The Real Cause Of America’s Opioid Epidemic

Authored by Mark Thornton via The Mises Institute,

The Opioid epidemic is spreading across the heartland of America. The number of drug overdose deaths from both prescription (e.g., Oxycontin) and black market (e.g., heroin) opiates exceeded 30,000 in 2015. Initial estimates for 2016 indicate yet another new record of deaths. It is such an enormous problem that I taught a special class on it at our undergraduate instructional conference, Mises University, which you can listen to here.

Recently the Commission on Combating the Opioid Crisis issued a preliminary report and recommended that the president declare a national emergency.

From 2002 to 2015 the number of such deaths has increased by 280%. The chart below shows that prescription opiates were the main contributor from 2002 to 2011. Illicit opiates have been the main contributor since:

opioid.gif

It is vitally important that we understand what is causing this epidemic and even more important, how do we solve it. Plus, we need to avoid becoming a victim of it. In the past, most people ignored the issue of drug overdoses as merely an urban “junkie” problem, but this epidemic is hitting ordinary Americans such as coal miners, teachers, and high school football players.

The Washington Post asserted that the problem arose because of “aggressive marketing” on the part of the pharmaceutical companies that sell opiate painkillers. Others on the left think it is an arbitrary explosion of demand. They make it sound like market failure, but the “aggressive marketing” was not slick TV commercials. Rather, the drug companies targeted doctors, not consumers. They provided many lucrative carrots to doctors and spent resources lobbying to change regulations and pain prescribing guidelines in order to rig the FDA/AMA system in their favor.

In terms of solutions, leftists advocate spending lots of more money on just about everything they can think of, especially drug addiction treatment programs, but such programs are both extremely expensive and ineffective.

Conservatives tend to think of the cause of the epidemic in terms of the evil Mexicans and Chinese, along with street dealers and drug gangs. The Trump administration thinks that building the Mexican wall will help. They have also advocated for policies that have been demonstrated to be failures, such as expanding minimum mandatory prison sentences and asset forfeiture programs. They think expanding the D.A.R.E. program will help solve the problem, but several government-sponsored reports have discredited the effectiveness of the Drug Awareness Resistance Education program.

The real cause of this epidemic is various government policies and the real solution is the dismantling of those same policies, in perpetuum.

The Four Causes

Let us start with drug prohibition which dates back to the Harrison Narcotic Act of 1914. Drug prohibition results in a black market where illegal products are not commercially produced and where suppliers are not constrained by the rule of law and product liability law. The result is that illegal drugs are more dangerous than legal drugs. Potency varies greatly from batch to batch and products often contain dangerous impurities and substitute ingredients. Opiate overdoses often occur when an addict is unaware that a particular dose is highly potent or contains Fentanyl, a pain medication that is 50 to a 1,000 times more potent than morphine.

The next cause is called the Iron Law of Prohibition, a phrase first used by Richard Cowan to describe the phenomenon that when drug law enforcement becomes more powerful, the potency of illegal drugs increases. One of the effects of enhancing prohibition enforcement is that suppliers will produce a higher potency drug. For example, during alcohol prohibition in the 1920s suppliers switched from producing beer and wine to highly potent spirits, such as gin and whiskey.

A second result of more rigorous prohibition enforcement is that suppliers will switch from lower potency drug types to higher potency drug types. For example, during Ronald Reagan’s “war on drugs” during the 1980s, smugglers switched from bulky marijuana to highly concentrated cocaine and domestic suppliers turned much of this cocaine into crack cocaine, resulting in the crack cocaine epidemic. The Iron Law of Prohibition explains why we see more and more dangerous drugs on the black market and why we see decreases in overdoses in states that have legalized cannabis.

Government intervention in the economy is a largely unrecognized cause of addiction. Intervention has at least two distinct channels of creating addicts. The first is war. War creates addicts through both painful physical injuries and painful emotional and psychological disorders, such as Post Traumatic Stress Disorders. The second cause is the general impact of widespread government intervention in the economy. Much of government interventionism results in the creation of privileges and monopoly power. For example, licensing requirements provide members of a profession, such as medical doctors, with monopoly profits by restricting the number of practicing physicians. This enriches licensed doctors and impoverishes potential doctors who must find work in another profession. These excess potential doctors thereby suppress wages in other labor markets. Given the pervasiveness of government intervention, this creates two classes in labor markets — the advantaged and the disadvantaged and addiction tends to develop in disadvantaged labor markets where people are more likely to be despondent and lack hope and economic resources.

The three above causes have been around for a long time creating the environment for drug overdoses, but at much lower levels than we see today.

The final cause has only been around for a couple of decades, but it is now responsible for the majority of deaths. Alluded to above, Big Pharma undertook “aggressive marketing” in order to encourage doctors to write massive numbers of prescriptions for opiate painkillers and to change to pain prescribing guidelines in order to sell more of these heroin-like pills.

As a result, doctors began prescribing drugs such as Oxycontin and Vicodin, which are similar to opiates, such as morphine and heroin, for ordinary injuries and minor surgeries. The problem with this is that if you take these pills for 30 or 60 days, there is a distinct possibility that you will become physically addicted to them. The doctor is not going to write you refills for the prescription once the injury has healed.

