As the world trembles while witnessing the terrible aftermath of the earthquake and tsunami that recently hit Japan and specifically the possible meltdowns of several nuclear reactors that were directly in the path of the tsunami wave, it is natural to ask about the safety systems in place for America’s nuclear power generating facilities. Some of what we are asking ourselves surrounds such issues as: What safety procedures are in place at our nuclear plants and is there any amount of engineering that can plan for the multitude of disaster scenarios that are playing out in Japan today? What should the Japanese nuclear reactor crisis mean to America and the rest of the world?
The hydrogen explosions, melting fuel rods and radiation leaks at Japan’s Fukushima Daiichi nuclear plant are having an immediate impact on perceptions of nuclear power worldwide as many countries are desperately searching for alternatives to fossil fuels. Safety has always been and will continue to be a major concern, particularly now as emergency workers in Japan continue struggling to keep spent fuel rods that were stored on site at Fukushima Daiichi from melting down.
Even before this latest disaster in the world of nuclear powered energy could be brought under control and investigated, Germany, earlier this week became the first European country to shut down seven of its nuclear plants that went online prior to 1980 in the wake of the crisis in Japan as the European Union almost simultaneously announced plans to test all 143 nuclear power plants in its 27 countries.
In the United States, the Nuclear Regulatory Commission (NRC) announced this past Thursday that it was cancelling next week’s meeting to discuss a restart of Progress Energy’s Crystal River plant on Florida’s west coast after the company reported problems with repair work on a containment wall. Crystal River shut down in the fall of 2009 for “a planned refueling that included the replacement of steam generators.” To install the new generators, workers needed to remove concrete in the containment wall and it was during this task that they discovered “a gap” in the wall.
Entergy Corporation, which just last week had received NRC approval for a 20-year operating license extension at its Vermont Yankee plant, must now, in the wake of Japan’s crisis obtain final approval from Vermont lawmakers, who in 2010 voted against re-licensing the facility after 2012. Three other Entergy nuclear sites, including New York’s controversial Indian Point, are also up for license extensions.
When asked what the incident at the Fukushima Daiichi plant means for the nuclear industry in Japan and the rest of the world, Najmedin Meshkati, a professor of civil, environmental, industrial and systems engineering at the University of Southern California’s Viterbi School of Engineering in Los Angeles made the following response: “It’s too soon to make a judgment on its impact on the nuclear renaissance that started in the United States five or six years ago. The most accurate statement I can make is that it’s going to seriously hamper the expected growth rate of this movement. On the other hand, it’s going to really put more scrutiny on nuclear safety related issues, which is not bad. In particular, the storage of spent nuclear fuel at plant sites should be reexamined. One of the most serious problems happening in Fukushima Daiichi is the spent fuel pool fire at the fourth reactor. We have likewise been storing spent nuclear fuel at our nuclear plant sites since the country first began using nuclear energy. This poses a serious safety problem and a serious safety risk of a terrorist attack to get these materials.”
In 1982, a decision was made by the United States Department of Energy to build a permanent nuclear waste repository. Most Americans can remember that in 2002, President George W. Bush approved Nevada’s Yucca Mountain, approximately 256 miles northwest of Las Vegas, as the site and to move nuclear waste there.
Due to a combination of incompetence, political fighting, partisan bickering and bureaucracy within the Department of Energy however, that site is still in limbo today. One positive outcome of the Japan disaster may very well be that discussions regarding Yucca Mountain as a repository for spent fuel rods might be revived. Had there not been spent fuel stored at the Fukushima plant, the Japanese government might not be faced with so many diverse challenges today.
For all 65 nuclear sites in the U.S. there are resident NRC inspectors at the different sites. When a nuclear site applies for a license extension or for basically getting a new extension on the life of the reactor, they need to go through a very rigorous risk analysis of their “reactor vessel” and other hardware. For example, a reactor vessel becoming brittle is a major issue. Ironically, there has been some discussion in the United States, even before the Japanese crisis, to change this regulation to one that is less rigorous and more “risk-based.”
One of the reasons to use risk-based analysis is to save money and to make regulations more “reasonable.” The risk-based approach gained some popularity during the George W. Bush administration because they wanted to get away from the “heavy hand of the regulator.” But experts like Professor Meshkati question its robustness when quantifying the contributions of human and organizational error to failures within the nuclear industry.
By comparison, the U.S. Federal Aviation Administration (FAA) follows an “absolute decision-making model,” which requires checks of passenger aircraft at prescribed periods. One of these checks occurs every 12 to 18 months, after a specific number of flight hours. During this prescribed inspection, aircraft mechanics and technicians take the aircraft to a maintenance hangar, strip it down and replace any number of parts based on the number of hours of flight—not necessarily waiting until they spot a defect or in response to a part’s failure.
As the world’s third largest economy, Japan is facing more than one kind of meltdown. In its first joint action in over a decade, the Group of Seven (G7) sold yen to halt its rise and help spur Japanese exports. The decision on Friday night (March 18th) to step in and try to control a rapidly appreciating Japanese yen is an indicator of how serious the problem is. The yen spiked to levels not seen since World War II earlier this week, mostly a panic reaction by currency traders, but a potential threat to the Japanese economy as it tries to remain strong and viable.
The reality is that while a strong yen might sound good in and of itself, it also has the impact of making Japanese products more expensive outside of Japan. Toyota has estimated that “for every yen the currency rises against the dollar, the company loses 30 billion yen in earnings” (today’s exchange rate is just around 90 yen equaling one dollar). Consequently, the G7 has stepped in with a plan to sell off yen, pushing it down against the dollar and the Euro.
Just yesterday, Japanese engineers conceded that burying a crippled nuclear reactor in sand and concrete may be the only way to prevent a catastrophic radiation leak. This is in fact, the method used to seal huge leakages from Chernobyl in 1986.
Japanese officials added that they still hoped to repair a power cable to reactors, enabling them to restart water pumps that are desperately needed to cool overheating nuclear fuel rods. Workers also sprayed water on the number three reactor, one of the most critical of the plant’s total of six. This bit of news while sounding positive is also proof that the use of helicopters dumping water on the reactors fuel rods has been thus far, totally unsuccessful.
The plight of hundreds of thousands of Japanese people left homeless by the earthquake and resulting tsunami worsened following a cold snap that has brought heavy snow to the worst-affected areas of the country. Supplies of water, heating oil and fuel are low at evacuation centers where many survivors wait huddled close together and bundled in blankets.
Tohuku Electric Power reported that approximately 30,000 homes in the north of Japan were still without electricity in near-freezing weather while the government added that at least 1.6 million households are without running water.
The National Police Agency reported yesterday that it has confirmed 5,692 deaths from the earthquake and tsunami disaster, while 9,522 are still unaccounted for.
Saturday, March 19, 2011
Thursday, March 10, 2011
How the Political Upheaval in the Middle East Impacts the American Pocketbook
The first thing we must do is separate the wheat from the chaff. Libya is different. Unlike the toppling of dictators in Tunisia and Egypt, and the continuing unrest in Bahrain and yes, Iran, the violence that has erupted in Libya, the 18th largest oil producer in the world, will have a more immediate and sustaining impact on the American pocketbook.
That became all too clear when on March 2nd, the Financial Times reported that half of Libya’s oil producing capacity had shut down, causing an immediate shockwave in the oil industry resulting in oil prices escalating to $100 per barrel. Added to that is the fear that the current turmoil in Libya could spread to other major oil producers in the Middle East such as Saudi Arabia and possibly even Algeria.
As if to fuel the fire (pun intended), TIME Magazine reported last week that Colonel Moammar Gadhafi has also threatened to “blow up” Libyan energy pipelines.
As I shared with you last week, Libya produces just 2 percent of the world’s oil, but, it is some of the world’s most sought after highest quality crude. Today, Libya exports 85 percent of its oil to Europe while only sending five percent of its output to the United States.
On March 2nd, International Energy Agency (IEA) chief economist Fatih Birol said that oil prices are right now in the “danger zone and could rise further if the turbulence continues in the Middle East.”
All of this political upheaval in the Middle East has certainly shed the light on the reality of our dependence on foreign oil and the limits of the oil reserves themselves. While neither Egypt nor Tunisia are meaningful oil producers, Egypt is certainly the region’s chief refiner of crude while Libya is an important oil and gas producer. As we have all learned the hard way, the oil industry is a very complex industry and its performance is driven in large part by how politically stable the planet is. Unfortunately, for as much oil as we consume, Americans have little knowledge of how the oil market functions and we really don’t have any appreciation for oil politics and economics until we pull up to the gas station and are either unable to pump or are forced to pay a huge price.
