Corporate Profit Recovery Uniquely Robust After 2008 Meltdown

The following graph (from Real World Economic Review) shows how various sectors of the economy have recovered after the 2008 meltdown, compared to earlier postwar recoveries. Notice especially the bars for government spending in the current recovery (significantly down compared to earlier recoveries) and for corporate  profits (significantly up).

Layman’s questions: Is there a cause and effect relationship between weaker government action in a recovery and higher corporate profits? To what extent do corporate profits derive from taxpayer bailouts (which, of course, are a form of government action)?

Source: Bureau of Economic Analysis and Bureau of Labor Statistics, via Haver Analytics Chart shows change in each indicator from trough of business cycle to following peak. Numbers for current recovery refer to the change from the business cycle trough in June 2009 to the most recent month or quarter for which data are available. Categories measured in dollars are adjusted for inflation. Corporate profits were adjusted using the gross domestic product implicit price deflator.

Romney Campaign’s Attempts to Deny Paul Ryan’s Insider Trading Don’t Add Up

Reprinted from Alternet (August 14, 2012)

By Lynn Parramore

Team Romney wants you to believe Ryan didn’t really profit from privileged information. Don’t buy it.

Reprinted under Creative Commons License. Photo By Gage Skidmore (Click for metadata)

Over the weekend, the Richmonder blog broke what looked like a whopper of a story: that Republican vice-presidential hopeful Paul Ryan had lined his pockets from information he had obtained from a now-legendary meeting that took place on September 18, 2008. On that day, Fed Chairman Ben Bernanke and then-Treasury Secretary Hank Paulson broke the news to congressional leaders that they would have to approve a bailout to avert a complete meltdown of the financial system.

America was lurching toward catastrophe. But some folks were apparently thinking about their stock portfolios.

Checking through Ryan’s financial disclosure reports, the Richmonder discovered that Ryan had sold the stocks of several major banks that day, while purchasing – surprise! – stock in Paulson’s old firm Goldman Sachs. The story quickly circulated through the media.

The Romney campaign rapidly issued denials, based on three separate — and clearly false — claims: 1) the trades were not individual stock trades, but trades made as part of an index that trades big blocs of stocks according to preset formulas; 2) the meeting took place in the evening, after markets were closed, so the meeting could not have played a role in Ryan’s trading decisions; and 3) the stocks traded within a trust over which Ryan had no direct authority.

In many quarters, acceptance of the denials came almost as fast as the news of the original report. Benjy Sarlin of Talking Points Memo issued a report“debunking” the Richmonder story, stating that “the rumor, which spread rapidly across the Internet, doesn’t hold up to scrutiny.” Matt Yglesias over at Slate, who had first credited the story, backtracked, apologizing that he had been too “credulous” in accepting the Richmonder report.

Look again.

First of all, the Romney campaign’s claim that the transactions were index trades is not consistent with what’s in the original disclosure reports. AlterNet discussed the controversy with money and politics expert Thomas Ferguson, who has written extensively on the bailout. He explained, “Ryan did own some index-based securities, but they stand out in the summaries. They are different from the many trades Ryan was making in individual stocks. It is perfectly obvious that he sold shares in Wachovia, Citigroup and J. P. Morgan on September 18 and he bought shares in Paulson’s old firm, Goldman Sachs, on the same day. If these were index trades, what’s on the form is nonsense.”

While it’s not possible to pinpoint exactly what Ryan knew and when he knew it, the whole episode becomes more disturbing the deeper you look into it.

Citing accounts from congressional circles, Ferguson explains that Paulson had been told by the White House not to discuss the darkening situation with Congress. But sometime between 2:30 and 3pm on September 18, Paulson finally spoke with then-Speaker of the House Nancy Pelosi. He told her that a very bad situation had developed, and that it could involve something much worse than the failure of a giant bank, possibly even a broad collapse of the whole economy. Pelosi immediately demanded that Paulson come over and brief congressional leaders. He agreed. Ferguson reports that his sources say the meeting did indeed begin after markets closed. But he also notes that word of the meeting circulated to the leaders well before markets closed at 4pm.

