Archive for September, 2015

Puerto Rico’s Debt Crisis: The Cost of Being a US Colony

Wednesday, September 16th, 2015

By Mike Andrew

On August 3 Puerto Rico defaulted on an installment of its $72 billion debt. The Commonwealth paid a mere $628,000 toward a $58 million bill due at the beginning of August to creditors of its Public Finance Corporation (PFC ).

The default was expected, and it’s easily understandable when you consider the fact that Puerto Rico’s GDP is only $69 billion.

The interesting detail that was not widely reported is that the island did pay the regular installments on all its debt obligations other than what was owed to PFC.

In fact, Puerto Rico’s government made a strategic decision not to pay PFC because its investors were merely credit unions representing ordinary Puerto Rican citizens. The debts that were paid were ones owed to Wall Street hedge funds, which could have made much more trouble for the Puerto Rican government.

According to Forbes magazine, at least 36 US hedge funds and some big mutual funds have invested in Puerto Rican bonds and now own 47 percent of the island’s debt.

Debt is only part of the problem for the island. Puerto Rico’s Governor, Alejandro Garcia Padilla, says the island’s whole economy is in a “death spiral.” Only 40 percent of the island’s population is employed or even looking for work. The figure for the US mainland is 60 percent.

Puerto Rico’s population is declining as its people flee to the mainland US. In fact, more Puerto Ricans live on the mainland than on their native island, and the emigration trend is expected to continue for the foreseeable future.

Emigration to the mainland shrinks the island’s tax base, making it harder for the Puerto Rican government to pay its debts or even to keep basic services going. There have been reports from many towns that supplies of drinking water have been interrupted for days at a time.

What went wrong?

According to former IMF chief economist Anne Krueger, the problem is that Puerto Rico is a US commonwealth, and therefore has to comply with US minimum wage laws, while other Caribbean islands do not. US investors who want to open Caribbean resorts, Krueger says, would rather go to the Dominican Republic, where wages are one-fifth of those in Puerto Rico.

Krueger also claims that US public assistance programs make it more desirable for Puerto Ricans to be unemployed than to get a job. According to Krueger, a Puerto Rican household of three that is eligible for food stamps, AFDC, Medicaid, and utility subsidies could receive $1,743 a month, which is more than the median income on the island.

Apart from proving the futility of expecting anything helpful from the IMF, what does Krueger’s analysis show?

Krueger is half right. Puerto Rico’s problems do, in fact, stem from the fact that it’s a US commonwealth – although the more accurate word would be “colony.” That means that the island is wide open to US corporations and is subject to their needs, including trade restrictions which prevent the island from trying to attract competing nonUS investors.

Puerto Rico’s main problem is that it’s surrounded by other island countries that are also economic colonies of the United States but are not protected by US social legislation. Puerto Rico is poor when compared with US states, but when compared to other Caribbean countries it has the highest per capita GDP in the region.

That sounds good, but in a neocolonial system it’s not. What it means is that US resort developers can go to the Dominican Republic and pay $1.45 per hour for hotel staff – one-fifth of the $7.25 US minimum wage that they have to pay Puerto Ricans.

And because they can do so, they do. That’s the reason employment on the island is so low compared to the mainland US.

While Krueger thinks US safety-net programs encourage Puerto Ricans to avoid gainful employment – the same argument Republicans in the US make, by the way – islanders pay US income taxes and are entitled to get the benefits they’ve paid for.

If a Puerto Rican family on public assistance earns more than the median income on the island, as Krueger claims, it must mean that many Puerto Ricans who are eligible for assistance are not getting it.

Puerto Rico has been called “America’s Greece,” and like Greece, the island is trapped in a destructive system not of its own making and which it can’t escape unless it changes the terms of its relationship with the US.

What’s Next in the Fight for Fair Trade?

Wednesday, September 16th, 2015

By Lynne Dodson

For the past six months a broad coalition of labor, environmental, faith, and community organizations has been united in a single purpose: defeating Fast Track for the Trans Pacific Partnership (TPP) trade deal. With over 150 actions; thousands of letters, postcards, and phone calls to our Democratic congressional delegation; and more news coverage than trade issues have seen since NAFTA, in the end both our Senators and Representatives DelBene, Kilmer, and Larsen joined with Republicans in Congress and voted for Fast Track. Representatives Heck, McDermott, and Smith stood fast in the face of tremendous pressure from the White House, and voted against it.

