accounts for this odd observation. The loss of routine work is ongoing and is accounted for by causal factors independent of the economy’s cyclical physiology. Unemployment does indeed increase in a downturn, but this is a tautological observation. If a cyclical grid is superimposed on any factor that is trending downward, a ratchet-like pattern will of course be observed: you will see bursts alternating with stabilization. But what happens when you remove the grid? You see a secular downward trend in routine employment not at all peculiar to recessions.

This is not to say that downturns are irrelevant to understanding the vanishing of routine jobs. But we need to look not at the alternating pace of job loss, but at the pattern of investment that is associated with economic contraction. There are two types of investment, capital-widening and capital-deepening. The former consists of additions to the stock of existing equipment in order to expand production, and tends to be concentrated in periods of expansion. The latter involves investing in new, more efficient equipment in order sometimes to expand production but always to enhance productivity, and occurs mainly in economic downturns. During downturns sales revenues decline so that maintaining profits becomes primarily a matter of cutting unit costs. That’s precisely the point of introducing more productive equipment (and speeding up the labor process) like better computers and other types of labor-displacing or labor-complementing machinery. Silicon based employees are substituted for carbon based employees. This is why we expect an acceleration of routine-job loss during contractions.

Dispelling Myths About Offshoring and Outsourcing

I’ve noted above that offshoring and outsourcing are not the major causes of job loss in recent years. In fact, a growing number of US manufacturing companies are RESHORING jobs they had previously sent to lower-wage countries. It appears that US companies had overlooked some of the significant costs of overseas production. The shipping process has been found to be especially problematic. The widget must be shipped to the Chinese port, loaded, unloaded in the US and shipped to its final destination. This can take 4 to 6 weeks. This time-cost can be considerably increased, the companies learned, by things like the 2002 West Coast dock strike. Homeland security complications have further lengthened shipping schedules.

Companies discover too frequently that the product, once it is on the ocean, fails to meet standards and needs to be re-worked. (Chinese workers are often paid based on the number of units completed, so a finished unit is a good unit.) These products cannot just be shipped back. Fees must be paid at both ports. There is the additional cost of exporting raw materials not available overseas from the US to the point of production. Travel by representatives of US companies can be lengthy and expensive. And there are intangible costs: counterfeiting of intellectual property and unpredictable currency fluctuations. The whole business has amounted to an apparently unanticipated and ungainly cost. One study found that these tangible and intangible costs can amount to as much as 24 percent of total product cost.

Combine these considerations with the narrowing of the wage gap between e.g. China and the US (Inflation-adjusted average wages in China have almost tripled since 2000, whereas median household income in the US has declined over the same period), and the incentive to produce overseas diminishes. Further reducing the disadvantage to employers of higher US wages is that a high proportion of the work that has been brought back to the US is the kind of high-value-added work tied to automated production. Relatively higher wages don’t matter much if workers aren’t required anyway.

The complaint that China has “stolen jobs from the US” is highly misleading. Over the period 1995-2002, China lost 15 million manufacturing jobs, the US lost 2 million and the whole world lost 22 million manufacturing jobs. The great majority of these jobs were lost to automation and other productivity-enhancing innovations. As one leading researcher points out, Manufacturing will go to the countries whose companies win the race to automate.. (Rick Schneider, Robotic Automation Can Cut Costs, Manufacturing Engineering, November, 2005) International automation competition is set to replace wage competition. As I write, the developing countries are automating at a hasty pace as wages rise there.