This leaves the addict with three bad choices.

One, you can enter a drug addiction rehabilitation program, but these programs are expensive and are not necessarily effective.

 

Two, you can go cold turkey. However, detoxification comes with a slew of physical and psychological symptoms and can result in suicide and death.

 

Three, you can go into the black market and buy illegal Oxycontin and Vicodin pills. The problem with this option is that such pills are expensive and have an unstable supply. What happens if you choose this option, but run low on money or have trouble acquiring the pills? Well, very often the drug dealer who sold you the pills can also sell you heroin or tell you where to buy it. Heroin is often cheaper per dose and has a more stable supply. This is how people who would never even consider entering a room in which heroin was present become heroin addicts. This process is what has caused the major surge in drug overdoses.

The solution to the epidemic is to legalize drugs. Doctors should be able to put their patients on drug maintenance and recovery programs. Commercially produced opiates would be pure and relatively safe. Addicts could go about their lives, attempting to recover physically, psychologically, socially, and economically without having to worry about how to obtain and pay for their drugs. Drug addiction is often a multi-faceted problem that simply cannot be fixed with a 30 day rehab experience. Addicts that are successfully detoxed, but without solving more basic problems, often relapse and die because the dose they take is now too strong for their detoxed body.

Legalizing cannabis would also be a key to solving the epidemic. Legal cannabis improves the epidemic through two channels. First, medical formulations of cannabis can be a potent, but non-addictive pain killer. Therefore, legalization leads to a reduced level of opiate use, abuse, and mortality and there are several peer-reviewed studies that confirm this. Second, because cannabis reduces pain and anxiety, and improves sleep and appetite it is very helpful for those who are trying to beat their heroin addiction.

The Opioid epidemic is killing more than 30,000 Americans a year. For most experts, the epidemic is a mystery with regard to its cause and solution. A little progress has been made, but to really eliminate the problem we need to legalize drugs, reduce the size of government, and increase freedom in our lives. We also need to find an answer for the pain epidemic which has shackled too many Americans to Big Pharma and the medical belief that every symptom requires another prescription!

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US Commanders To Issue “Rare Warning” To N.Korea As Kim Threatens “Merciless Revenge”

As the Ulji Freedom Guardian joint military drills begin near the Korean Peninsula, North Korea’s Kim has threatened “merciless revenge” against the “US Imperialists and South Korean war maniacs” for ignoring his warnings. North Korea’s state-run Korean Central News Agency reports that:

The US imperialists and the South Korean war maniacs launched the Ulji Freedom Guardian joint military drills aimed at a preemptive attack on the DPRK.

 

Despite the repeated warnings of the DPRK, they have kicked off the war in the pretext of resolving “countering” the “provocation by the north.” This is aimed at igniting a nuclear war on the Korean peninsula at any cost.

 

What is more serious is the fact that on the eve of the war exercises, American troops, including US Pacific Commander and Strategic Commander, flew to the South, contributing far more US troops from overseas, as well as seven vassal states including Australia and Britain.

 

The Korean peninsula has plunged into a critical phase due to the reckless north-targeted war racket of the war maniacs.

As Bloomberg notes, KCNA further cites an unidentified military spokesman as saying it would be a misjudgment for the U.S. to think that North Korea will “sit comfortably without doing anything” during the U.S.-South Korea joint military drills.

Ongoing drills and visits of U.S. military officials to South Korea create the circumstances for a “mock war” on the Korean peninsula, KCNA says.

 

U.S. can’t avoid “merciless revenge” by North Korea.

 

U.S. should never forget North Korea is watching its moves closely with “fingers on triggers, ready to pour a fire shower of penalties at any time”

Additionally, adding further tension, Yonhap reports that three top U.S. military commanders plan to issue a “strong warning message” to North Korea in a rare joint press availability here later Tuesday, officials said.

Pacific Command chief Adm. Harry Harris, Strategic Command head Gen. John Hyten and Missile Defense Agency Director Lt. Gen. Samuel Greaves are scheduled to hold a press conference at a local U.S. Forces Korea (USFK) base.  It’s quite unusual for the U.S. commanding generals serving abroad to gather in South Korea and release public statements together.

 

It apparently reflects Washington’s alertness against North Korea’s rapid development of nuclear bombs and missiles.

Given the fact that the US Navy has had two ‘accidental collisions’ with slow-moving vessels in recent months, what are the chances this all ends without incident?

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Federal Judge Orders IRS To Release Names Of Specific Employees That Targeted Tea Party Groups

Remember Lois Lerner?  If not, she was basically the person that Obama put in charge of weaponizing the IRS so that it could be used by the Democratic party as a political weapon of mass destruction to suppress Tea Party groups back in 2012.  Ring any bells yet?