Since Ryan is a Republican, he may well have gotten word from the White House about the gravity of the situation even earlier. If you knew that Hank Paulson and Ben Bernanke were coming to brief you as stock markets fell around the world, that’s really all you needed to know to do the trades in Ryan’s portfolio.

If you swallow the idea that Ryan just happened to buy Goldman stock that day — a day he just happened to have a meeting with Hank Paulson, the firm’s former CEO, well, then I have some unicorns I’d like to introduce you to.

Ferguson scoffs at the notion: “There’s a lot we don’t know about the famous waiver that Paulson is said eventually to have gotten to talk to his old firm. When I asked about it under a Freedom of Information request, virtually everything I got back was blacked out. But I’ll tell you this. It was not exactly an Einsteinian inspiration to guess that Paulson’s old firm might be a good bet if things were so bad that Hank Paulson was coming to the Hill.”

Sometimes you win, sometimes you lose. But if you’re a member of Congress, the odds are curiously in your favor. As I reported on AlterNet several months ago, in-depth research undertaken in 2004 considered to be the baseline work in the field revealed that from 1993-1998, US senators were beating the market by 12 percentage points a year on average. Corporate insiders only beat the market by a measly 5 percent. Typical households, in contrast, underperformed by 1.4 percent.

And as to the Romney campaign’s claim that Ryan was not legally in control of his investments, let’s just say that this idea gives the notion of the “Invisible Hand” new meaning.

What’s most disturbing is the notion of a man like Paul Ryan focusing so heavily on his portfolio while his country was in peril. Ryan’s surely a guy who would answer the phone at 3am – provided it’s his stockbroker calling.


Lynn Parramore is an AlterNet contributing editor. She is cofounder of Recessionwire, founding editor of New Deal 2.0, and author of ‘Reading the Sphinx: Ancient Egypt in Nineteenth-Century Literary Culture.’ Follow her on Twitter @LynnParramore.


Additional Resources

See all Ryan’s financial transactions for 2008 at OpenSecrets.Org here (click on the “Transactions” link).

The Hunger Wars in Our Future

Reprinted from TomDispatch.com

Heat, Drought, Rising Food Costs, and Global Unrest

By Michael T. Klare

The Great Drought of 2012 has yet to come to an end, but we already know that its consequences will be severe. With more than one-half of America’s counties designated as drought disaster areas, the 2012 harvest of corn, soybeans, and other food staples is guaranteed to fall far short of predictions. This, in turn, will boost food prices domestically and abroad, causing increased misery for farmers and low-income Americans and far greater hardship for poor people in countries that rely on imported U.S. grains.

This, however, is just the beginning of the likely consequences: if history is any guide, rising food prices of this sort will also lead to widespread social unrest and violent conflict.

Food — affordable food — is essential to human survival and well-being. Take that away, and people become anxious, desperate, and angry. In the United States, food represents only about 13% of the average household budget, a relatively small share, so a boost in food prices in 2013 will probably not prove overly taxing for most middle- and upper-income families.  It could, however, produce considerable hardship for poor and unemployed Americans with limited resources. “You are talking about a real bite out of family budgets,” commented Ernie Gross, an agricultural economist at Omaha’s Creighton University. This could add to the discontent already evident in depressed and high-unemployment areas, perhaps prompting an intensified backlash against incumbent politicians and other forms of dissent and unrest.

It is in the international arena, however, that the Great Drought is likely to have its most devastating effects. Because so many nations depend on grain imports from the U.S. to supplement their own harvests, and because intense drought and floods are damaging crops elsewhere as well, food supplies are expected to shrink and prices to rise across the planet. “What happens to the U.S. supply has immense impact around the world,” says Robert Thompson, a food expert at the Chicago Council on Global Affairs. As the crops most affected by the drought, corn and soybeans, disappear from world markets, he noted, the price of all grains, including wheat, is likely to soar, causing immense hardship to those who already have trouble affording enough food to feed their families.