While Fast Track ended up passing by a narrow majority in both the House and Senate, we stalled the vote for months, held over 100 actions in the five months leading up to the vote, and certainly raised the awareness around the problems with our status quo free trade agreements.

Fast Track gives the means to push free trade agreements (FTAs) through Congress without debate or amendments. Now that it has passed, we turn our attention to the two big agreements that are coming up – the TPP, and the Transatlantic Trade and Investment Partnership.

First, let’s be clear – this hearty coalition is not trade adverse. Trade should benefit people in partnering countries. It should improve the standard of living, and bring benefits to people living in trading countries. What trade deals do is write the rules for globalization and for how our economy works. As one of the most trade-dependent states in the nation (so we hear again and again), it is particularly incumbent on us to ensure that trade agreements are driven by the values and principles of civil society. That is not the case with the current negotiations on the Trans Pacific Partnership (TPP).

The Trans Pacific Partnership (TPP) trade deal is at the heart of our opposition, though a similar deal – the Transatlantic Trade and Investment Partnership is also of concern. Since Fast Track legislation is in place for the next six years, it is likely that other trade deals, like the Trade in Services Agreement (TiSA), are likely to come up during this time as well.

The agreements all have some things in common. First, their primary goal is to “liberalize trade” – increase the ability to profit, not “improve the lives of people.” Second, they are negotiated in secret, and the primary negotiators at the table hail from multinational corporations and investors. The fundamental process by which these deals are negotiated is flawed in ways that preclude meaningful input from civil society.

We have been assured that the TPP (for example) will contain higher labor and human rights standards than any previous trade deal. This may well be, but according to the U.S. Government Accountability Office, monitoring and enforcement of standards is sorely lacking. Since 2008, the Department of Labor has accepted only five formal complaints, and only one – with Peru – was resolved. The Columbia FTA has the highest labor standards yet, and trade unionists continue to be threatened and murdered. The recent news of a change in Malaysia’s human rights status leads one to wonder how low standards can go in order to include countries in trade agreements. Half of the countries in the TPP have a current US State Department ranking of Tier 2 or 3 – poor standards on human slavery and trafficking.

From leaked text so far it is difficult to see any improvement in the TPP over NAFTA and similar FTAs. This is no surprise. The fundamental objective, to increase profits through the “liberalization’” of trade, remains the same. We can expect more of the same results, and this is what leaked text suggests – increased income inequality, more off-shoring of jobs, increased prices for medicine, prohibitions on “buy American” policies, and a roll-back of Wall Street and banking reforms.

As Stan Sorscher, President of the Washington Fair Trade Coalition, says, “Trade creates winners and losers.” Those who are negotiating these status quo trade deals are not negotiating to be the losers. It is up to us to not only identify the problems with the TPP, TTIP, TiSA, and other trade deals. We also must identify what a trade deal would look like that benefits people. It’s also up to us to hold our elected representatives accountable for their actions on trade. They need to hear from their constituents as the TPP and other FTA’s unfold.

We don’t know when the negotiations will be complete on the TPP. We do know that once they are complete, public access to the text will be available, and we will be doing our analysis of the impacts on workers here and in countries with whom we trade.

We also must continue to work to create trade policies that truly benefit people. We’ll be doing that at the Washington State Labor Council, AFL-CIO, along with our partners like the WA Fair Trade Coalition. Please join with us as we work to change this trajectory and use trade not to erode our economy but to improve the standard of living for people in the new global community.

Lynne Dodson is the Secretary-Treasurer of the Washington State Labor Council, AFL-CIO, and a PSARA member

What’s Wrong with Europe?

Tuesday, September 8th, 2015

By Mike Andrew

“You, with your vote, will judge us,” Greek Prime Minister Alexis Tsipras told his country in an August 20 speech, calling for new elections on September 20.

Only seven months after coming to power, the leftist SYRIZA party was splitting into pro- and anti-Europe factions, and the Prime Minister was calling for a new election to decide whether the country will remain in the Eurozone.