Well, as a testament to the efficiency of our legal system, it turns out that the case is still ongoing some 5 years later.  Of course, this has to be a simple bureaucracy issue because there is no way that the Obama administration, you know, the only scandal-free White House in modern history, played any role in delaying the completely transparent transmission of information about this shocking threat to our Democracy…just ask CNN…we’re sure they’ll confirm the same.

Be that as it may, after years of litigation over what conservatives have long called “chilling” behavior by one of the government’s “most feared” agencies, a federal judge has finally ordered the IRS to release the names of specific employees involved in targeting Tea Party groups in the lead up to the 2012 presidential election. Per Fox News:

Judge Reggie B. Walton of the U.S. District Court for the District of Columbia also said the IRS must provide information about which groups were targeted and why, along with a strategy to make sure such targeting doesn’t happen again.

 

The IRS is involved in multiple lawsuits with conservative groups related to the Tea Party targeting scandal; this particular case involves True the Vote.

 

“We’re thrilled the judge has taken this step and it feels good to have it recognized that they need to be held to account,” True the Vote President Catherine Engelbrecht told Fox News on Monday. “What happened to me was very personal—my name was thrown around the IRS, and the names of the people involved need to be known. What they did was criminal.”

Lerner Obama

 

Of course, as Judicial Watch’s Chris Farrell notes, this single court decision managed to accomplish more in getting to the bottom of the IRS scandal than the Obama administration and Congress did in multiple years. 

But director of investigations and research at Judicial Watch Chris Farrell, whose organization is also involved in litigation with the IRS on this issue, told Fox News that the IRS owes litigants “real accountability.”

 

“This was creepy, chilling stuff,” Farrell told Fox News.  

 

“Judge Walton has accomplished more with one ruling than all of the rest of the federal government – all three branches – over the last six years.”

 

Farrell added: “The IRS is one of the most feared government agencies, and they’ve gotten a pass, in part. Walton is looking for real accountability and that’s so important.”

That said, we’re certain that if we failed to pay taxes for 6 years that the IRS would be equally understanding.

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“I Believe In The American Ideal…And That’s Why I Don’t Live There”

Authored by Jeff Thomas via InternationalMan.com,

Back in the late 18th century, the American colonies were made up largely of self-reliant people who had a strong work ethic. Most had either been born in the UK, or their parents or grandparents were born there. What set them apart from their fellow Britons was that they didn’t simply accept their lot in life back in the UK. They chose the more uncertain outcome of life in the colonies. They therefore had the courage, imagination, and desire to create their own destiny, traits that their fellow Britons did not possess.

Not surprising, then, that they carved out thirteen very productive and prosperous colonies, without the burden of a top-heavy, overreaching government. When the UK government sought to increase taxation and control (i.e., enslave) the colonists, there was rebellion. The tax being exacted by King George was miniscule by today’s standards, but that wasn’t the point. They fought against enslavement, and, in their talks of independence, they emphasized this point.

The American ideal, first and foremost, was freedom.

They weren’t seeking entitlements, or promises of government-generated jobs, or protection from the natives. They had already learned how to protect themselves, create their own jobs, and provide for themselves. They were prepared to be self-reliant as one of the prices of freedom.

When Thomas Jefferson wrote the Declaration of Independence, it was with the intention of creating a document upon which all the other delegates to the Constitutional Convention could agree as a basic set of understandings. In doing so, he not only unified the colonies; he also defined freedom for every generation of people that came after him, whether they were American or from any other country in the world.

After creating the US, there were, understandably, many upsets along the way. From the time of the very first cabinet, Jefferson, as Secretary of State, was at odds with Secretary of the Treasury Alexander Hamilton, who couldn’t wait to create a national currency, direct taxation, and a central bank. Over the ensuing decades, the tide of freedom ebbed and flowed as forces from within the US sought to diminish freedom, just as they do today. In my estimation, the US began its steady decline in earnest roughly one hundred years ago. Since that time, Americans have, increasingly, traded freedom for the promise of a safety that was never fulfilled, and for ever-increasing largesse from the government—largesse that they already paid for through taxation.

I’m British and, two generations ago, my grandparents set out for “the colonies.” Like the first Americans, they had an ideal in mind. They moved around a bit, but finally found that ideal during my generation. Today, I’m able to live a life that’s far freer than I would have if I were to move to the US and, truth be told, I’d be just as unwilling to move to the UK. I like it there, but it couldn’t be my home. At present, I possess the documentation to live in a total of thirty countries, but choose to live in only two of them.

If either country were to fall below the ideal I’ve set, I’d pack up my bags and not return. My philosophy is simple: When the apple is thoroughly rotten, it’s time to find a new apple, not live in the vain hope that somehow the apple will grow less rotten with time.

For many years, I’ve been advising people on internationalisation and, in recent years, the numbers of people I’ve seen have been dramatically on the increase. Many of them come from the US and, frequently, they confess that, although they’re considering leaving the US because it’s become unlivable for them, they feel somewhat guilty. They feel as though they’re turning their backs on America and the American ideal.