The Hunger Games, 2007-2011

What happens next is, of course, impossible to predict, but if the recent past is any guide, it could turn ugly. In 2007-2008, when rice, corn, and wheat experienced prices hikes of 100% or more, sharply higher prices — especially for bread —sparked “food riots” in more than two dozen countries, including Bangladesh, Cameroon, Egypt, Haiti, Indonesia, Senegal, and Yemen. In Haiti, the rioting became so violent and public confidence in the government’s ability to address the problem dropped so precipitously that the Haitian Senate voted to oust the country’s prime minister, Jacques-Édouard Alexis. In other countries, angry protestors clashed with army and police forces, leaving scores dead.

Those price increases of 2007-2008 were largely attributed to the soaring cost of oil, which made food production more expensive. (Oil’s use is widespread in farming operations, irrigation, food delivery, and pesticide manufacture.)  At the same time, increasing amounts of cropland worldwide were being diverted from food crops to the cultivation of plants used in making biofuels.

The next price spike in 2010-11 was, however, closely associated with climate change. An intense drought gripped much of eastern Russia during the summer of 2010, reducing the wheat harvest in that breadbasket region by one-fifth and prompting Moscow to ban all wheat exports. Drought also hurt China’s grain harvest, while intense flooding destroyed much of Australia’s wheat crop. Together with other extreme-weather-related effects, these disasters sent wheat prices soaring by more than 50% and the price of most food staples by 32%.

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Once again, a surge in food prices resulted in widespread social unrest, this time concentrated in North Africa and the Middle East. The earliest protests arose over the cost of staples in Algeria and then Tunisia, where — no coincidence — the precipitating event was a young food vendor, Mohamed Bouazizi, setting himself on fire to protest government harassment. Anger over rising food and fuel prices combined with long-simmering resentments about government repression and corruption sparked what became known as the Arab Spring. The rising cost of basic staples, especially a loaf of bread, was also a cause of unrest in Egypt, Jordan, and Sudan. Other factors, notably anger at entrenched autocratic regimes, may have proved more powerful in those places, but as the author of Tropic of Chaos, Christian Parenti, wrote, “The initial trouble was traceable, at least in part, to the price of that loaf of bread.”

As for the current drought, analysts are already warning of instability in Africa, where corn is a major staple, and of increased popular unrest in China, where food prices are expected to rise at a time of growing hardship for that country’s vast pool of low-income, migratory workers and poor peasants. Higher food prices in the U.S. and China could also lead to reduced consumer spending on other goods, further contributing to the slowdown in the global economy and producing yet more worldwide misery, with unpredictable social consequences.

The Hunger Games, 2012-??

If this was just one bad harvest, occurring in only one country, the world would undoubtedly absorb the ensuing hardship and expect to bounce back in the years to come. Unfortunately, it’s becoming evident that the Great Drought of 2012 is not a one-off event in a single heartland nation, but rather an inevitable consequence of global warming which is only going to intensify.  As a result, we can expect not just more bad years of extreme heat, but worse years, hotter and more often, and not just in the United States, but globally for the indefinite future.

Until recently, most scientists were reluctant to blame particular storms or droughts on global warming.  Now, however, a growing number of scientists believe that such links can be demonstrated in certain cases. In one recent study focused on extreme weather events in 2011, for instance, climate specialists at the National Oceanic and Atmospheric Administration (NOAA) and Great Britain’s National Weather Service concluded that human-induced climate change has made intense heat waves of the kind experienced in Texas in 2011 more likely than ever before. Published in the Bulletin of the American Meteorological Society, it reported that global warming had ensured that the incidence of that Texas heat wave was 20 times more likely than it would have been in 1960; similarly, abnormally warm temperatures like those experienced in Britain last November were said to be 62 times as likely because of global warming.