It is clear that the displacement of labor by machines is a long-term tendency of capitalist development which will be apparent on a global scale. Keynes argued that the disappearance of private sources of employment should be offset by the expansion of public employment in public works programs. That’s much of what Keyness insistence upon the “socialization of investment” is about. It is remarkable that J-B Say, the arch-target of Keynes’s critique of the conceit that capitalist markets tend toward equilibrium (Says Law: Supply creates its own demand), should have advocated public works as the rational response to technology-related unemployment. In A Treatise on Political Economy (1832) Say wrote that a benevolent administration can make prevision for the employment of supplanted or inactive labor in the construction of works of public utility at the public expense as of canals, roads, churches or the like... How about that? Yes, a benevolent administration could do just that, but…

The Unfolding Logic of Capital

At bottom, we are looking at the long-term logic of capital. Under capitalism means of production, capital goods, count as costs of production. There is system-endogenous pressure to produce capital goods that are both cheaper to purchase and more efficient. Commentators tend to ignore the former feature of capital innovations. But this feature is no less important than greater efficiency in explaining employers attraction to digital technologies and robotics. The price of ever-more-efficient computers has fallen precipitously over the years. And robots are made by robots, a cost-reducing leap forward. Capital’s motivation to depend more on computers and robots and less on human labor is irresistible. It’s no news that workers are the major pain in capital’s ass. They strike, slow down, get sick, demand a greater share of what would otherwise belong to capital, stubbornly insist on lunch breaks - it never ends. Capital’s wettest dream has been to be able to make money by making money, without that bothersome business of production, scrambling to sell the product and dealing with recalcitrant workers. Financialization has made part of that dream come true. Robots and computers could take care of the rest.

The historical tendency of capital to abhor the human contribution to production and productivity goes way, way back. There is a continuity from craftsmen making an elegant cabinet with hand-scrolled legs to Ikea. The replacement of the spindle and the distaff by the spinning wheel long predates the Industrial Revolution. Increased mechanization may have the same effect on industry and services that farming technology had on agriculture. In 1900 agricultural workers comprised over 38 percent of US employment. Today, they make up 2 percent of the work force and produce more of the world’s food than ever.

We have reached the point at which labor is becoming increasingly obsolete for the purposes of reaping profit. The production of both goods and services is rapidly becoming more capital intensive. Paul Krugman has pointed out, in a recent column on the “notable shift in income away from labor, that automation intensifies the tendency to inequality inherent in neoliberal capitalism: It’s capital-biased technological change which tends to shift the distribution of income away from workers to the owners of capital.” (Rise of the Robots, The New York Times. Dec. 8, 2012) Krugman confesses that he had until recently overlooked the inequality between capital and labor by having focused instead on major changes in income distribution among workers (when you include hedge fund managers and CEOs among the workers) You read that right: “when you include hedge fund managers and CEOs among the workers!” These are the lengths to which permissible thinking goes in order to head off talk of class conflict. It’s a form of intellectual self-censorship; that’s how political self-deception works.

Krugman further “fesses up” that his current view has echoes of old-fashioned Marxism - which shouldn’t be a reason to ignore FACTS, but too often is. He should know. Shouldn’t Krugman conclude that Marxism ist so “old-fashioned” after all?

Marxian analysis is especially well equipped to size up the developments discussed in this article in a particularly fresh and creative way. The continuously astonishing way in which capitalism increases the productivity of labor, and so makes labor decreasingly necessary in order to satisfy the material requirements of life, is an adumbration of what human beings can become. Technological unemployment needn’t be catastrophic - but it will be under capitalism. In an alternative economic-systemic context, the obsolescence of labor can be emancipatory, the creation of free time to enable us to do what only the human species can - develop a broad range of capacities and pursue a range of satisfactions available only to humans: to be a sculptor in the morning, a philosopher in the afternoon and a musician in the evening (to paraphrase the Old Man before he was old). How odd that we should have these capacities only to live under social arrangements that preclude their realization. Under present political-economic circumstances the capacities that partially define human nature itself must lie dormant. It’s downright unnatural. Both Aristotle and Kant would have concurred with Marx that this kind of repression must damage our souls. Socialist aspirations, then, are by no means utopian, a mere better idea. Capitalism itself puts them on history’s agenda and reveals them to be necessary if we are to be in the end fully human.

NOTES

(1) I do not use “structural” here in the currently most common use of the term in connection with unemployment, connoting a mismatch between needed skills and those actually offered by job seekers. I use the term to refer to capitalism’s endogenous systemic dynamics.