The unfortunate reality is that we as a people are largely clueless as to the correlation between the oil industry and our lives. We are ridiculously dependent on foreign countries for oil and the oil producing world is rapidly running out of cheap, easy to produce, high-quality sweet crude oil. The oil that is left is of a poor quality, is more expensive to produce and is frighteningly found in forbidding and difficult regions.
Right now, oil prices are escalating because there is a growing sense that the entire Middle East has become horribly unstable and that no one, and I mean no one, has any idea what the outcome will be. As far as Libya goes, it is very hard for the world to absorb even a two percent reduction in oil production. Industrial economies all over the world tremble at the thought of this kind of loss. For many years, oil production and consumption were relatively balanced, but now oil reserves are dwindling while the world is simultaneously consuming more oil. The Chinese people purchased more cars last year than we did here in the United States.
Just watching local news will inform you how the crisis has deepened. Among the first to suffer in an environment of escalating oil prices is the American trucker. They have to pay for their own diesel fuel and they will be unable to absorb the kind or price increases we are beginning to see right now. It cannot be overstated how much merchandise, goods and products truckers move around America. If they become unable to cope with rising oil prices, the goods are not going to make it to the supermarket. If that happens, then the stores have a problem and companies will be unable to pay their employees because without product to sell, there is no income for the supermarket.
If all this was not enough to worry about, there are other scenarios to be frightened of as well. The upheaval in Libya right now will only serve to inflame the region more. The more Colonel Gadhafi resists the wish of his people to step down and the more violence he provokes against his own countrymen, the more it will only anger and inspire people in neighboring countries. Saudi Arabia is extremely vulnerable. The King is over 86 years old and not in the best of health and his successor is over 85! There are branches of the Royal Saudi family that would love to see change at the top. If Saudi Arabia becomes too turbulent, it will be virtually impossible for the oil industry to function there. And, Saudi Arabia is our second largest supplier of oil.
Then there is the issue of “peak oil.” This is the point of maximum oil production, either in a country, region or the world as a whole. Once you peak in your oil production, then the oil producer begins the slippery slide into an “arc of depletion.” Some experts calculate that only about half of the world’s oil supply is left. What causes the most dismay however is the reality that of this oil that is still in the ground, a very large percentage is economically unreachable for one reason or another. Add to that a chaotic international banking system; oil consuming nations are in a state of crisis regarding capital which can only mean that we are struggling to raise the money to even get to what is left out of the ground.
Should you be one of those who think technology will ride to the rescue, think again. The problem of the diminishing returns of the new technologies designed to drill more aggressively by horizontal drilling or even injecting nitrogen or seawater into rock to squeeze every drop of oil out of that rock just ends up depleting the oil fields more. The Saudis have already depleted their fields that way. In fact, they are no longer the number one producer of oil—Russia is.
Some think that we will be able to identify and develop alternative energy sources. This may actually be part of the answer but we need to first finally accept the reality that to drastically reduce our dependency on oil there are behavioral changes we all have to make. Walk more; drive less; bring back America’s trains without necessarily building them to be bullet trains; and turn to public transportation for the vast majority of our intra-city trips.
Of the roughly 16 million barrels a day of crude oil consumed in the U.S., about two-thirds of it ends up being used as fuel for transportation. Until we can figure out a way to run cars on electricity, or make the cars and trucks we drive go further on less fuel, we’ll have a hard time weaning ourselves from oil.
That’s why alternate energy sources like wind and solar – which are used to make electricity – aren’t replacing nearly enough oil fast enough to kick our addiction to crude.
As always, I look forward to sharing with you again next week—right now however, I have to go and gas up.
That became all too clear when on March 2nd, the Financial Times reported that half of Libya’s oil producing capacity had shut down, causing an immediate shockwave in the oil industry resulting in oil prices escalating to $100 per barrel. Added to that is the fear that the current turmoil in Libya could spread to other major oil producers in the Middle East such as Saudi Arabia and possibly even Algeria.
As if to fuel the fire (pun intended), TIME Magazine reported last week that Colonel Moammar Gadhafi has also threatened to “blow up” Libyan energy pipelines.
As I shared with you last week, Libya produces just 2 percent of the world’s oil, but, it is some of the world’s most sought after highest quality crude. Today, Libya exports 85 percent of its oil to Europe while only sending five percent of its output to the United States.
On March 2nd, International Energy Agency (IEA) chief economist Fatih Birol said that oil prices are right now in the “danger zone and could rise further if the turbulence continues in the Middle East.”
All of this political upheaval in the Middle East has certainly shed the light on the reality of our dependence on foreign oil and the limits of the oil reserves themselves. While neither Egypt nor Tunisia are meaningful oil producers, Egypt is certainly the region’s chief refiner of crude while Libya is an important oil and gas producer. As we have all learned the hard way, the oil industry is a very complex industry and its performance is driven in large part by how politically stable the planet is. Unfortunately, for as much oil as we consume, Americans have little knowledge of how the oil market functions and we really don’t have any appreciation for oil politics and economics until we pull up to the gas station and are either unable to pump or are forced to pay a huge price.
The unfortunate reality is that we as a people are largely clueless as to the correlation between the oil industry and our lives. We are ridiculously dependent on foreign countries for oil and the oil producing world is rapidly running out of cheap, easy to produce, high-quality sweet crude oil. The oil that is left is of a poor quality, is more expensive to produce and is frighteningly found in forbidding and difficult regions.
Right now, oil prices are escalating because there is a growing sense that the entire Middle East has become horribly unstable and that no one, and I mean no one, has any idea what the outcome will be. As far as Libya goes, it is very hard for the world to absorb even a two percent reduction in oil production. Industrial economies all over the world tremble at the thought of this kind of loss. For many years, oil production and consumption were relatively balanced, but now oil reserves are dwindling while the world is simultaneously consuming more oil. The Chinese people purchased more cars last year than we did here in the United States.
Just watching local news will inform you how the crisis has deepened. Among the first to suffer in an environment of escalating oil prices is the American trucker. They have to pay for their own diesel fuel and they will be unable to absorb the kind or price increases we are beginning to see right now. It cannot be overstated how much merchandise, goods and products truckers move around America. If they become unable to cope with rising oil prices, the goods are not going to make it to the supermarket. If that happens, then the stores have a problem and companies will be unable to pay their employees because without product to sell, there is no income for the supermarket.
If all this was not enough to worry about, there are other scenarios to be frightened of as well. The upheaval in Libya right now will only serve to inflame the region more. The more Colonel Gadhafi resists the wish of his people to step down and the more violence he provokes against his own countrymen, the more it will only anger and inspire people in neighboring countries. Saudi Arabia is extremely vulnerable. The King is over 86 years old and not in the best of health and his successor is over 85! There are branches of the Royal Saudi family that would love to see change at the top. If Saudi Arabia becomes too turbulent, it will be virtually impossible for the oil industry to function there. And, Saudi Arabia is our second largest supplier of oil.
Then there is the issue of “peak oil.” This is the point of maximum oil production, either in a country, region or the world as a whole. Once you peak in your oil production, then the oil producer begins the slippery slide into an “arc of depletion.” Some experts calculate that only about half of the world’s oil supply is left. What causes the most dismay however is the reality that of this oil that is still in the ground, a very large percentage is economically unreachable for one reason or another. Add to that a chaotic international banking system; oil consuming nations are in a state of crisis regarding capital which can only mean that we are struggling to raise the money to even get to what is left out of the ground.
Should you be one of those who think technology will ride to the rescue, think again. The problem of the diminishing returns of the new technologies designed to drill more aggressively by horizontal drilling or even injecting nitrogen or seawater into rock to squeeze every drop of oil out of that rock just ends up depleting the oil fields more. The Saudis have already depleted their fields that way. In fact, they are no longer the number one producer of oil—Russia is.
Some think that we will be able to identify and develop alternative energy sources. This may actually be part of the answer but we need to first finally accept the reality that to drastically reduce our dependency on oil there are behavioral changes we all have to make. Walk more; drive less; bring back America’s trains without necessarily building them to be bullet trains; and turn to public transportation for the vast majority of our intra-city trips.
Of the roughly 16 million barrels a day of crude oil consumed in the U.S., about two-thirds of it ends up being used as fuel for transportation. Until we can figure out a way to run cars on electricity, or make the cars and trucks we drive go further on less fuel, we’ll have a hard time weaning ourselves from oil.