The American ideal is in fact a universal ideal. This is an important distinction to understand, because it serves as a reminder that loyalty and patriotism should not be applied to any particular piece of geography. Just as people left for America to find freedom in times gone by, it makes equal sense to move away for the very same reason. Americans, or anyone else who seeks freedom from oppressive governance, should recognize that the world is made up of some 200 countries, each offering a different combination of advantages and disadvantages. No one country is ideal for everyone, but the choices are many.

The good news is that, today, the American ideal is very much alive – it just doesn’t happen to live in the US. (Although there are those who retain this ideal and choose to “fight from within” to return the US to its founding ideal.) But the odds of achieving this are very poor indeed. The US, like many other countries in the former “free” world, is currently plunging headlong in a downward trend. A reversal is unlikely in the extreme.

In my own country, I receive no entitlements. I have to create my own wealth. But, I live under a minimum of laws, including no direct taxation of any kind. I make my own choices, I can speak freely, without fear of reprisal from political correctness. I’ve never been taken to court and I’ve never needed to take out a loan.

The universal ideal of freedom is very much alive and is yours to find, should you feel that your country has lost it and you want to live the rest of your life as a free individual.

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Awan Plot Thickens As NY Democrat Yvette Clarke “Quietly” Wrote-Off $120,000 Of Missing Tech Equipment

When we reported last week that Imran Awan and his wife had been indicted by a grand jury on 4 counts, including bank fraud and making false statements related to some home equity loans, we also noted that those charges could simply be placeholders for further developments yet to come.  Now, according to a new report from the Daily Caller, the more interesting component of the FBI’s investigation could be tied to precisely why New York Democrat Representative Yvette Clarke quietly agreed in early 2016 to simply write-off $120,000 in missing electronics tied to the Awans.

A chief of staff for Democratic Rep. Yvette Clarke quietly agreed in early 2016 to sign away a $120,000 missing electronics problem on behalf of two former IT aides now suspected of stealing equipment from Congress, The Daily Caller News Foundation has learned.

 

Clarke’s chief of staff at the time effectively dismissed the loss and prevented it from coming up in future audits by signing a form removing the missing equipment from a House-wide tracking system after one of the Awan brothers alerted the office the equipment was gone. The Pakistani-born brothers are now at the center of an FBI investigation over their IT work with dozens of Congressional offices.

 

The $120,000 figure amounts to about a tenth of the office’s annual budget, or enough to hire four legislative assistants to handle the concerns of constituents in her New York district. Yet when one of the brothers alerted the office to the massive loss, the chief of staff signed a form that quietly reconciled the missing equipment in the office budget, the official told TheDCNF. Abid Awan remained employed by the office for months after the loss of the equipment was flagged.

Awan

 

If true, of course this new information would seem to support previously reported rumors that the Awans orchestrated a long-running fraud scheme in which their office would purchase equipment in a way that avoided tracking by central House-wide administrators and then sell that equipment for a personal gain while simultaneously defrauding taxpayers of $1,000’s of dollars. 

Meanwhile, according to the Daily Caller, CDW Government could have been in on the scheme.

They’re suspected of working with an employee of CDW Government Inc. — one of the Hill’s largest technology providers — to alter invoices in order to avoid tracking. The result would be that no one outside the office would notice if the equipment disappeared, and investigators think the goal of the scheme was to remove and sell the equipment outside of Congress.

 

CDW spokeswoman Kelly Caraher told TheDCNF the company is cooperating with investigators, and has assurance from prosecutors its employees are not targets of the investigation. “CDW and its employees have cooperated fully with investigators and will continue to do so,” Caraher said. “The prosecutors directing this investigation have informed CDW and its coworkers that they are not subjects or targets of the investigation.”

Not surprisingly, Clarke’s office apparently felt no need whatsoever to report the $120,000 worth of missing IT equipment to the authorities…it’s just taxpayer money afterall…

According to the official who talked to TheDCNF, Clarke’s chief of staff did not alert authorities to the huge sum of missing money when it was brought to the attention of the office around February of 2016. A request to sign away that much lost equipment would have been “way outside any realm of normalcy,” the official said, but the office did not bring it to the attention of authorities until months later when House administrators told the office they were reviewing finances connected to the Awans.

 

The administrators informed the office that September they were independently looking into discrepancies surrounding the Awans, including a review of finances connected to the brothers in all the congressional offices that employed them. The House administrators asked Clarke’s then-chief of staff, Wendy Anderson, whether she had noticed any anomalies, and at that time she alerted them to the $120,000 write-off, the official told TheDCNF.

Of course, the missing $120,000 covers only Clarke’s office. As we’ve noted before, Imran and his relatives worked for more than 40 current House members when they were banned from the House network in February, and have together worked for dozens more in past years so who know just how deep this particular rabbit hole goes.

Also makes you wonder what else Debbie Wasserman-Schultz and the Awans might be hiding.  Certainly the decision by Wasserman-Shultz to keep Awan on her taxpayer funded payroll, right up until he was arrested by the FBI while trying to flee the country, is looking increasingly fishy with each passing day.

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House Price Bubbles 2.0 In Pictures

By Mark Hanson Of M Hanson Advisers

Bottom Line: House prices and end-user, shelter-buyer fundamentals have never been further apart in key, economically significant cities.