(2) See Jaimovich, Nir and Siu, Henry E., “The Trend is the Cycle: Job Polarization and Jobless Recoveries,” National Bureau of Economic Research Working Paper No. 1, August 14, 2012 PAPER ; Autor D.H. and Dorn, D., “The Growth of Low Skill Service Jobs and the Polarization of the US Labor Market,” American Economic Review, forthcoming; Autor, D.H., Levy, F., and Murnane, R.J., “The Skill Content of Recent Technological Change: An Empirical Exploration,” Quarterly Journal of Economics 118 (4); Autor D.H., Katz, L.F., Kearney, M.S., The Polarization of the US Labor Market,” American Economic Review: Papers & Proceedings, 2006, (96)2; National Employment Law Project, “The Low Wage Recovery and Growing Inequality,” Data Brief, August 2012; Brynjolfsson, Erik and McAfee, Andrew, Race Against the Machine, Digital Frontier Press, 2011

(3) See this GRAPH

Alan Nasser is professor emeritus of Political Economy and Philosophy at The Evergreen State College. His website is HERE His book, “The New Normal”: Persistent Austerity, Declining Democracy and the Globalization of Resistance will be published by Pluto Press in 2013. If you would like to be notified when the book is released, please send a request to nassera at evergreen.edu

SOURCE

The Politics of Debt

Richistan wealth may prove artificial and crash, bringing an end to the new Gilded Age. But the plight of the rich in distress will never compare to the decimation of America’s middle class. The offshoring of American jobs has destroyed opportunities for generations of Americans.  Never before in our history has the elite had such control over the government.  To run for national office requires many millions of dollars, the raising of which puts our elected representatives and our president himself at the beck and call of the few moneyed interests that financed the campaigns. America as the land of opportunity has passed into history.
- Return Of The Robber Barons, Paul Craig Roberts, August 2007

The Politics of Debt in America

By Steve Fraser
Tom Dispatch
January 29, 2013

Shakespeares Polonius offered this classic advice to his son: “neither a borrower nor a lender be.” Many of our nation’s Founding Fathers emphatically saw it otherwise.  They often lived by the maxim: always a borrower, never a lender be.  As tobacco and rice planters, slave traders, and merchants, as well as land and currency speculators, they depended upon long lines of credit to finance their livelihoods and splendid ways of life.  So, too, in those days, did shopkeepers, tradesmen, artisans, and farmers, as well as casual laborers and sailors.  Without debt, the seedlings of a commercial economy could never have grown to maturity.

Ben Franklin, however, was wary on the subject. “Rather go to bed supperless than rise in debt” was his warning, and even now his cautionary words carry great moral weight.  We worry about debt, yet we cant live without it.

Debt remains, as it long has been, the Dr. Jekyll and Mr. Hyde of capitalism.  For a small minority, it’s a blessing; for others a curse.  For some the moral burden of carrying debt is a heavy one, and no one lets them forget it.  For privileged others, debt bears no moral baggage at all, presents itself as an opportunity to prosper, and if things go wrong can be dumped without a qualm.

Those who view debt with a smiley face as the royal road to wealth accumulation and tend to be forgiven if their default is large enough almost invariably come from the top rungs of the economic hierarchy.  Then there are the rest of us, who get scolded for our impecunious ways, foreclosed upon and dispossessed, leaving behind scars that never fade away and wounds that disable our futures.

Think of this upstairs-downstairs class calculus as the politics of debt.  British economist John Maynard Keynes put it like this: “If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.”

After months of an impending DEBTPOCALYPSE, the dreaded “debt ceiling,” and the “fiscal cliff,” Americans remain preoccupied with debt, public and private.  Austerity is what were promised for our sins. Millions are drowning, or have already drowned, in a sea of debt—mortgages gone bad, student loans that may never be paid off, spiraling credit card bills, car loans, payday loans, and a menagerie of new-fangled financial mechanisms cooked up by the country’s financial engineers to milk whats left of the American standard of living. 