That’s why alternate energy sources like wind and solar – which are used to make electricity – aren’t replacing nearly enough oil fast enough to kick our addiction to crude.
As always, I look forward to sharing with you again next week—right now however, I have to go and gas up.
Friday, March 4, 2011
Let's Start With the Basics
For those of you who did not read my blog last week (shame on you), this is how I ended the post, “The constant in this whole crisis is that when gasoline costs more it has a negative effect on economic growth. Almost all economic activities include the use of oil in one form or another. Consequently, when the price of oil begins getting high, it motivates all of us to start cutting back on many of these activities. What then is the answer? I have no idea.”
When I wrote those words, I thought, “Hey, I never said I always have the answer. It is ok to every now and then simply not have a clue.”
Since last Thursday however, I have had somewhat of a change of heart. So I began practically the next day doing what I do best—research. And while I still do not have all the answers, I think I do have the beginning of a slightly better understanding of the dynamics of how this most recent Middle East crisis is impacting the American family’s pocketbook. So let’s start with the basics.
A careful analysis of the economic indicators coming out of Western economies today is somewhat confusing. All indicators point to a sluggish but persistent recovery process from the debacle of the worldwide economic disaster of 2007 through 2010 but people are still out of work. Unemployment is still unacceptably high which can mean only one thing—that the numbers are somewhat of a false positive. Core asset values which are those assets that are designed to produce long-term profit growth are not increasing in value. In some cases, they are even decreasing in value, a situation that will not allow sustainable growth on any level.
Regarding banking and financial services, the current set of policies within that sector will ensure banking and financial service profits in the near term which in effect will create wealth for only a very small segment of the American economy. The Obama administration claims it is fighting for the middle class, but is in reality implementing policy that in effect creates wealth for only those at the top of the economic ladder. Meanwhile, the major banks are making money by trading on of all things, U.S. deficits and monetary policy which of course does absolutely nothing for America’s either long or short-term economic health.
Maddeningly, the European Union (EU) has done a better job of handling their sovereign debt and central banking policy. Worse, the Europeans management of their own crisis in part is driven by how poorly we have managed ours and so consequently they have benefited from disastrous U.S. policies. A case in point is how the Germans have continued throughout the crisis to support the EU on one hand, but then take a strong industrialist approach regarding their own economy by staying almost completely away from any kind of government stimulus and have thus become one of the best growth economies in the “non-emerging world.”
The best guess of some pretty smart American economists is that we probably have no more than two years to make drastic changes to deficits, monetary policy and our tax structure if the economy has any hope of long-term and sustainable growth and that when all is said and done, it is not the school teacher or highway worker that will send the U.S. economy into a ditch of depression.
The recent protests that have already resulted in some government turn-over in the Middle East starts with little economic stability within those countries and because their main commodity is oil, Western economies can probably sustain no more than three or four years of less than stable Middle Eastern economies.
On the flip side, the news is not good for America either. China will continue to grow and due to their internal economic demand, should surpass our economy as the world’s top economy within this decade. And as President Obama has stressed over and over the importance of understanding the energy sector, China will continue to operate in unfettered oil, gas and coal utilization operations (not necessarily the best news for the Chinese labor force). The Chinese will also become a major world player in the critical sub-sectors of oil field services (e.g. refining) and more than likely overtake America in this sector-defined technology as well within the next three or four years.
Despite the screaming from the Right and their newly elected charges in both Houses of Congress, the greatest challenge facing the Obama administration today is in fact, the current Middle East crisis. President Obama is walking a fine line between stability and democracy while one of its strongest allies in the Region, the state of Israel, will be in its most vulnerable position since the early seventies because one of the real dangerous outcomes of this current crisis could be that the young people in the street who are idealists and have thus far spearheaded the revolutionary activity throughout the Middle East, could be swept aside by fellow citizens in alliance with radical clerics which might usher in the kind of theological government reminiscent of the Iranian Revolution of 1979. Unemployment, starving, loss of basic freedoms are all ingredients that when mixed together result in revolt so watch closely those countries in the Middle East Region with the highest unemployment and most fundamental needs.
The Middle East Region has consistently posed strategic dilemmas not only to the United States but also other global players which have strategic interests in the Region. The Middle East has even posed strategic dilemmas to nations of the Middle East themselves.
The United States as the lead player in global power calculus and the Superpower with a constant strategic predominance in the Region should not shy away from the political challenges that are unfolding. The United States has in itself the determination and comprehensive power strengths to carefully help shape the Middle East for greater global good.
The Middle East Region being at a “Tipping Point” as the current political upheaval indicates, demands that the United States correctly read the imperatives that suggest we prudently move to being on the right side of history, unlike our behavior towards Iran in 1979.
More next week specifically on what this all means to our pocketbooks...
When I wrote those words, I thought, “Hey, I never said I always have the answer. It is ok to every now and then simply not have a clue.”
Since last Thursday however, I have had somewhat of a change of heart. So I began practically the next day doing what I do best—research. And while I still do not have all the answers, I think I do have the beginning of a slightly better understanding of the dynamics of how this most recent Middle East crisis is impacting the American family’s pocketbook. So let’s start with the basics.
A careful analysis of the economic indicators coming out of Western economies today is somewhat confusing. All indicators point to a sluggish but persistent recovery process from the debacle of the worldwide economic disaster of 2007 through 2010 but people are still out of work. Unemployment is still unacceptably high which can mean only one thing—that the numbers are somewhat of a false positive. Core asset values which are those assets that are designed to produce long-term profit growth are not increasing in value. In some cases, they are even decreasing in value, a situation that will not allow sustainable growth on any level.
Regarding banking and financial services, the current set of policies within that sector will ensure banking and financial service profits in the near term which in effect will create wealth for only a very small segment of the American economy. The Obama administration claims it is fighting for the middle class, but is in reality implementing policy that in effect creates wealth for only those at the top of the economic ladder. Meanwhile, the major banks are making money by trading on of all things, U.S. deficits and monetary policy which of course does absolutely nothing for America’s either long or short-term economic health.
Maddeningly, the European Union (EU) has done a better job of handling their sovereign debt and central banking policy. Worse, the Europeans management of their own crisis in part is driven by how poorly we have managed ours and so consequently they have benefited from disastrous U.S. policies. A case in point is how the Germans have continued throughout the crisis to support the EU on one hand, but then take a strong industrialist approach regarding their own economy by staying almost completely away from any kind of government stimulus and have thus become one of the best growth economies in the “non-emerging world.”
The best guess of some pretty smart American economists is that we probably have no more than two years to make drastic changes to deficits, monetary policy and our tax structure if the economy has any hope of long-term and sustainable growth and that when all is said and done, it is not the school teacher or highway worker that will send the U.S. economy into a ditch of depression.
The recent protests that have already resulted in some government turn-over in the Middle East starts with little economic stability within those countries and because their main commodity is oil, Western economies can probably sustain no more than three or four years of less than stable Middle Eastern economies.
On the flip side, the news is not good for America either. China will continue to grow and due to their internal economic demand, should surpass our economy as the world’s top economy within this decade. And as President Obama has stressed over and over the importance of understanding the energy sector, China will continue to operate in unfettered oil, gas and coal utilization operations (not necessarily the best news for the Chinese labor force). The Chinese will also become a major world player in the critical sub-sectors of oil field services (e.g. refining) and more than likely overtake America in this sector-defined technology as well within the next three or four years.
Despite the screaming from the Right and their newly elected charges in both Houses of Congress, the greatest challenge facing the Obama administration today is in fact, the current Middle East crisis. President Obama is walking a fine line between stability and democracy while one of its strongest allies in the Region, the state of Israel, will be in its most vulnerable position since the early seventies because one of the real dangerous outcomes of this current crisis could be that the young people in the street who are idealists and have thus far spearheaded the revolutionary activity throughout the Middle East, could be swept aside by fellow citizens in alliance with radical clerics which might usher in the kind of theological government reminiscent of the Iranian Revolution of 1979. Unemployment, starving, loss of basic freedoms are all ingredients that when mixed together result in revolt so watch closely those countries in the Middle East Region with the highest unemployment and most fundamental needs.
The Middle East Region has consistently posed strategic dilemmas not only to the United States but also other global players which have strategic interests in the Region. The Middle East has even posed strategic dilemmas to nations of the Middle East themselves.