The two charts presented in this note highlight just how diverged house prices have become from end-user, shelter-buyer, employment and income fundamentals in the most populated, economically significant US cities.

I maintain that House prices are always drawn to the purchasing power — or, economic strength — of the end-user, shelter-buyer cohort, as the dominant, permanent demand driver.

But, sometimes House prices, like other asset prices, go through periods of separation from end-user, shelter-buyer cohort fundamentals.  And based on the most recent data of incomes, mortgage rates, and House prices in key cities around the nation, house prices and end-user fundamentals have never been further apart.  Even in Bubble 1.0, the divergence wasn’t this bad because exotic loans, which were the incremental driver of House prices, made for legitimately low monthly payments.

Some positive or negative divergences can be solved through lots of time, as the economy shrinks or grows.  But, over the past several years, as the economy barely grew each year, house prices soared at a pace that exceeded Bubble 1.0 in most regions.

As such, it’s reasonable to assume that the massive divergence in most key metros has been driven largely from the three things that just so happen to be present in all bubbles throughout history; SPECULATION, LEVERAGE, AND EASING CREDIT STANDARDS, regardless if on an individual, corporate, financial market, or Gov’t level.

* * *

THINK ABOUT IT THIS WAY…

If everybody had to buy a house the exact same way — say, with a 30-year fixed, fully-documented mortgage and 20% down — HOUSE PRICES could never detach from the end-user, shelter-buyer employment and income fundamentals for a particular region. In other words, HOUSE PRICES would be attached to and track these fundamentals, perfectly.

But, in times, of increased speculation, leverage, and declining credit standards, the end-user, shelter-buyer employment and income fundamentals get drowned-out and asset prices attach to the incremental spec and high-leverage drivers.  How long and far asset prices are driven by the incremental, spec and leverage drivers determines the scope of the divergence and ultimately the possible downside risk in an asset class.

For housing, in particular, using these data, I can easily calculate the potential HOUSE PRICE downside in each area.

Bottom line This massive HOUSE PRICE/fundamentals divergence will close at some point, either from surging wages, plunging credit standards or rates (make monthly payments less), falling HOUSE PRICES, or a combo of all three. 

* * *

Onto the data.

A big problem with house prices experiencing even a “moderate” correction of 10% to 20% — already underway in many of the most over-priced regions — is with between 40% and 50% of all house purchases for years being of the “less than 10% down” variety — and because it takes 8% to 10% equity to sell plus the 3% to 10% down payment on the new house — it doesn’t take much downside to swamp the nation in “NEGATIVE EQUITY” once again. And we know for certain that many homeowners rather pay their credit cards and car payments before their mortgage when they are underwater.

* * *

ITEM 1)  Household income INCREASE needed to Buy the Median Priced House in Key Cities.

Bottom Line:  On a “national” basis the divergence isn’t too bad…6%.  But, in the key cities that drive the US economy, Bubble 2.0 has blown large.  This represents significant downside, especially in the sand states, just like in Bubble 1.0.

ITEM 2)  DIVERGENCE between Actual Household Income & Income Needed to Buy the Median Priced House.

Bottom Line:  Here too, on a “national” basis the divergence isn’t too bad…-6%.  But, in the key cities that drive the US economy, Bubble 2.0 has blown large.

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Key Highlights Of Trump’s Afghanistan Speech Leaked

Tonight at 9:00 pm, Trump will address the nation, unveiling the administration’s “New Path Forward” for America’s engagement in Afghanistan and South Asia as discussed yesterday. While we will have a more thorough preview shortly, moments ago the key highlights of the upcoming speech were leaked online courtesy of Fox News’ Jennifer Griffin, and are as follows:

  • The president has signed off on 4,000 more US troops to Afghanistan; not clear he will talk numbers tonight. No talk of withdrawal.
  • In speech tonight Pres Trump will ask “region to do more,”  will ask “India and Pakistan to do more to bring Taliban to negotiating table.
  • Trump strategy to include negotiating w/ Taliban. In past Qatar negotiations failed because Pres Obama announced troop withdrawals: US official

Of the items above, the key one is of course, the deployment of another 4,000 troops which however was to be expected, as noted yesterday that “anyone harboring any hope that with two generals whispering strategy in Trump’s ear, and with anti-interventionist Bannon out of the picture, that Trump will announce an accelerated withdrawal of US troops from the war-battered country, should probably not hold their breath.”

The new deployment was also discussed over two months ago in “Pentagon To Send 4,000 Troops To Afghanistan In Trump’s Largest Deployment Yet“, however that particular deployment had been put on hold as long as Bannon was Trump’s chief advisor. In light of the latest White House shake up, it was only a matter of time before Trump greenlighted the escalation that his general advisors had been urging for months. The “time” in question was exactly 48 hours since Bannon’s departure.

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Top Institutions and Economists Now Say Globalization Increases Inequality

We’ve all heard that globalization lifts all boats and increases our prosperity …

But mainstream economists and organizations are now starting to say that globalization increases inequality.