The world economy almost came apart in 2007-2008, and still may do so under the whale-sized carcass of debt left behind by financial plunderers who found in debt the leverage to get ever richer.  Most of them still live in their mansions and McMansions, while other debtors live outdoors, or in cars or shelters, or doubled-up with relatives and friends—or even in DEBTOR’S PRISON. Believe it or not, a version of debtor’s prison, that relic of early American commercial barbarism, is back.

In 2013, you cant actually be jailed for not paying your bills, but ingenious corporations, collection agencies, cops, courts, and lawyers have devised WAYS to insure that debt delinquents” will end up in jail anyway. With one-third of the states now allowing the jailing of debtors (without necessarily calling it that), it looks ever more like a trend in the making.

Will Americans tolerate this, or might there emerge a politics of RESISTANCE TO DEBT, as has happened more than once in a past that shouldn’t be forgotten? 

The World of Debtors Prisons

Imprisonment for debt was a commonplace in colonial America and the early republic, and wasn’t abolished in most states until the 1830s or 1840s, in some cases not until after the Civil War.  Today, we think of it as a peculiar and heartless way of punishing the poor—and it was.  But it was more than that.

Some of the richest, most esteemed members of society also ended up there, men like Robert Morris, who helped finance the American Revolution and ran the Treasury under the Articles of Confederation; John Pintard, a stock-broker, state legislator, and founder of the New York Historical Society; William Duer, graduate of Eton, powerful merchant and speculator, assistant secretary in the Treasury Department of the new federal government, and master of a Hudson River manse; a Pennsylvania Supreme Court judge; army generals; and other notables.

Whether rich or poor, you were there for a long stretch, even for life, unless you could figure out some way of discharging your debts.  That, however, is where the similarity between wealthy and impoverished debtors ended.

Whether in the famous Marshalsea in London where Charles Dickens had Little Dorritts father incarcerated (and where Dickens’s father had actually languished when the author was 12), or in the New Gaol in New York City, where men like Duer and Morris did their time, debtors prisons were segregated by class.  If your debts were large enough and your social connections weighty enough (the two tended to go together) you lived comfortably.  You were supplied with good food and well-appointed living quarters, as well as books and other pleasures, including on occasion manicurists and prostitutes.

Robert Morris entertained George Washington for dinner in his cell. Once released, he resumed his career as the new nations richest man.  Before John Pintard moved to New Gaol, he redecorated his cell, had it repainted and upholstered, and shipped in two mahogany writing desks.

Meanwhile, the mass of petty debtors housed in the same institution survived, if at all, amid squalor, filth, and disease.  They were often shackled, and lacked heat, clean water, adequate food, or often food of any kind.  (You usually had to have the money to buy your own food, clothing, and fuel.) Debtors in these prisons frequently found themselves quite literally dying of debt.  And you could end up in such circumstances for trivial sums.  Of the 1,162 jailed debtors in New York City in 1787, 716 owed less than twenty shillings or one pound.  A third of Philadelphia’s inmates in 1817 were there for owing less than $5, and debtors in the citys prisons outnumbered violent criminals by 5:1.  In Boston, 15% of them were women.  Shaming was more the point of punishment than anything else.

Scenes of public pathos were commonplace.  Inmates at the New Gaol, if housed on its upper floors, would lower shoes out the windowon strings to collect alms for their release.  Other prisons installed “beggar gates” through which those jailed in cellar dungeons could stretch out their palms for the odd coins from passersby.

Poor and rich alike wanted out.  Pamphleteering against the institution of debtor’s prison began in the 1750s.  An Anglican minister in South Carolina denounced the jails, noting that a person would be in a better situation in the French King’s Gallies, or the Prisons of Turkey or Barbary than in this dismal place.  Discontent grew.  A mass escape from New Gaol of 40 prisoners armed with pistols and clubs was prompted by extreme hunger.