The United States as the lead player in global power calculus and the Superpower with a constant strategic predominance in the Region should not shy away from the political challenges that are unfolding. The United States has in itself the determination and comprehensive power strengths to carefully help shape the Middle East for greater global good.
The Middle East Region being at a “Tipping Point” as the current political upheaval indicates, demands that the United States correctly read the imperatives that suggest we prudently move to being on the right side of history, unlike our behavior towards Iran in 1979.
More next week specifically on what this all means to our pocketbooks...
Thursday, February 24, 2011
This time--it is for real!
In 2005, when the price of gasoline soared at the pump, the oil companies shrugged their collective shoulders, claiming the price hike on Hurricane Katrina which had disabled oil refining capacity in Louisiana was the culprit and as we all learned in High School and college, reduced supply increases prices and the higher the demand, the higher the prices. Of course, despite the number of efforts on the part of the oil industry to explain, I could never fully grasp how gasoline sitting in the tanks at the gas station, gas purchased prior to the hurricane would be impacted by Katrina’s damage to refining capacity.
This time however, it just may be for real. As violence escalates in Libya and diplomatic support for ruler Moammar Gadhafi erodes, markets worldwide are on edge.
The price of oil, a key economic indicator, has reached a level not seen since 2008 when economies plunged into recession all over the planet. The unrest in the Middle East that began with the overthrow of the dictatorship in Tunisia and has since quickly spread to Egypt, Yemen, Bahrain, and now Libya has already had an impact on United States markets resulting in the Dow Jones Industrial Average and the Standard and Poors 500 stumbling to new lows. As the price of oil escalates, both the American and global economic recovery, already sluggish at best, is at great risk.
One of the quickest ways to bring down the U.S. economy would be for the price of oil to be suddenly and dramatically increased. Love it or hate it, oil is the very lifeblood of our economic system. Without it in plentiful and cheap supply, our entire economy would slide to a grinding halt. Almost every kind of economic activity in America depends on oil and even a small rise in the price of oil can have a dramatic impact on economic stability and growth. This is exactly why the situation in the Middle East today is so frightening.
A wider view of the situation should in all honesty, include the fact that the people of Tunisia, Egypt, Bahrain and Libya have been living under respective repressive dictatorships for the past half-century and world economy or not, people should have the right to live in a society that allows at least the most basic of human rights, but from a purely economic perspective (and a selfish one as well), the revolution in Libya over the past couple of weeks has caused the price of West Texas Intermediate (WTI) crude to soar more than seven dollars this past Tuesday alone—it closed at $93.57 and Brent crude actually hit $108.78 at the end of the same day.
By way of explanation, according to the International Crude Oil Market Handbook published by the Energy Intelligence Group, there are approximately 161 different internationally traded crude oils. They vary in terms of characteristics such as quality but two crude oils which are either traded themselves or whose prices reflect in other types of crude oil include WTI and Brent.
WTI crude oil is of very high quality and is a natural for the refinement of oil into gasoline. Some oil industry experts refer to WTI as a “Sweet” crude oil and Libya is the 18th largest producer of sweet crude in the world.
The Brent Blend by contrast, is a combination of crude oil from 15 different oil fields located in the North Sea and while it too is commonly referred to as“sweet” crude, it is less so than WTI crude. Brent is also ideal for making gasoline and is sometimes refined here in the U.S. typically on the East Coast or the Gulf Coast.
Oil price analysts are now warning that five dollar a gallon gas in the United States by the end of 2011 is a real possibility, particularly if other Middle East oil producing nations such as Saudi Arabia becomes engulfed in the democratic movement that is sweeping across the Arab Middle East. With that region of the world in such a state of utter chaos right now, it is difficult to predict exactly what is going to happen, but almost everyone agrees that if oil prices continue to rise at a rapid pace over the next several months it is going to have a devastating impact on economic growth all over the globe.
Today, the eyes of the oil consuming nations of the world are on Libya. Libya is the 17th largest oil producer overall on the planet and it has the biggest proven oil reserves on the African continent. While this means that Libya actually only produces two percent of the oil in the world today, the reality is that global supplies are so tight right now that even a minor production disruption would have a dramatically negative impact on the price of oil.
Prior to the recent burst of democratic fervor in the Middle East, Libya was producing approximately 1.6 million barrels of oil per day. Now the rest of us are wondering what may happen if the chaos in Libya spreads to other major oil producing nations in the region such as Kuwait (2.5 million barrels per day) or Saudi Arabia, the mightiest of all oil producers at 8.4 million barrels per day.
If the revolution in Libya spreads to Saudi Arabia resulting in a major disruption, it would spell catastrophe for the global economy. In fact, if this did happen, oil prices could catapult to $200 per barrel certainly causing the global economy to go right into cardiac arrest.
The flip side of this looming disaster is not good either. If the flow of oil from Saudi Arabia is significantly disrupted, there is simply not sufficient spare capacity from the rest of the world to make up for the loss. Paul Horsnell, the head of oil research at Barclay’s Capital, recently stated that the world does not currently have enough spare capacity to be able to guarantee that an oil “price shock” would not happen. “The world has only 4.5 million barrels-per-day (bpd) of spare capacity, which is not comfortable.” Horsnell also said that even in the midst of potential supply challenges, the global demand for oil continues to grow at a robust pace. “In just two years, the world has grown so fast as to consume additional volume equal to the output of Iraq and Kuwait combined.”
The constant in this whole crisis is that when gasoline costs more it has a negative effect on economic growth. Almost all economic activities include the use of oil in one form or another. Consequently, when the price of oil begins getting high, it motivates all of us to start cutting back on many of these activities.
What then is the answer? I have no idea.
This time however, it just may be for real. As violence escalates in Libya and diplomatic support for ruler Moammar Gadhafi erodes, markets worldwide are on edge.
The price of oil, a key economic indicator, has reached a level not seen since 2008 when economies plunged into recession all over the planet. The unrest in the Middle East that began with the overthrow of the dictatorship in Tunisia and has since quickly spread to Egypt, Yemen, Bahrain, and now Libya has already had an impact on United States markets resulting in the Dow Jones Industrial Average and the Standard and Poors 500 stumbling to new lows. As the price of oil escalates, both the American and global economic recovery, already sluggish at best, is at great risk.
One of the quickest ways to bring down the U.S. economy would be for the price of oil to be suddenly and dramatically increased. Love it or hate it, oil is the very lifeblood of our economic system. Without it in plentiful and cheap supply, our entire economy would slide to a grinding halt. Almost every kind of economic activity in America depends on oil and even a small rise in the price of oil can have a dramatic impact on economic stability and growth. This is exactly why the situation in the Middle East today is so frightening.
A wider view of the situation should in all honesty, include the fact that the people of Tunisia, Egypt, Bahrain and Libya have been living under respective repressive dictatorships for the past half-century and world economy or not, people should have the right to live in a society that allows at least the most basic of human rights, but from a purely economic perspective (and a selfish one as well), the revolution in Libya over the past couple of weeks has caused the price of West Texas Intermediate (WTI) crude to soar more than seven dollars this past Tuesday alone—it closed at $93.57 and Brent crude actually hit $108.78 at the end of the same day.
By way of explanation, according to the International Crude Oil Market Handbook published by the Energy Intelligence Group, there are approximately 161 different internationally traded crude oils. They vary in terms of characteristics such as quality but two crude oils which are either traded themselves or whose prices reflect in other types of crude oil include WTI and Brent.
WTI crude oil is of very high quality and is a natural for the refinement of oil into gasoline. Some oil industry experts refer to WTI as a “Sweet” crude oil and Libya is the 18th largest producer of sweet crude in the world.
The Brent Blend by contrast, is a combination of crude oil from 15 different oil fields located in the North Sea and while it too is commonly referred to as“sweet” crude, it is less so than WTI crude. Brent is also ideal for making gasoline and is sometimes refined here in the U.S. typically on the East Coast or the Gulf Coast.
Oil price analysts are now warning that five dollar a gallon gas in the United States by the end of 2011 is a real possibility, particularly if other Middle East oil producing nations such as Saudi Arabia becomes engulfed in the democratic movement that is sweeping across the Arab Middle East. With that region of the world in such a state of utter chaos right now, it is difficult to predict exactly what is going to happen, but almost everyone agrees that if oil prices continue to rise at a rapid pace over the next several months it is going to have a devastating impact on economic growth all over the globe.
