AP SOTU Fact Check
For a little check on on Mr. Bush's speech click HERE
Bush's Expansion Leaves Workers Behind, Sparking Fed Friction
Jan. 17 (Bloomberg) -- American workers have rarely taken home a smaller share of the nation's prosperity, a condition that is undermining bipartisan support for free trade and creating friction between President George W. Bush's administration and the Federal Reserve.
After 16 consecutive quarters of economic growth, pay is rising at a slower rate than in any similar expansion since the end of World War II. Companies are paying less of their cash gains in the form of wages and salaries than at any time since the Great Depression, according to government figures.
Such a disparity, partly the result of globalization of the labor market, helps explain why the Bush administration is struggling to muster support for lower trade barriers even with the jobless rate at a four-year low. The imbalance has also triggered a debate between Bush's Treasury Department and the Fed about how low unemployment can go without kindling inflation.
"There is no doubt that something is happening" to reduce labor's share of income, says Robert Solow, a Nobel Prize-winning economist and professor emeritus at Massachusetts Institute of Technology in Cambridge. An economy that doesn't distribute its gains widely is "poorly performing," he says.
From the final quarter of 2001 through last year's third quarter, total compensation paid to employees by corporations, including health benefits, rose at a 4.3 percent average annual rate, according to government figures. That's the slowest growth for any similar period in post-war expansions lasting at least four years.
'Not Connecting'
Stripping away benefits, corporate wages and salaries rose at a 3.4 percent annual rate in the 16-quarter period, the slowest of any post-war expansion lasting that long. Wages and salaries as a share of the cash corporations are generating from the expansion stood at 51 percent in the second and third quarters, the lowest in government records going back to 1929. Including benefits, labor's share was the lowest since 1997.
"The good economic news is not connecting," says John Zogby, president of Zogby International Inc., a Utica, New York- based polling firm. "You've got fairly low unemployment, solid profits" and gains in stock and housing markets and yet "there is a considerable amount of economic anxiety."
A December Zogby poll found 28 percent of Americans said they are better off than they were a year earlier, 52 percent said their finances were the same, and 20 percent said they were worse off, even as the economy grew by $787 billion. Only 38 percent said Bush is doing a "good" or "excellent" job in office.
'Tipping Point'
Treasury Secretary John Snow said Jan. 6 that wage growth will pick up. "We are at that tipping point where labor's share of national income will be rising," he said.
That may require further declines in the unemployment rate, something the Fed is likely to resist. Fed policy makers flagged high levels of "resource utilization," meaning labor and productive capacity, as an inflation risk at their December policy meeting. Michael Moskow, Chicago Fed president, said Nov. 21 that the 5 percent unemployment rate reported for October, before revisions, "is probably close to the level associated with a healthy economy and little labor market slack."
Treasury officials object to that idea. "Nobody knows what the full employment, non-inflationary number is,'' Snow said after the government published a 4.9 percent unemployment rate for December. "I'm confident it's considerably lower. We have room to bring it down."
Solow says the Fed should seek the full employment rate, which is probably lower than the current 4.9 percent.
"The standard economic argument for free trade involves the presumption that you keep the domestic economy fully employed," he says.
Free Trade
Arguments for free trade are losing their force with some member of Congress, who blame globalization for holding down wage growth in the U.S.
The House recently approved a bill that requires employers to certify immigrants are eligible to work and allows for construction of 700 miles of fences along the Mexican border. Last July, a trade pact with Central America cleared the House by only two votes after Vice President Dick Cheney lobbied Republicans.
"Support for both trade and globalization is declining," says Representative Maurice Hinchey, a New York Democrat. "You are working harder, and you are working longer, and you are deriving less benefits. People say they are confused about what is going on."
Senator Charles Grassley of Iowa, the Republican chairman of the Senate Finance Committee that approves all trade accords, said Dec. 20 that a global agreement to lower trade barriers is likely to "go over like a lead balloon" in Congress unless there are clear benefits for U.S. workers and companies.
Minimum Wage
Wal-Mart Stores Inc. Chief Executive Officer H. Lee Scott last October urged Congress to raise the minimum wage, which has remained at $5.15 an hour since 1997, saying the company's customers "are struggling to get by." The Senate that same month rejected a proposal by Massachusetts Democrat Edward Kennedy to increase the minimum to $6.25 over 18 months.
The weaker returns to labor, and the Fed's concerns about resource utilization, are even more perplexing when seen in the context of rising productivity.
Output per hour has grown at an average 3.6 percent annual rate over the past 16 quarters versus 2.6 percent the prior four years. Companies have room to boost pay without raising prices because productivity gains reduce production costs. They have little incentive to do so, though, with ready sources of low-cost labor overseas and declining union membership at home.