In the 1820s and 1830s, as artisans, journeymen, sailors, longshoremen, and other workers organized the early trade union movement as well as workingmen’s political parties, one principal demand was for the abolition of imprisonment for debt.  Inheritors of a radical political culture, their complaints echoed that Biblical tradition of Jubilee mentioned in Leviticus, which called for a cancellation of debts, the restoration of lost houses and land, and the freeing of slaves and bond servants every 50 years.

Falling into debt was a particularly ruinous affliction for those who aspired to modest independence as shopkeepers, handicraftsmen, or farmers.  As markets for their goods expanded but became ever less predictable, they found themselves taking out credit to survive and sometimes going into arrears, often followed by a stint in debtors prison that ended their dreams forever.

However much the poor organized and protested, it was the rich who got debt relief first.  Today, we assume that debts can be discharged through bankruptcy (although EVEN NOW that option is either severely restricted or denied to certain classes of less favored debt delinquents like college students).  Although the newly adopted U.S. Constitution opened the door to a national bankruptcy law, Congress didn’t walk through it until 1800, even though many, including the well-off, had been lobbying for it.

Enough of the old moral faith that frowned on debt as sinful lingered.  The United States has always been an uncharitable place when it comes to debt, a curious attitude for a society largely settled by absconding debtors and indentured servants (a form of time-bound debt peonage).  Indeed, the state of Georgia was founded as a debtors haven at a time when EnglandҒs jails were overflowing with debtors.

When Congress finally passed the Bankruptcy Act, those in the privileged quarters at New Gaol threw a party.  Down below, however, life continued in its squalid way, since the new law only applied to people who had sizable debts.  If you owed too little, you stayed in jail.

Debt and the Birth of a Nation

Nowadays, the conservative media inundate us with warnings about debt from the Founding Fathers, and its true that some of them like Jefferson—himself an inveterate, often near-bankrupt debtor—did moralize on the subject.  However, Alexander Hamilton, an idol of the conservative movement, was the architect of the country’s first national debt, insisting that if it is not excessive, [it] will be to us a “national blessing.”

As the first Secretary of the Treasury, Hamilton’s goal was to transform the former 13 colonies, which today we would call an underdeveloped land, into a country that someday would rival Great Britain.  This, he knew, required liquid capital (resources not tied up in land or other less mobile forms of wealth), which could then be invested in sometimes highly speculative and risky enterprises.  Floating a national debt, he felt sure, would attract capital from well-positioned merchants at home and abroad, especially in England.

However, for most ordinary people living under the new government, debt aroused anger.  To begin with, there were all those veterans of the Revolutionary War and all the farmers who had supplied the revolutionary army with food and been paid in notoriously worthless “continentals”—the currency issued by the Continental Congress—or equally valueless state currencies.

As rumors of the formation of a new national government spread, speculators roamed the countryside buying up this paper money at a penny on the dollar, on the assumption that the debts they represented would be redeemed at face value.  In fact, that is just what Hamilton’s national debt would do, making these sunshine patriots quite rich, while leaving the yeomanry impoverished.

Outrage echoed across the country even before Hamiltons plan got adopted.  Jefferson denounced the currency speculators as loathsome creatures and had this to say about debt in general: ӒThe modern theory of the perpetuation of debt has drenched the earth with blood and crushed its inhabitants under burdens ever accumulating.  He and others denounced the speculators as squadrons of counter-revolutionary moneycrats who would use their power and wealth to undo the democratic accomplishments of the revolution.

In contrast, Hamilton saw them as a disinterested monied elite upon whom the country’s economic well-being depended, while dismissing the criticisms of the Jeffersonians as the ravings of Jacobin levelers.  Soon enough, political warfare over the debt turned founding fathers into fratricidal brothers. 

Hamilton’s plan worked—sometimes too well.  Wealthy speculators in land like Robert Morris, or in the building of docks, wharves, and other projects tied to trade, or in the national debt itself—something William Duer and grandees like him specialized in—seized the moment.  Often enough, however, they over-reached and found themselves, like the yeomen farmers and soldiers, in default to their creditors.