The National Bureau of Economic Research – the largest economics research organization in the United States, with many Nobel economists and Chairmen of the Council of Economic Advisers as members –  published,  a report in May finding:

Recent globalization trends have increased U.S. inequality by disproportionately raising top incomes.

 

***

 

Rising import competition has adversely affected manufacturing employment, led firms to upgrade their production and caused labor earnings to fall.

NBER explains that globalization allows executives to gain the system to their advantage:

This paper examines the role of globalization in the rapid increase in top incomes. Using a comprehensive data set of thousands of executives at U.S. firms from 1993-2013, we find that exports, along with technology and firm size, have contributed to rising executive compensation. Isolating changes in exports that are unrelated to the executive’s talent and actions, we show that globalization has affected executive pay not only through market channels but also through non-market channels. Furthermore, exogenous export shocks raise executive compensation mostly through bonus payments in poor-governance settings, in line with the hypothesis that globalization has enhanced the executive’s rent capture opportunities. Overall, these results indicate that globalization has played a more central role in the rapid growth of executive compensation and U.S. inequality than previously thought, and that rent capture is an important part of this story.

A World Bank document says globalization “may have led to rising wage inequality”. It  notes:

Recent evidence for the US suggests that adjustment costs for those employed in sectors exposed to import competition from China are much higher than previously thought.

 

***

 

Trade may have contributed to rising inequality in high income economies ….

The World Bank also cites Nobel prize-winning economist Eric Maskin’s view that globalization increases inequality because it increases the mismatch between the skills of different workers.

A report by the International Monetary Fund notes:

High trade and financial flows between countries, partly enabled by technological advances, are commonly cited as driving income inequality …. In advanced economies, the ability of firms to adopt laborsaving technologies and offshoring has been cited as an important driver of the decline in manufacturing and rising skill premium (Feenstra and Hanson 1996, 1999, 2003) ….

 

***

 

Increased financial flows, particularly foreign direct investment (FDI) and portfolio flows have been shown to increase income inequality in both advanced and emerging market economies (Freeman 2010). One potential explanation is the concentration of foreign assets and liabilities in relatively higher skill- and technology-intensive sectors, which pushes up the demand for and wages of higher skilled workers. In addition, FDI could induce skill-specific technological change, be associated with skill-specific wage bargaining, and result in more training for skilled than unskilled workers (Willem te Velde 2003). Moreover, low-skill, outward FDI from advanced economies may in effect be relatively high-skilled, inward FDI in developing economies (Figini and Görg 2011), thus exacerbating the demand for high-skilled workers in recipient countries. Financial deregulation and globalization have also been cited as factors underlying the increase in financial wealth, relative skill intensity, and wages in the finance industry, one of the fastest growing sectors in advanced economies (Phillipon and Reshef 2012; Furceri and Loungani 2013).

The Bank of International Settlements – the “Central Banks’ Central Bank” – also notes  that globalization isn’t all peaches and cream.  The Financial Times explains :

A trio of recent papers by top officials from the Bank for International Settlements goes further, however, arguing that financial globalisation itself makes booms and busts far more frequent and destabilising than they otherwise would be.

McKinsey & Company notes:

Even as globalization has narrowed inequality among countries, it has aggravated income inequality within them.

The Economist points out:

Most economists have been blindsided by the backlash [against globalization]. A few saw it coming. It is worth studying their reasoning ….

 

***

 

Branko Milanovic of the City University of New York believes such costs perpetuate a cycle of globalisation. He argues that periods of global integration and technological progress generate rising inequality ….

Supporters of economic integration underestimated the risks … that big slices of society would feel left behind ….

The New York Times reported:

Were the experts wrong about the benefits of trade for the American economy?

 

***

 

Voters’ anger and frustration, driven in part by relentless globalization and technological change [has made Trump and Sanders popular, and] is already having a big impact on America’s future, shaking a once-solid consensus that freer trade is, necessarily, a good thing.

 

“The economic populism of the presidential campaign has forced the recognition that expanded trade is a double-edged sword,” wrote Jared Bernstein, former economic adviser to Vice President Joseph R. Biden Jr.

 

What seems most striking is that the angry working class — dismissed so often as myopic, unable to understand the economic trade-offs presented by trade — appears to have understood what the experts are only belatedly finding to be true: The benefits from trade to the American economy may not always justify its costs.

I

n a recent study, three economists — David Autor at the Massachusetts Institute of Technology, David Dorn at the University of Zurich and Gordon Hanson at the University of California, San Diego — raised a profound challenge to all of us brought up to believe that economies quickly recover from trade shocks. In theory, a developed industrial country like the United States adjusts to import competition by moving workers into more advanced industries that can successfully compete in global markets.

 

They examined the experience of American workers after China erupted onto world markets some two decades ago. The presumed adjustment, they concluded, never happened. Or at least hasn’t happened yet. Wages remain low and unemployment high in the most affected local job markets. Nationally, there is no sign of offsetting job gains elsewhere in the economy. What’s more, they found that sagging wages in local labor markets exposed to Chinese competition reduced earnings by $213 per adult per year.