Pay Not Issue
"We are not finding compensation being the issue at all," says Terry Laudal, senior vice president of human resources at SAP America in Newtown Square, Pennsylvania, a unit of Walldorf, Germany-based SAP AG, the world's largest maker of business- management software. "The issue is really the culture. Are you winning, are you investing in personal growth?"
Pay is typically a fourth- or fifth-rank issue for SAP job applicants, says Mark Steinke, the firm's vice president of staffing for North America. In a sign that employees are focusing on stability, SAP's turnover rates for sales and marketing in the U.S. and Canada dropped to 12 percent last year from around 18 percent in 2003, Laudal says.
The bursting of the Internet bubble and corporate accounting scandals, which shuttered dozens of firms, are causing workers to value job security more than pay raises, executives say.
"When you put it all together you get what you have now, a tight labor market but no wage inflation," says Jeffrey Joerres, chairman of Manpower Inc., the Milwaukee-based employment services firm that places about 2 million people a year worldwide. "We are in a whole new territory."
-- With reporting by Mark Drajem, Nicholas Johnston and Alison Fitzgerald in Washington. Editor: Rohner (rxj/dfr)
A Message from the Past
Once again, the UCSD Guardian cuts right to the heart of the issue. Warrantless Domestic Spying Suppresses Freedom and Privacy in AmericaThe only thing I would add to the article is a quote from Robert Kennedy's speech at the University of Kansas on March 18, 1968. I'm glad to come here to the home of the man who publicly wrote "If our colleges and universities do not breed men who riot, rebel, who attack life with all the youthful vision and vigor, then there is something wrong with our colleges. The more riots that come out of our college campuses, the better the world for tomorrow."
A Mandatory Appeal
By Thomas D. Herzfeld The latest execution in California points out a number of flaws in the US death penalty process. These are problems that need to be addressed by everyone, no matter what you may think of the death penalty. First, its application is inconsistent, and arbitrary, even capricious. Consider the case of Charles Manson, who was sentenced to death for the heinous murders he committed. He, David Berkowitz, and others are alive today because the death penalty was considered unconstitutional for some years. Others, whose crimes were not so awful, were executed because the death penalty was constitutional at the time. The rules vary by state: certain crimes in California and get the death penalty, but the same crime in a state without the death penalty brings a prison sentence. The caprice continues with appeals to clemency from the state governor. This process, although cloaked in legal procedure, is actually a political activity in which the governor weighs not just the evidence, but also the political costs of clemency. It might happen or it might not, depending on the direction of the political winds of the moment. Second, it makes martyrs out of murderers. Whenever there is an execution, ministers, priests, rabbis, and others who represent society's de facto conscience are out protesting. Extremely qualified and caring attorneys pursue appeals to the last possible moment. Hours of news time are devoted to people who should not be the subject of any media attention except perhaps in studies of psychopaths, sociopaths, and the criminally insane. Third, it is expensive. The lengthy mandatory appeals process ensures that the condemned will spend many years on death row before execution. Sometimes they spend long enough to understand their crime and do what they can to make amends. In other cases the condemned merely serves a life sentence and is executed in his or her dotage. Fourth, it is primarily enforced on "others," those who are somehow outcasts, mentally disabled (until recently), members of socially disadvantaged groups, or people unable to afford qualified counsel. This is typically a case of the best justice money can buy, at least until the execution date is set and the last minute appeals set into motion. Those who can afford the proper counsel typically either get acquitted, or imprisoned if convicted. Fifth, it limits our ability to capture criminals who have fled to countries who do not have the death penalty. Those countries will not return our criminals to us unless we waive the death penalty. This again distorts our justice system because it makes it easier for people near the Canadian border to avoid execution - all they have to do is cross the border, and they're clear of it. Sixth, it is perhaps too limited, applied only to murder and some drug-related charges. This is in part because most of us don't imagine ourselves as murderers, but we could (some of us anyway) imagine ourselves as white-collar criminals. Don't expect the death penalty for crimes that you or I think we might commit. For example, consider Charles Keating, who stole almost $300 million from 21,000 people, mostly elderly. He thus robbed them of a proper pet food-free retirement, yet served only four years in prison. Granted that he has $1.6 billion in judgments against him, but that certainly beats a poke in the arm with a sharp needle. How about those Enron folks? They misled their own employees, conning them into investing their retirement plans in company stock, knowing all the while that it was worthless. Isn't robbing people of their retirement worth more than four years? Probably the death penalty is too much to ask because these people look too much like most of us. If we are going to join a group that includes Mr. Bush's axis of evil, we should at least do it right, be consistent, and address these issues.
The Evolution of the Activist Judge
With all of the hype surrounding the confirmation hearings of Samuel Alito, it is important to remember that over 90% of all appelate law is made below the Supreme Court. On Monday, the Guardian, from the University of California, San Diego, published this article opinion article on the debate over the so-called intelligent design. When Real Judicial Conservatives Attack
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