Duer’s attempts to corner the market in the bonds issued by the new federal government and in the stock of the country’s first National Bank represented one of the earliest instances of insider trading.  They also proved a lurid example of how speculation could go disastrously wrong. When the scheme collapsed, it caused the country’s first Wall Street panic and a local depression that spread through New England, ruining shopkeepers, widows, orphans, butchers… gardeners, market women, and even the noted Bawd Mrs. McCarty.

A mob chased Duer through the streets of New York and might have hanged or disemboweled him had he not been rescued by the city sheriff, who sent him to the safety of debtors prison.  John Pintard, part of the same scheme, fled to Newark, New Jersey, before being caught and jailed as well.

Sending the Duers and Pintards of the new republic off to debtorsӒ prison was not, however, quite what Hamilton had in mind.  And leaving them rotting there was hardly going to foster the enterprising spirit that would, in the treasury secretarys estimation, turn the country into the Great Britain of the next century.  Bankruptcy, on the other hand, ensured that the overextended could start again and keep the machinery of commercial transactions lubricated.  Hence, the Bankruptcy Act of 1800.

If, however, you were not a major player, debt functioned differently. Shouldered by the hoi polloi, it functioned as a mechanism for funneling wealth into the mercantile-financial hothouses where American capitalism was being incubated.

No wonder debt excited such violent political emotions.  Even before the Constitution was adopted, farmers in western Massachusetts, indebted to Boston bankers and merchants and in danger of losing their ancestral homes in the economic hard times of the 1780s, rose in armed rebellion.  In those years, the number of lawsuits for unpaid debt doubled and tripled, farms were seized, and their owners sent off to jail.  Incensed, farmers led by a former revolutionary soldier, Daniel Shays, closed local courts by force and liberated debtors from prisons.  Similar but smaller uprisings erupted in Maine, Connecticut, New York, and Pennsylvania, while in New Hampshire and Vermont irate farmers surrounded government offices.

Shays’ Rebellion of 1786 alarmed the country’s elites.  They depicted the unruly yeomen as “brutes” and their houses as “sties.” They were frightened as well by state governments like Rhode Islands that were more open to popular influence, declared debt moratoria, and issued paper currencies to help farmers and others pay off their debts.  These developments signaled the need for a stronger central government fully capable of suppressing future debtor insurgencies.

Federal authority established at the Constitutional Convention allowed for that, but the unrest continued.  Shays’ Rebellion was but part one of a trilogy of uprisings that continued into the 1790s.  The Whiskey Rebellion of 1794 was the most serious.  An excise tax (whiskey tax) meant to generate revenue to back up the national debt threatened the livelihoods of farmers in western Pennsylvania who used whiskey as a Ӕcurrency in a barter economy.  President Washington sent in troops, many of them Revolutionary War veterans, with Hamilton at their head to put down the rebels.

Debt Servitude and Primitive Accumulation

Debt would continue to play a vital role in national and local political affairs throughout the nineteenth century, functioning as a form of capital accumulation in the financial sector, and often sinking pre-capitalist forms of life in the process.

Before and during the time that capitalists were fully assuming the prerogatives of running the production process in field and factory, finance was building up its own resources from the outside.  Meanwhile, the mechanisms of public and private debt made the lives of farmers, craftsmen, shopkeepers, and others increasingly insupportable.

This parasitic economic metabolism helped account for the riotous nature of Gilded Age politics. Much of the high drama of late nineteenth-century political life circled around “greenbacks,” “free silver,” and “the gold standard.” These issues may strike us as arcane today, but they were incendiary then, threatening what some called a “second Civil War.” In one way or another, they were centrally about debt, especially a system of indebtedness that was driving the independent farmer to extinction.

All the highways of global capitalism found their way into the trackless vastness of rural America.  Farmers there were not in dire straits because of their backwoods isolation.  On the contrary, it was because they turned out to be living at Ground Zero, where the explosive energies of financial and commercial modernity detonated.  A toxic combination of railroads, grain-elevator operators, farm-machinery manufacturers, commodity-exchange speculators, local merchants, and above all the banking establishment had the farmer at their mercy.  His helplessness was only aggravated when the nineteenth-century version of globalization left his crops in desperate competition with those from the steppes of Canada and Russia, as well as the outbacks of Australia and South America.