 

In another study they wrote with Daron Acemoglu and Brendan Price from M.I.T., they estimated that rising Chinese imports from 1999 to 2011 cost up to 2.4 million American jobs.

 

“These results should cause us to rethink the short- and medium-run gains from trade,” they argued. “Having failed to anticipate how significant the dislocations from trade might be, it is incumbent on the literature to more convincingly estimate the gains from trade, such that the case for free trade is not based on the sway of theory alone, but on a foundation of evidence that illuminates who gains, who loses, by how much, and under what conditions.”

 

***

 

The case for globalization based on the fact that it helps expand the economic pie by 3 percent becomes much weaker when it also changes the distribution of the slices by 50 percent, Mr. Autor argued.

And Steve Keen – economics professor and Head of the School of Economics, History and Politics at Kingston University in London – notes:

Plenty of people will try to convince you that globalization and free trade could benefit everyone, if only the gains were more fairly shared. The only problem with the party, they’ll say, is that the neighbours weren’t invited. We’ll share the benefits more equally now, we promise.

 

Let’s keep the party going. Globalization and Free Trade are good.

 

This belief is shared by almost all politicians in both parties, and it’s an article of faith for the economics profession.

 

***

 

It’s a fallacy based on a fantasy, and it has been ever since David Ricardo dreamed up the idea of “Comparative Advantage and the Gains from Trade” two centuries ago.

 

***

 

[Globalization’s] little shell and pea trick is therefore like most conventional economic theory: it’s neat, plausible, and wrong. It’s the product of armchair thinking by people who never put foot in the factories that their economic theories turned into rust buckets.

So the gains from trade for everyone and for every country that could supposedly be shared more fairly simply aren’t there in the first place. Specialization is a con job—but one that the Washington elite fell for (to its benefit, of course). Rather than making a country better off, specialization makes it worse off, with scrapped machinery that’s no longer useful for anything, and with less ways to invent new industries from which growth actually comes.

 

Excellent real-world research by Harvard University’s “Atlas of Economic Complexity” has found diversity, not specialization, is the “magic ingredient” that actually generates growth. Successful countries have a diversified set of industries, and they grow more rapidly than more specialized economies because they can invent new industries by melding existing ones.

 

***

 

Of course, specialization, and the trade it necessitates, generates plenty of financial services and insurance fees, and plenty of international junkets to negotiate trade deals. The wealthy elite that hangs out in the Washington party benefits, but the country as a whole loses, especially its working class.

Some Big Companies Losing Interest In Globalization

Ironically, the Washington Post noted in 2015 that the giant multinational corporations themselves are losing interest in globalization … and many are starting to bring the factories back home:

Yet despite all this activity and enthusiasm, hardly any of the promised returns from globalization have materialized, and what was until recently a taboo topic inside multinationals — to wit, should we reconsider, even rein in, our global growth strategy? — has become an urgent, if still hushed, discussion.

 

***

 

Given the failures of globalization, virtually every major company is struggling to find the most productive international business model.

 

***

 

Reshoring — or relocating manufacturing operations back to Western factories from emerging nations — is one option. As labor costs escalate in places such as China, Thailand, Brazil and South Africa, companies are finding that making products in, say, the United States that are destined for North American markets is much more cost-efficient. The gains are even more significant when productivity of emerging countries is taken into account.

 

***

 

Moreover, new disruptive manufacturing technologies — such as 3-D printing, which allows on-site production of components and parts at assembly plants — make the idea of locating factories where the assembled products will be sold more practicable.

 

***

 

GE, Whirlpool, Stanley Black & Decker, Peerless and many others have reopened shuttered factories or built new ones in the United States.

via http://ift.tt/2xmoadg George Washington

63 Shot, 8 Dead In Chicago’s 2nd Most Violent Weekend Of 2017

More people were shot in Chicago over this past weekend than any other this year, except for the Fourth of July weekend that spanned four days.  According to the Chicago Tribune and police data, a total of 63 people were shot and 8 were killed as violence erupted all over the city.

At least 63 people were shot in the city, and eight of them were killed, police said.  More than half of them were wounded over 13 hours from Saturday to early Sunday.  At least 16 more people were shot through the day Sunday, including three on the same street in South Austin.

 

The level of violence exceeded the 52 shot on the three-day Memorial Day but fell short of the 102 hit by gunfire over the long Fourth of July weekend, according to Tribune data.  Still, fewer people have been shot in Chicago this year than at this time last year: 2,435 compared to 2,710.

 

The wounded included a 14-year-old boy grazed in the chest and left knee while he walking with his sister and a friend just before 9:30 p.m. Friday in Pilsen.

 

An officer-involved shooting Saturday night left 33-year-old man with graze wounds to the head. Police said he confronted police with a gun and an officer fired.

The violence in Chicago continues despite the Trump administration sending in dozens of ATF agents to work with the Chicago Police Department back in June.  Per U.S. News, ATF agents were sent in to assist with ballistics information intended to help cops track down suspect quicker while identifying repeat offenders.