It is still too early to apply the methodology used by these scientists to calculating the effect of global warming on the heat waves of 2012, which are proving to be far more severe, but we can assume the level of correlation will be high. And what can we expect in the future, as the warming gains momentum?

When we think about climate change (if we think about it at all), we envision rising temperatures, prolonged droughts, freakish storms, hellish wildfires, and rising sea levels. Among other things, this will result in damaged infrastructure and diminished food supplies.  These are, of course, manifestations of warming in the physical world, not the social world we all inhabit and rely on for so many aspects of our daily well-being and survival. The purely physical effects of climate change will, no doubt, prove catastrophic.  But the social effects including, somewhere down the line, food riots, mass starvation, state collapse, mass migrations, and conflicts of every sort, up to and including full-scale war, could prove even more disruptive and deadly.

In her immensely successful young-adult novel The Hunger Games (and the movie that followed), Suzanne Collins riveted millions with a portrait of a dystopian, resource-scarce, post-apocalyptic future where once-rebellious “districts” in an impoverished North America must supply two teenagers each year for a series of televised gladiatorial games that end in death for all but one of the youthful contestants. These “hunger games” are intended as recompense for the damage inflicted on the victorious capital of Panem by the rebellious districts during an insurrection. Without specifically mentioning global warming, Collins makes it clear that climate change was significantly responsible for the hunger that shadows the North American continent in this future era. Hence, as the gladiatorial contestants are about to be selected, the mayor of District 12’s principal city describes “the disasters, the droughts, the storms, the fires, the encroaching seas that swallowed up so much of the land [and] the brutal war for what little sustenance remained.”

In this, Collins was prescient, even if her specific vision of the violence on which such a world might be organized is fantasy. While we may never see her version of those hunger games, do not doubt that some version of them will come into existence — that, in fact, hunger wars of many sorts will fill our future. These could include any combination or permutation of the deadly riots that led to the 2008 collapse of Haiti’s government, the pitched battles between massed protesters and security forces that engulfed parts of Cairo as the Arab Spring developed, the ethnic struggles over disputed croplands and water sources that have made Darfura recurring headline of horror in our world, or the inequitable distribution of agricultural land that continues to fuel the insurgency of the Maoist-inspired Naxalites of India.

Combine such conflicts with another likelihood: that persistent drought and hunger will force millions of people to abandon their traditional lands and flee to the squalor of shantytowns and expanding slums surrounding large cities, sparking hostility from those already living there. One such eruption, with grisly results, occurred in Johannesburg’s shantytowns in 2008 when desperately poor and hungry migrants from Malawi and Zimbabwe were set upon, beaten, and in some cases burned to death by poor South Africans. One terrified Zimbabwean, cowering in a police station from the raging mobs, said she fled her country because “there is no work and no food.” And count on something else: millions more in the coming decades, pressed by disasters ranging from drought and flood to rising sea levels, will try to migrate to other countries, provoking even greater hostility. And that hardly begins to exhaust the possibilities that lie in our hunger-games future.

At this point, the focus is understandably on the immediate consequences of the still ongoing Great Drought: dying crops, shrunken harvests, and rising food prices. But keep an eye out for the social and political effects that undoubtedly won’t begin to show up here or globally until later this year or 2013.  Better than any academic study, these will offer us a hint of what we can expect in the coming decades from a hunger-games world of rising temperatures, persistent droughts, recurring food shortages, and billions of famished, desperate people.


Michael Klare is a professor of peace and world security studies at Hampshire College, a TomDispatch regular, and the author, most recently, of The Race for What’s Left (Metropolitan Books). A documentary movie based on his book Blood and Oil can be previewed and ordered at www.bloodandoilmovie.com. You can follow Klare on Facebook by clicking here.

Follow TomDispatch on Twitter @TomDispatch and join us on Facebook, and check out the latest TD book, Terminator Planet: The First History of Drone Warfare, 2001-2050.

Copyright 2012 Michael T. Klare

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