Today, the eyes of the oil consuming nations of the world are on Libya. Libya is the 17th largest oil producer overall on the planet and it has the biggest proven oil reserves on the African continent. While this means that Libya actually only produces two percent of the oil in the world today, the reality is that global supplies are so tight right now that even a minor production disruption would have a dramatically negative impact on the price of oil.
Prior to the recent burst of democratic fervor in the Middle East, Libya was producing approximately 1.6 million barrels of oil per day. Now the rest of us are wondering what may happen if the chaos in Libya spreads to other major oil producing nations in the region such as Kuwait (2.5 million barrels per day) or Saudi Arabia, the mightiest of all oil producers at 8.4 million barrels per day.
If the revolution in Libya spreads to Saudi Arabia resulting in a major disruption, it would spell catastrophe for the global economy. In fact, if this did happen, oil prices could catapult to $200 per barrel certainly causing the global economy to go right into cardiac arrest.
The flip side of this looming disaster is not good either. If the flow of oil from Saudi Arabia is significantly disrupted, there is simply not sufficient spare capacity from the rest of the world to make up for the loss. Paul Horsnell, the head of oil research at Barclay’s Capital, recently stated that the world does not currently have enough spare capacity to be able to guarantee that an oil “price shock” would not happen. “The world has only 4.5 million barrels-per-day (bpd) of spare capacity, which is not comfortable.” Horsnell also said that even in the midst of potential supply challenges, the global demand for oil continues to grow at a robust pace. “In just two years, the world has grown so fast as to consume additional volume equal to the output of Iraq and Kuwait combined.”
The constant in this whole crisis is that when gasoline costs more it has a negative effect on economic growth. Almost all economic activities include the use of oil in one form or another. Consequently, when the price of oil begins getting high, it motivates all of us to start cutting back on many of these activities.
What then is the answer? I have no idea.
Thursday, February 17, 2011
A Tale of American Cities
Last week I wrote primarily about the bum rap that public sector employees are getting in Camden, New Jersey and elsewhere and this week the tale just continues.
Just across the river from New Jersey, New York City fell victim to a terrible tabloid tale that mushroomed into a national disgrace. While New Yorkers buried under a succession of blizzards froze and starved in their homes, apparently union leaders pounced on the opportunity to leverage the storm in their contract negotiations with the City.
In his daily harangue against anything progressive, Rupert Murdoch screamed in his newspaper, the New York Post that “The selfish Sanitation bosses who sabotaged the blizzard cleanup to fire a salvo at City Hall targeted politically connected and well-heeled neighborhoods in Queens and Brooklyn to get their twisted message across loud and clear” From the yellowed journalistic pages of the Post, the story exploded across the length and breadth of the media world to such outlets as Investor’s Business Daily and FOX News (No!) and even to Saturday Night Live. The Washington Times, another newspaper that has an affectation for the color yellow, ran an op-ed piece that began, “Cross us and people will die.”
Well, it never happened. The genius who first “broke” the story is Daniel Halloran, a first-year New York City Councilman and Tea Party Republican who is also an adherent of the religion Theodism which suffice to say is a North American variant of Germanic Neo-paganism which seeks to reconstruct the beliefs and practices of several Northern European tribes. Obviously, not a belief embraced by the religious right.
Anyway, back here on earth, a New York Times investigation that wrapped up after most of the snow had melted, found no evidence to support Halloran’s bleating and it turns out that he is not even sure about what he had heard anyway. But, as every victim of a lie knows, the damage had been done and Rupert Murdoch, who is not universally known for correcting his erroneous reporting, failed to run a retraction.
It strikes me as interesting and awfully convenient that stories like this are being promoted as the forces of the Republican Right are, as Charles Loveless, legislative director of the American Federation of State, County and Municipal Employees (AFSCME) stated “readying a massive assault” on the pensions and benefits of these same employees.”
Led by soon to be presidential candidate Newt Gingrich, the Republicans and their Tea Party allies are spreading the argument that states should be allowed to declare bankruptcy as part of an overall strategy to dishonor their pension obligations to firefighters, police officers, teachers and most assuredly, sanitation workers. Gingrich has challenged Congressional Republicans to “move a bill” designed to “create a venue for state bankruptcy.” As if that was not enough, this call for cheating public sector workers out of their pensions was immediately provided academic credibility by University of Pennsylvania law professor David Skeel who wrote in The Weekly Standard, a weekly conservative newspaper, an article entitled “Give States a Way to Go Bankrupt.” He later shared with a reporter that he had “never had anything I’ve written get as much attention as that piece.” He went on to say that he had been contacted by legislators from all over the country.
There are several components to this Republican strategy. Obviously it is intended to blame all of our economic suffering on public sector workers and their unions thereby gaining support from the general public for the final assault on their benefits and pensions. It also serves to intimidate the unions, forcing them to return some of the hard fought for gains in past labor negotiations that without these concessions now, the newly elected government officials and lawmakers would then have no other choice but to appeal to taxpayers with a plan to cut services, raise taxes or both—ensuring that it would be the unions and their public sector employee membership who would be the culprit in any of those options.
Possibly, even more important, it destroys the ability of the unions to attract new members. After all, if the unions cannot even protect the benefits and pensions of its current members, what is the point? With private union membership under ten percent in the United States, public unions remain just about the only viable institution that can bring organizational (numbers of voters) and financial strength to a state or local election, especially a close one. This is particularly critical in light of last year’s U.S. Supreme Court decision opening the money floodgates of corporate America to the electoral process in this country.
This growing assault on public sector employees is the first shot in the battle to steadily dismantle America’s progressive taxation system and the growing chasm between the haves and have nots in our country. Total income going to the wealthiest of Americans has risen from about eight percent in the 1960s to more than 20 percent today. During the George W Bush years, Congress systematically cut taxes on top earners, to say nothing of slashing capital gains and estate taxes.
And now, we have Wisconsin. Wisconsin Governor Scott Walker is attempting to end collective bargaining rights for public employees in Wisconsin and thousands, in an almost eerie likeness to Cairo, have converged on the state capitol in protest of what many consider a radical and blatantly political move. Walker’s plan threatens the rights of all Wisconsin workers and if it prevails in this state, could ultimately threaten the benefits, pensions and collective bargaining rights of public sector employees across the country.
Governor Walker’s so-called “Budget Repair Bill” would eliminate the labor protections gained over decades. It would also unilaterally increase the amount public employees must contribute to pensions and health insurance premiums. Walker has attempted to justify the plan as a necessary, cost-saving measure (while simultaneously reducing state revenues by slashing $5 Billion in taxes). However, “this has nothing to do with the budget deficit” says former U.S. Solicitor of Labor and current Wisconsin Law School emeritus professor Carin Clauss. “A legislative enactment can always establish mandatory employee contributions for pension and health benefits. If that is what the governor needs he can get that without repealing the collective bargaining rights for state and local government employees. This whole thing is ridiculous. It is just an excuse to undermine labor relations.”
Speaking in support of Memphis’ public employees on the day before his assassination, Dr King said, “Now what does all this mean in this great period of history? It means that we’ve got to stay together and maintain unity. You know, whenever Pharaoh wanted to prolong the period of slavery in Egypt, he had a favorite, favorite formula for doing it. What was that? He kept the slaves fighting among themselves. But whenever the slaves got together, something happens in Pharaoh’s court and he cannot hold the slaves in slavery. When the slaves get together, that’s the beginning of getting out of slavery. Now, let us maintain unity.”
Today, more than 30,000 Wisconsin public sector employees massed on the streets right outside the state capitol building as the legislature prepared to vote on his Budget Repair Bill. Scott Walker might just want to take a moment and learn his history.
Just across the river from New Jersey, New York City fell victim to a terrible tabloid tale that mushroomed into a national disgrace. While New Yorkers buried under a succession of blizzards froze and starved in their homes, apparently union leaders pounced on the opportunity to leverage the storm in their contract negotiations with the City.
In his daily harangue against anything progressive, Rupert Murdoch screamed in his newspaper, the New York Post that “The selfish Sanitation bosses who sabotaged the blizzard cleanup to fire a salvo at City Hall targeted politically connected and well-heeled neighborhoods in Queens and Brooklyn to get their twisted message across loud and clear” From the yellowed journalistic pages of the Post, the story exploded across the length and breadth of the media world to such outlets as Investor’s Business Daily and FOX News (No!) and even to Saturday Night Live. The Washington Times, another newspaper that has an affectation for the color yellow, ran an op-ed piece that began, “Cross us and people will die.”