The ATF is sending 20 agents to Chicago to supplement ongoing efforts and coordinate with local agencies on a strike force aimed at solving shooting cases and using collected evidence and ballistics to find and stop gun traffickers, the Chicago Sun Times reported. They will join some 35 to 40 ATF agents already assigned to Chicago.

 

The goal is to use ballistics information submitted to a national database to identify when guns are used in multiple shootings and connect them to new cases. The beefed-up strike force, equipped with a mobile lab to quickly test new evidence, will help law enforcement build criminal cases against shooters and those providing the guns.

 

“We’ve been doing this all along but now it’s being amped up,” Dave Coulson, a spokesman for ATF in Chicago, told the Sun Times. “It’s a more concerted effort.”

 

“The goal is the prosecute as many of these guys as possible federally where they will serve longer prison terms,” Anthony Riccio, head of the Chicago Police Department’s organized crime unit, told the paper.

Meanwhile, the following daily tracking graph from HeyJackAss! helps to put the surge in violence this past weekend into perspective.

 

Per the Chicago Tribune, this weekend’s shootings occurred across the city, from Rogers Park on the Far North Side, where a 32-year-old man was killed early Sunday, to West Pullman on the Far South Side, where seven people were shot outside a banquet hall a few hours later the same day.

 

Finally, as we’ve noted before, 2017 is still shaping up to be every bit as devastating for the residents of Chicago as 2016 was. 

via http://ift.tt/2wshv4F Tyler Durden

No, Corporate CEOs Are Not Heroes

Authored by Mike Krieger via Liberty Blitzkrieg blog,

I warned everybody about this in several posts last week. How some of the worst cretins rummaging around the carcass of American freedom and democracy instantaneously began salivating ferociously at the opportunity to look heroic by coming out in opposition to a grossly exaggerated Nazi threat hyped up by the corporate media.

The events in Charlottesville presented such a tremendous opportunity for sleazy people in power to preposterously frame themselves as “speaking truth to power,” I knew they’d milk it for all it’s worth. Days later, and they’re still doing it.

Of course, the “journalists” of corporate media, i.e., public relations stenographers for billionaires, are doing everything they can to push this ridiculous narrative. Unsurprisingly, The New York Times has helped lead the charge, with David Gelles penning an article on Saturday that has to be one of the most revolting pieces of shameless propaganda ever composed in the english language.

The article, titled The Moral Voice of Corporate America, should be etched in stone and thrown into time capsule so generations hundreds of years from now can accurately comprehend just how absurdist things had become by mid-2017 — the waning years of the hopelessly stupid American empire. A time when everybody enthusiastically lost their minds in a manic and desperate effort to avoid stark reality.

Although the article is legitimately unreadable, as students of how the media manipulates the attitudes of the general public, we can’t simply ignore it. I’ll limit my use of excerpts, as I genuinely feel nauseous sharing any of it. The first few paragraphs show you all you need to see.

The nation has split into political tribes. The culture wars are back, waged over transgender rights and immigration. White nationalists are on the march.

This is why we appreciate The New York Times. The paper’s measured take on the true state of America helps keep us all measured and grounded in reality.

Amid this turbulence, a surprising group of Americans is testing its moral voice more forcefully than ever: C.E.O.s.

 

After Nazi-saluting white supremacists rioted in Charlottesville, Va., and President Trump dithered in his response, a chorus of business leaders rose up this past week to condemn hate groups and espouse tolerance and inclusion. And as lawmakers in Texas tried to restrict the rights of transgender people to use public bathrooms, corporate executives joined activists to kill the bill.

 

These and other actions are part of a broad recasting of the voice of business in the nation’s political and social dialogue, a transformation that has gained momentum in recent years as the country has engaged in fraught debates over everything from climate change to health care.

 

In recent days, after the Charlottesville bloodshed, the chief executive of General Motors, Mary T. Barra, called on people to “come together as a country and reinforce values and ideals that unite us — tolerance, inclusion and diversity.”

 

Jamie Dimon of JPMorgan said, “The equal treatment of all people is one of our nation’s bedrock principles.”

David Sirota had the best response yet to the above.

There’s a concerted effort going on to frame the very people the American public should be united against, as the last remaining brave and heroic bulwark against hordes of marching neo-Nazis about to take over the country. In addition to being incredibly sleazy, intentional and dishonest, it’s also a clever diversion tactic to keep our eyes off the ball.

If CEOs were such heroes where were they while the NSA was trampling all over the Bill of Rights? Why did we have to wait for Edward Snowden to find out about all those unconstitutional surveillance programs. Blowing the whistle on that would’ve demonstrated real courage, unlike condemning Nazis, which everyone can do with zero risk to themselves or their careers.

If we’re honest with ourselves, we all know what happens to people who actually talk truth to power in the U.S. They end up in asylum or in jail.

Just a slightly different outcome awaits corporate criminals when they destroy millions of lives with their corruption and fraud. The phrase “too big to jail” comes to mind, and there’s nothing heroic about that.

via http://ift.tt/2v8K8Qd Tyler Durden