To survive this mercantile onslaught, farmers hooked themselves up to long lines of credit that stretched back to the financial centers of the East.  These lifelines allowed them to buy the seed, fertilizer, and machines needed to farm, pay the storage and freight charges that went with selling their crops, and keep house and home together while the plants ripened and the hogs fattened.  When market day finally arrived, the farmer found out just what all his backbreaking work was really worth.  If the news was bad, then those credit lines were shut off and he found himself dispossessed.

The family farm and the network of small town life that went with it were being washed into the rivers of capital heading for metropolitan America.  On the sod house frontier, poverty was a “badge of honor” which decorated all.  In his Devil’s Dictionary, the acid-tongued humorist Ambrose Bierce defined the dilemma this way: “Debt. n. An ingenious substitute for the chain and whip of the slave-driver.”

Across the Great Plains and the cotton South, discontented farmers spread the blame for their predicament far and wide.  Anger, however, tended to pool around the strangulating system of currency and credit run out of the banking centers of the northeast. Beginning in the 1870s with the emergence of the Greenback Party and Greenback-Labor Party and culminating in the 1890s with the Peoples or Populist Party, independent farmers, tenant farmers, sharecroppers, small businessmen, and skilled workers directed ever more intense hostility at Ԓthe money power.

That power might appear locally in the homeliest of disguises.  At coal mines and other industrial sites, among coolies working to build the railroads or imported immigrant gang laborers and convicts leased to private concerns, workers were typically compelled to buy what they needed in company scrip at company stores at prices that left them perpetually in debt.  Proletarians were so precariously positioned that going into debt—whether to pawnshops or employers, landlords or loan sharks—was unavoidable.  Often they were paid in kind: wood chips, thread, hemp, scraps of canvas, cordage: nothing, that is, that was of any use in paying off accumulated debts.  In effect, they were, as they called themselves, debt slaves.

In the South, hard-pressed growers found themselves embroiled in a crop-lien system, dependent on the local furnishing agent to supply everything needed, from seed to clothing to machinery, to get through the growing season.  In such situations, no money changed hands, just a note scribbled in the merchant’s ledger, with payment due at settling up time.  This granted the lender a lien, or title, to the crop, a lien that never went away.

In this fashion, the South became a great “pawn shop,” with farmers perpetually in debt at interest rates exceeding 100% per year.  In Alabama, Georgia, and Mississippi, 90% of farmers lived on credit.  The first lien you signed was essentially a life sentence.  Either that or you became a tenant farmer, or you simply left your land, something so commonplace that everyone knew what the letters G.T.T. on an abandoned farmhouse meant: “Gone to Texas.” (One hundred thousand people a year were doing that in the 1870s.)

The merchants exaction was so steep that African-Americans and immigrants in particular were regularly reduced to peonage—forced, that is, to work to pay off their debt, an illegal but not uncommon practice.  And that neighborhood furnishing agent was often tied to the banks up north for his own lines of credit.  In this way, the sucking sound of money leaving for the great metropolises reverberated from region to region.

Facing dispossession, farmers formed alliances to set up cooperatives to extend credit to one another and market crops themselves.  As one Populist editorialist remarked, this was the way mortgage-burdened farmers can assert their freedom from the tyranny of organized capital.  But when they found that these groupings couldn’t survive the competitive pressure of the banking establishment, politics beckoned.

From one presidential election to the next and in state contests throughout the South and West, irate grain and cotton growers demanded that the government expand the paper currency supply, those greenbacks, also known as the people’s money, or that it monetize silver, again to enlarge the money supply, or that it set up public institutions to finance farmers during the growing season.  With a passion hard for us to imagine, they railed against the “gold standard” which, in Democratic Party presidential candidate William Jennings Bryan’s famous cry, should no longer be allowed to crucify mankind on a cross of gold.