Well, it never happened. The genius who first “broke” the story is Daniel Halloran, a first-year New York City Councilman and Tea Party Republican who is also an adherent of the religion Theodism which suffice to say is a North American variant of Germanic Neo-paganism which seeks to reconstruct the beliefs and practices of several Northern European tribes. Obviously, not a belief embraced by the religious right.
Anyway, back here on earth, a New York Times investigation that wrapped up after most of the snow had melted, found no evidence to support Halloran’s bleating and it turns out that he is not even sure about what he had heard anyway. But, as every victim of a lie knows, the damage had been done and Rupert Murdoch, who is not universally known for correcting his erroneous reporting, failed to run a retraction.
It strikes me as interesting and awfully convenient that stories like this are being promoted as the forces of the Republican Right are, as Charles Loveless, legislative director of the American Federation of State, County and Municipal Employees (AFSCME) stated “readying a massive assault” on the pensions and benefits of these same employees.”
Led by soon to be presidential candidate Newt Gingrich, the Republicans and their Tea Party allies are spreading the argument that states should be allowed to declare bankruptcy as part of an overall strategy to dishonor their pension obligations to firefighters, police officers, teachers and most assuredly, sanitation workers. Gingrich has challenged Congressional Republicans to “move a bill” designed to “create a venue for state bankruptcy.” As if that was not enough, this call for cheating public sector workers out of their pensions was immediately provided academic credibility by University of Pennsylvania law professor David Skeel who wrote in The Weekly Standard, a weekly conservative newspaper, an article entitled “Give States a Way to Go Bankrupt.” He later shared with a reporter that he had “never had anything I’ve written get as much attention as that piece.” He went on to say that he had been contacted by legislators from all over the country.
There are several components to this Republican strategy. Obviously it is intended to blame all of our economic suffering on public sector workers and their unions thereby gaining support from the general public for the final assault on their benefits and pensions. It also serves to intimidate the unions, forcing them to return some of the hard fought for gains in past labor negotiations that without these concessions now, the newly elected government officials and lawmakers would then have no other choice but to appeal to taxpayers with a plan to cut services, raise taxes or both—ensuring that it would be the unions and their public sector employee membership who would be the culprit in any of those options.
Possibly, even more important, it destroys the ability of the unions to attract new members. After all, if the unions cannot even protect the benefits and pensions of its current members, what is the point? With private union membership under ten percent in the United States, public unions remain just about the only viable institution that can bring organizational (numbers of voters) and financial strength to a state or local election, especially a close one. This is particularly critical in light of last year’s U.S. Supreme Court decision opening the money floodgates of corporate America to the electoral process in this country.
This growing assault on public sector employees is the first shot in the battle to steadily dismantle America’s progressive taxation system and the growing chasm between the haves and have nots in our country. Total income going to the wealthiest of Americans has risen from about eight percent in the 1960s to more than 20 percent today. During the George W Bush years, Congress systematically cut taxes on top earners, to say nothing of slashing capital gains and estate taxes.
And now, we have Wisconsin. Wisconsin Governor Scott Walker is attempting to end collective bargaining rights for public employees in Wisconsin and thousands, in an almost eerie likeness to Cairo, have converged on the state capitol in protest of what many consider a radical and blatantly political move. Walker’s plan threatens the rights of all Wisconsin workers and if it prevails in this state, could ultimately threaten the benefits, pensions and collective bargaining rights of public sector employees across the country.
Governor Walker’s so-called “Budget Repair Bill” would eliminate the labor protections gained over decades. It would also unilaterally increase the amount public employees must contribute to pensions and health insurance premiums. Walker has attempted to justify the plan as a necessary, cost-saving measure (while simultaneously reducing state revenues by slashing $5 Billion in taxes). However, “this has nothing to do with the budget deficit” says former U.S. Solicitor of Labor and current Wisconsin Law School emeritus professor Carin Clauss. “A legislative enactment can always establish mandatory employee contributions for pension and health benefits. If that is what the governor needs he can get that without repealing the collective bargaining rights for state and local government employees. This whole thing is ridiculous. It is just an excuse to undermine labor relations.”
Speaking in support of Memphis’ public employees on the day before his assassination, Dr King said, “Now what does all this mean in this great period of history? It means that we’ve got to stay together and maintain unity. You know, whenever Pharaoh wanted to prolong the period of slavery in Egypt, he had a favorite, favorite formula for doing it. What was that? He kept the slaves fighting among themselves. But whenever the slaves got together, something happens in Pharaoh’s court and he cannot hold the slaves in slavery. When the slaves get together, that’s the beginning of getting out of slavery. Now, let us maintain unity.”
Today, more than 30,000 Wisconsin public sector employees massed on the streets right outside the state capitol building as the legislature prepared to vote on his Budget Repair Bill. Scott Walker might just want to take a moment and learn his history.
Thursday, February 10, 2011
Start at the Top
The City Council for the City of Camden, New Jersey has to start all over again in an effort to balance the city budget after rejecting a plan submitted by the Mayor this past Tuesday that could have brought back approximately 60 recently laid-off police and fire fighters but would have also raised property taxes 23 percent.
Camden, just outside of Philadelphia is among America’s poorest and most crime ridden cities. It has been spiraling downward, locked in a fiscal crisis for decades, but Camden’s ever increasing financial catastrophe has continued to worsen as tax revenues have sunk to new lows while the state simultaneously has reduced its aid to the city.
Last month, in a dramatic and very public maneuver, the city slashed nearly 400 city employees, approximately one-fourth of all its workers, from its payroll. Crime rates notwithstanding, the cuts were deepest in the police department which has lost nearly half of its officers and the fire department, which lost one-third of all its firefighters. The 23 percent property tax increase that Mayor Dana Redd proposed would have been the first in the city in nearly a decade and would have cost the average homeowner around $160 per year.
More than 150 people showed up to Tuesday’s council meeting screaming their opposition to the tax hike with hand-lettered signs reading such slogans as “Mayor Stop Stepping on me.” Needless to say, the city council voted 7-0 against the proposed tax increase.
Once again, certain forces coming primarily from the political Right, have declared war on public sector workers by painting them as lazy opportunists not entitled to a middle class lifestyle. The idea that a schoolteacher or highway worker can retire with a pension of $2,000-3,000 a month is directly at odds with their view of government. They believe that the government exists to redistribute income from all of us to the rich and powerful. To these folks, the investment being made to pay the wages and pensions of low-level government workers is money that could be better “invested” by the rich.
The current economic crisis caused by the collapse of the housing bubble has created a golden opportunity. State and local tax revenues plummeted as employment and spending fell. Lower property values also meant lower property taxes which meant that governments across the United States were suddenly confronted by horrific budget shortfalls. This opened the way to directly attack the pay and pension packages of public sector employees.
Despite the ugliness of the attack upon public sector workers, it is difficult not to admire its brilliance. The American elite, with Wall Street high rollers at the vanguard, wrecked our economy through a combination of greed, incompetence and in some cases, outright criminal fraud. As tens of millions of Americans find themselves out of work, underemployed and drowning underwater in de-valued mortgages, this group of criminals now turns around and begins demanding that public sector workers take pay cuts and if that were not enough—give up part of their pensions as well. The noted American economist Dr. Dean Baker has said that “This is like a child setting fire to his parents’ house and then complaining because dinner is not ready on time.” But this is the way our country works for the most part, with the spoiled rich on Wall Street setting the agenda.
The fact that many states are gasping for air in the midst of a severe budget squeeze, is no excuse for attacking teachers, firefighters, police and other public employees. Instead, this time, we should go right to the top.
Contrary to popular opinion, most public sector workers get paid no more than private sector employees. In fact, studies show that when state and local government employees are compared to private sector workers with similar characteristics, state and local workers actually earn four percent less on average than their private sector counterparts.
There are however, a number of very well paid public employees. The Boston Globe recently reported on the 6,400 state employees in Massachusetts who earn more than $100,000 per year. Topping the list was a professor at the University of Massachusetts Medical School who earned almost $800,000 in 2009.
According to the Chronicle of Higher Education, there were 11 presidents of public universities who earned more than $700,000 in the 2008-2009 academic year. The top earner on this list was the president of Ohio State University who earned more than $1.5 million. That is a lot of pension years for custodians or schoolteachers who are supposed to take big pay cuts to help balance state budgets.