Should that cross of gold stay fixed in place, one Alabama physician prophesied, it would reduce the American yeomanry to menials and paupers, to be driven by monopolies like cattle and swine.ԓ As Election Day approached, populist editors and speakers warned of an approaching war with the money power, and they meant it.  “The fight will come and let it come!”

The idea was to force the government to deliberately inflate the currency and so raise farm prices.  And the reason for doing that?  To get out from under the sea of debt in which they were submerged.  It was a cry from the heart and it echoed and re-echoed across the heartland, coming nearer to upsetting the established order than any American political upheaval before or since.

The passion of those populist farmers and laborers was matched by that of their enemies, men at the top of the economy and government for whom debt had long been a road to riches rather than destitution.  They dismissed their foes as “cranks” and “calamity howlers.” And in the election of 1896, they won.  Bryan went down to defeat, gold continued its pitiless process of crucifixion, and a whole human ecology was set on a path to extinction.

The Return of Debt Servitude

When populism died, debt—as a spark for national political confrontation—died, too.  The great reform eras that followed—Progessivism, the New Deal, and the Great Society—were preoccupied with inequality, economic collapse, exploitation in the workplace, and the outsized nature of corporate power in a consolidated industrial capitalist system.

Rumblings about debt servitude could certainly still be heard.  Foreclosed farmers during the Great Depression mobilized, held penny auctions to restore farms to families, hanged judges in effigy, and forced Prudential Insurance Company, the largest land creditor in Iowa, to suspend foreclosures on 37,000 farms (which persuaded Metropolitan Life Insurance Company to do likewise).  A Kansas City realtor was shot in the act of foreclosing on a family farm, a country sheriff kidnapped while trying to evict a farm widow and dumped 10 miles out of town, and so on.

Urban renters and homeowners facing eviction formed neighborhood groups to stop the local sheriff or police from throwing families out of their houses or apartments. Furniture tossed into the street in eviction proceedings would be restored by neighbors, who would also turn the gas and electricity back on.  New Deal farm and housing finance legislation bailed out banks and homeowners alike.  Right-wing populists like the Catholic priest Father Charles Coughlin carried on the war against the gold standard in tirades tinged with anti-Semitism.  Signs like one in Nebraska—“The Jew System of Banking” (illustrated with a giant rattlesnake)—showed up too often.

But the age of primitive accumulation in which debt and the financial sector had played such a strategic role was drawing to a close.

Today, we have entered a new phase.  What might be called capitalist underdevelopment and once again debt has emerged as both the central mode of capital accumulation and a principal mechanism of servitude.  Warren Buffett (of all people) has predicted that, in the coming decades, the United States is more likely to turn into a sharecropper society than an ownership society.

In our time, the financial sector has enriched itself by devouring the productive wherewithal of industrial America through debt, starving the public sector of resources, and saddling ordinary working people with every conceivable form of consumer debt.

Household debt, which in 1952 was at 36% of total personal income, had by 2006 hit 127%.  Even financing poverty became a lucrative enterprise.  Taking advantage of the low credit ratings of poor people and their need for cash to pay monthly bills or simply feed themselves, some check-cashing outlets, payday lenders, tax preparers, and others levy interest of 200% to 300% and more.  As recently as the 1970s, a good part of this would have been considered illegal under usury laws that no longer exist.  And these poverty creditors are often tied to the largest financiers, including Citibank, Bank of America, and American Express.

Credit has come to function as a plastic safety net in a world of job insecurity, declining state support, and slow-motion economic growth, especially among the elderly, young adults, and low-income families.  More than half the pre-tax income of these three groups goes to servicing debt.  Nowadays, however, the company store is headquartered on Wall Street.

Debt is driving this system of auto-cannibalism which, by every measure of social wellbeing, is relentlessly turning a developed country into an underdeveloped one.

Dr. Jekyll and Mr. Hyde are back.  Is a political resistance to debt servitude once again imaginable?

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