I am willing to wager that there are very high wage earners in the public sector if we are ready to only look in the right places. Consequently, before we force a schoolteacher to forfeit part of the $25,000 pension she worked so hard for, maybe the President of Ohio State University should have his pay cut to less than $1 million.
Of course, we can all hear the response to such an action. “These people will go elsewhere if they don’t get paid at this level.” I seriously doubt this is true, but in those cases where it is, there is truly no serious loss. I’m betting that if you could just sit in a room filled with bright, hardworking professionals, you would be breaking your arm in an effort to respond to the question, “How many of you can accept that $200,000 a year is a good salary?” And since the spoiled children of Wall Street are screaming for government to change, what better way to facilitate that than getting rid of some of the fat at the top.
This is not of course the only place to look for budget savings. State pension funds are currently drastically underfunded because they almost uniformly over compensate the firms who manage their funds and this is not always accidental or innocent.
Steve Rattner, the major Wall Street player and former advisor to President Obama, recently agreed to pay $10 million to settle charges that he had made payoffs to public officials in order to gain control of a portion of New York State’s pension fund assets. It is not a huge leap therefore, to believe that public officials outside of New York have also been willing to sell off control of pension fund assets.
It does not take too many crooked deals like this one to add up to real money. Even if this kind of corruption added less than 1 percent to the management fees of pension funds nationally, then Wall Street is costing public pension funds almost $15billion a year.
Maybe if Camden and the State of New Jersey had placed tight restrictions on management fees, requiring that they match the lowest cost in the industry, their respective budgets would not be bleeding all over the place. Perhaps all states should require that negotiations and discussions between pension funds and bank representatives be video-taped and then posted on the Internet so that we all will know what sort of arrangements were reached. Preventing Wall Street gouging could have a huge impact on preventing pension shortfalls, while bringing a sense of quality control and efficiency to the nation’s overall financial sector.
In the interests of full disclosure, my wife is a schoolteacher. That said, the bulk of states’ budget challenges are the direct result of the economic crises we are all mired in and it was caused by Wall Street greed and unbelievably faulty economic policy. As much as we can, the effort should be to make the people at the top pay for the suffering they have created. It should be inconceivable that the answer is to continuously beat up on schoolteachers, police, firefighters and other public sector employees who have to truly work for a living.
Camden, just outside of Philadelphia is among America’s poorest and most crime ridden cities. It has been spiraling downward, locked in a fiscal crisis for decades, but Camden’s ever increasing financial catastrophe has continued to worsen as tax revenues have sunk to new lows while the state simultaneously has reduced its aid to the city.
Last month, in a dramatic and very public maneuver, the city slashed nearly 400 city employees, approximately one-fourth of all its workers, from its payroll. Crime rates notwithstanding, the cuts were deepest in the police department which has lost nearly half of its officers and the fire department, which lost one-third of all its firefighters. The 23 percent property tax increase that Mayor Dana Redd proposed would have been the first in the city in nearly a decade and would have cost the average homeowner around $160 per year.
More than 150 people showed up to Tuesday’s council meeting screaming their opposition to the tax hike with hand-lettered signs reading such slogans as “Mayor Stop Stepping on me.” Needless to say, the city council voted 7-0 against the proposed tax increase.
Once again, certain forces coming primarily from the political Right, have declared war on public sector workers by painting them as lazy opportunists not entitled to a middle class lifestyle. The idea that a schoolteacher or highway worker can retire with a pension of $2,000-3,000 a month is directly at odds with their view of government. They believe that the government exists to redistribute income from all of us to the rich and powerful. To these folks, the investment being made to pay the wages and pensions of low-level government workers is money that could be better “invested” by the rich.
The current economic crisis caused by the collapse of the housing bubble has created a golden opportunity. State and local tax revenues plummeted as employment and spending fell. Lower property values also meant lower property taxes which meant that governments across the United States were suddenly confronted by horrific budget shortfalls. This opened the way to directly attack the pay and pension packages of public sector employees.
Despite the ugliness of the attack upon public sector workers, it is difficult not to admire its brilliance. The American elite, with Wall Street high rollers at the vanguard, wrecked our economy through a combination of greed, incompetence and in some cases, outright criminal fraud. As tens of millions of Americans find themselves out of work, underemployed and drowning underwater in de-valued mortgages, this group of criminals now turns around and begins demanding that public sector workers take pay cuts and if that were not enough—give up part of their pensions as well. The noted American economist Dr. Dean Baker has said that “This is like a child setting fire to his parents’ house and then complaining because dinner is not ready on time.” But this is the way our country works for the most part, with the spoiled rich on Wall Street setting the agenda.
The fact that many states are gasping for air in the midst of a severe budget squeeze, is no excuse for attacking teachers, firefighters, police and other public employees. Instead, this time, we should go right to the top.
Contrary to popular opinion, most public sector workers get paid no more than private sector employees. In fact, studies show that when state and local government employees are compared to private sector workers with similar characteristics, state and local workers actually earn four percent less on average than their private sector counterparts.
There are however, a number of very well paid public employees. The Boston Globe recently reported on the 6,400 state employees in Massachusetts who earn more than $100,000 per year. Topping the list was a professor at the University of Massachusetts Medical School who earned almost $800,000 in 2009.
According to the Chronicle of Higher Education, there were 11 presidents of public universities who earned more than $700,000 in the 2008-2009 academic year. The top earner on this list was the president of Ohio State University who earned more than $1.5 million. That is a lot of pension years for custodians or schoolteachers who are supposed to take big pay cuts to help balance state budgets.
I am willing to wager that there are very high wage earners in the public sector if we are ready to only look in the right places. Consequently, before we force a schoolteacher to forfeit part of the $25,000 pension she worked so hard for, maybe the President of Ohio State University should have his pay cut to less than $1 million.
Of course, we can all hear the response to such an action. “These people will go elsewhere if they don’t get paid at this level.” I seriously doubt this is true, but in those cases where it is, there is truly no serious loss. I’m betting that if you could just sit in a room filled with bright, hardworking professionals, you would be breaking your arm in an effort to respond to the question, “How many of you can accept that $200,000 a year is a good salary?” And since the spoiled children of Wall Street are screaming for government to change, what better way to facilitate that than getting rid of some of the fat at the top.
This is not of course the only place to look for budget savings. State pension funds are currently drastically underfunded because they almost uniformly over compensate the firms who manage their funds and this is not always accidental or innocent.
Steve Rattner, the major Wall Street player and former advisor to President Obama, recently agreed to pay $10 million to settle charges that he had made payoffs to public officials in order to gain control of a portion of New York State’s pension fund assets. It is not a huge leap therefore, to believe that public officials outside of New York have also been willing to sell off control of pension fund assets.
It does not take too many crooked deals like this one to add up to real money. Even if this kind of corruption added less than 1 percent to the management fees of pension funds nationally, then Wall Street is costing public pension funds almost $15billion a year.
Maybe if Camden and the State of New Jersey had placed tight restrictions on management fees, requiring that they match the lowest cost in the industry, their respective budgets would not be bleeding all over the place. Perhaps all states should require that negotiations and discussions between pension funds and bank representatives be video-taped and then posted on the Internet so that we all will know what sort of arrangements were reached. Preventing Wall Street gouging could have a huge impact on preventing pension shortfalls, while bringing a sense of quality control and efficiency to the nation’s overall financial sector.
In the interests of full disclosure, my wife is a schoolteacher. That said, the bulk of states’ budget challenges are the direct result of the economic crises we are all mired in and it was caused by Wall Street greed and unbelievably faulty economic policy. As much as we can, the effort should be to make the people at the top pay for the suffering they have created. It should be inconceivable that the answer is to continuously beat up on schoolteachers, police, firefighters and other public sector employees who have to truly work for a living.
Thursday, February 3, 2011
How Do You Go from Reformer to Dictator?
President Hosni Mubarak came to power in the midst of crisis thirty years ago. In the beginning, he was a reassuring manifestation of stability for most Egyptians as well as for world leaders, particularly those from the West, searching for an ally in the Middle East. Today however, crisis once again dominates Egyptian life and Mubarak is widely recognized as the cause of the problem.
Over the span of his rule, Mubarak, this former pilot and Air Force general who despite his combative and stubborn nature, had taken baby steps toward democracy. Ultimately however, he gave into the siren calls of the more familiar authoritarianism that combined with poverty and government corruption, has finally resulted in driving the Egyptian people into the streets in violent opposition to his government.
The prospect that Mubarak was grooming his son Gamal Mabarak to succeed him, created a sense among many Egyptians that they were trapped in a seemingly never-ending cycle of despotism, deprived of any opportunity for real change. His son’s quick rise through Mubarak’s ruling party didn’t help much and actually caused tremendous domestic angst. Then, Tunisia erupted into the kind of uprising that shouted to the people of Egypt, “You too can be free. You too can throw the old order out.”
Hosni Mubarak, now 82, announced this past week that he will not seek another term, but then in the very next breath, rejected demands that he leave office immediately. This half-hearted gesture towards meeting the demands of the protestors—leaving office sometime in the future but not right now—was met with howls of protest from the tens of thousands of Egyptians in the streets who want Mubarak out yesterday.
For those of you too young to remember, Hosni Mubarak came to power in Egypt in 1981 when he was sitting in a reviewing stand next to his predecessor, Anwar Sadat, where he was gunned down by Islamic militants. Mubarak was serving as Sadat’s Vice-President when this happened and it was widely felt at the time that Sadat’s death signaled an end to the world’s best hope for Arab moderation.
Immediately after the assassination the Egyptian parliament designated Mubarak as the sole presidential candidate and he was subsequently elected head of state on October 13, 1981 with almost 99 percent of the vote.
At the beginning, the new President Mubarak strongly and convincingly destroyed the Muslim insurgency whose strength had been previously underestimated and from within whose ranks had come Anwar Sadat’s killers and interestingly enough, some of the future leaders of al-Qaida.
He also promised he would introduce democratic reforms which won him considerable popularity in Egypt and he demonstrated his promise by releasing more than 1,500 politicians, journalists and clerics that had been jailed by Sadat.
During the 1990s, the second decade of his presidency, he fought hard against a resurgence of Muslim militants who were in the business of attacking both foreign tourists and Egyptian citizens. It was also during this time that Mubarak facilitated Egypt’s return to the arms of the Arab world after having been out in the cold because of its 1979 peace treaty with Israel and so gained the stature of being a major mediator in the Arab-Israeli peace process.
Throughout his presidency, Mubarak has been locked in a constant state of struggle with myriad challenges that have confounded most of the Arab world through modern times: strangling corruption, economic anemia, Israel and Palestinians vying for the status of who could kill the other faster, and the ever constant specter of the brand of Islamic militancy that spread throughout the region enticing the young and innocent into acts of suicidal abandon.
This is not to say that there has been a lack of resentment towards his regime, especially in recent years as the new technology that is helping to facilitate the current revolution in Egypt exposed vicious state police barbarism and the growing awareness of what few economic reforms there were, trickled down to only a handful of Egyptians.
He appeared to move toward democratic reform in 2005 by allowing the first contested presidential election since he had assumed power, but quickly changed his mind when it appeared that his opponents were actually going to win. So instead of allowing democracy to flourish, he imprisoned his main secular opponent, Ayman Nour as well as leaders of the Muslim Brotherhood, who today are one of the driving forces behind the street rebellion.
Yet throughout his reign, he oversaw the decline of Egypt’s influence in the Middle East as the militant groups Hamas and Hezbollah armed and supported by their patron Iran, gained popularity, momentum and most importantly, followers. Through all this, Mubarak remained a strong ally of the United States but hopes for broader reform dimmed, as over the years, Hosni Mubarak remained in power due to crooked and staged one-candidate (him) referendums in which he always managed to garner more than 90 percent of the “vote.”
Reporters and pundits seem to delight in making the point that Tweeter, Facebook and what’s left of the internet in Egypt is driving this revolution. That is only partly true. The real heroes of this uprising are the Egyptian people who at great risk to themselves and their families have stood up against tyranny in the only way that is left to them and that because of that, are effecting real change and reform.
I have been extremely grateful these past couple of weeks that with all of our challenges here in America, and all the angry political rhetoric of the past four years, all I had to do in November of 2008 to effect real change and reform was to go to the ballot box and all I will have to do to continue the hope ignited on November 2, 2008, will be to go to back the ballot box in November of next year. I will not have to smash any sidewalks into rocks and throw them at anybody. There is something beautiful about that.
Over the span of his rule, Mubarak, this former pilot and Air Force general who despite his combative and stubborn nature, had taken baby steps toward democracy. Ultimately however, he gave into the siren calls of the more familiar authoritarianism that combined with poverty and government corruption, has finally resulted in driving the Egyptian people into the streets in violent opposition to his government.
The prospect that Mubarak was grooming his son Gamal Mabarak to succeed him, created a sense among many Egyptians that they were trapped in a seemingly never-ending cycle of despotism, deprived of any opportunity for real change. His son’s quick rise through Mubarak’s ruling party didn’t help much and actually caused tremendous domestic angst. Then, Tunisia erupted into the kind of uprising that shouted to the people of Egypt, “You too can be free. You too can throw the old order out.”
Hosni Mubarak, now 82, announced this past week that he will not seek another term, but then in the very next breath, rejected demands that he leave office immediately. This half-hearted gesture towards meeting the demands of the protestors—leaving office sometime in the future but not right now—was met with howls of protest from the tens of thousands of Egyptians in the streets who want Mubarak out yesterday.
For those of you too young to remember, Hosni Mubarak came to power in Egypt in 1981 when he was sitting in a reviewing stand next to his predecessor, Anwar Sadat, where he was gunned down by Islamic militants. Mubarak was serving as Sadat’s Vice-President when this happened and it was widely felt at the time that Sadat’s death signaled an end to the world’s best hope for Arab moderation.
Immediately after the assassination the Egyptian parliament designated Mubarak as the sole presidential candidate and he was subsequently elected head of state on October 13, 1981 with almost 99 percent of the vote.
At the beginning, the new President Mubarak strongly and convincingly destroyed the Muslim insurgency whose strength had been previously underestimated and from within whose ranks had come Anwar Sadat’s killers and interestingly enough, some of the future leaders of al-Qaida.
He also promised he would introduce democratic reforms which won him considerable popularity in Egypt and he demonstrated his promise by releasing more than 1,500 politicians, journalists and clerics that had been jailed by Sadat.
During the 1990s, the second decade of his presidency, he fought hard against a resurgence of Muslim militants who were in the business of attacking both foreign tourists and Egyptian citizens. It was also during this time that Mubarak facilitated Egypt’s return to the arms of the Arab world after having been out in the cold because of its 1979 peace treaty with Israel and so gained the stature of being a major mediator in the Arab-Israeli peace process.
Throughout his presidency, Mubarak has been locked in a constant state of struggle with myriad challenges that have confounded most of the Arab world through modern times: strangling corruption, economic anemia, Israel and Palestinians vying for the status of who could kill the other faster, and the ever constant specter of the brand of Islamic militancy that spread throughout the region enticing the young and innocent into acts of suicidal abandon.
This is not to say that there has been a lack of resentment towards his regime, especially in recent years as the new technology that is helping to facilitate the current revolution in Egypt exposed vicious state police barbarism and the growing awareness of what few economic reforms there were, trickled down to only a handful of Egyptians.
He appeared to move toward democratic reform in 2005 by allowing the first contested presidential election since he had assumed power, but quickly changed his mind when it appeared that his opponents were actually going to win. So instead of allowing democracy to flourish, he imprisoned his main secular opponent, Ayman Nour as well as leaders of the Muslim Brotherhood, who today are one of the driving forces behind the street rebellion.
Yet throughout his reign, he oversaw the decline of Egypt’s influence in the Middle East as the militant groups Hamas and Hezbollah armed and supported by their patron Iran, gained popularity, momentum and most importantly, followers. Through all this, Mubarak remained a strong ally of the United States but hopes for broader reform dimmed, as over the years, Hosni Mubarak remained in power due to crooked and staged one-candidate (him) referendums in which he always managed to garner more than 90 percent of the “vote.”
Reporters and pundits seem to delight in making the point that Tweeter, Facebook and what’s left of the internet in Egypt is driving this revolution. That is only partly true. The real heroes of this uprising are the Egyptian people who at great risk to themselves and their families have stood up against tyranny in the only way that is left to them and that because of that, are effecting real change and reform.
I have been extremely grateful these past couple of weeks that with all of our challenges here in America, and all the angry political rhetoric of the past four years, all I had to do in November of 2008 to effect real change and reform was to go to the ballot box and all I will have to do to continue the hope ignited on November 2, 2008, will be to go to back the ballot box in November of next year. I will not have to smash any sidewalks into rocks and throw them at anybody. There is something beautiful about that.
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