Tsipras is in a tough situation. Sixtyone percent of Greek voters voted against EU-imposed austerity in a July referendum, but polls show that the same percentage want to remain in the Eurozone. Those aims may be incompatible. Greece’s political crisis exposes deep contradictions in the European Union and its economic arm, the Eurozone. Former Greek Finance Minister and internationally known economist Yanis Varoufakis described the shortfalls of the Eurozone in his book The Global Minotaur. You can understand what’s wrong with Europe, Varoufakis says, by comparing it to the United States.

The United States is also a currency union – the “Dollarzone” if you will. Like the Eurozone, the Dollarzone includes rich states and poor ones.

The rich states regularly produce tax surpluses. Their residents pay more in federal taxes than the states get back in so-called “transfer payments” — in other words federal investments and benefits.

They put up with this inequality because they also regularly produce trade surpluses. They sell more to neighboring states than they buy from them, and they know that destitute neighbors make poor customers.

It would be unthinkable for the rich states to refuse to make transfer payments to the poorer ones because the US is a political union as well as a currency union. Most Americans agree that the federal government has a constitutional obligation to invest in the poor states and provide a safety net for their residents.

(Ironically, the poor states which are beneficiaries of federal spending also tend to be “Red” states that regularly vote for candidates who promise them “smaller government.” But that’s a subject for another article.)

The Eurozone is not a political union, however. The richest European countries have no obligation to make transfer payments to poor countries like Greece, and they have resisted doing so.

In fact, German Finance Minister Wolfgang Schaeuble – Varoufakis’ antagonist in this spring’s loan negotiations – seemed perfectly happy to see Greece out of the Eurozone, the country’s banks out of cash, and the Greek people living like paupers on the fringes of Europe.

Under the circumstances why would Greeks want to stay in the Eurozone?

The answer is that, like the states of the Dollarzone, the countries of the Eurozone are economically integrated, although Europe is integrated in a way that sends transfer payments from poor to rich rather than the other way around.

Like the richest US states, the richest European countries also generate a trade surplus – they sell more to their neighbors than they buy from them.

That’s part of the trap for Europe’s poor countries. They could quit the Eurozone altogether, return to their former currencies, and then devalue their money from its nominal exchange value.

That would make Euros flow into their countries as their neighbors took advantage of cheap money in southern Europe. As the rich countries consumed more of the exports of their poor neighbors, the internal markets of Greece and the other poor countries would revive, businesses would hire new employees, and money would circulate again. However, Europe’s economy has developed unevenly. The poor countries import more than they export, and the imports would become much more expensive.

Greek wine would be cheaper, but the bottles to put it in and the corks to seal them – both of which Greece has to import – would be more expensive. Greek vegetables would be much cheaper, but beef and pork would cost more because they’re imported.

Seeing a doctor would be cheap, but the medicine prescribed would be much more expensive. Donkeys would be cheap; cars, trucks, and vespas would be expensive.

In short, Greece could leave the Eurozone and probably see long-term economic benefits, but the short-term cost would be terrible and maybe too great for Greek voters to bear.

That’s the challenge for any Greek government, and, as Tsipras said, it’s up to the Greek people to judge.

“Secret Memo”: Primary Election Bad News for Developers and Landlords

Tuesday, September 8th, 2015

By Jonathan Rosenblum

Author of the secret memo? Your crack team of PSARA 2015 primary election investigators has discovered a secret post-primary election memo issued by one of Seattle’s big developers and landlords. While we’re continuing to analyze the document for authenticity (fingerprint and handwriting analyses, etc.), we believe the memo bears a striking resemblance to what Seattle’s big developers and landlords are probably thinking in the wake of the August primary. Read on!

Aug. 20, 2015

Dear fellow developers and big landlords:

The results from Seattle’s 2015 primary elections are in, and if there’s a single message I want to convey to you it’s this: We’d better double-down our efforts in the general election or we will be facing big problems in 2016 – like new laws forcing business to subsidize affordable workforce and retiree housing, making it harder for us to kick out tenants when we want to, forcing us to fix up rundown units for tenants who complain, and even…rent control. Yikes!

It seems that working people and their friends, having won a historic increase in the minimum wage, have now set their sights on what they quaintly call “making Seattle affordable for all.” And you know what that means for us: less money in our bank accounts and lower profits for all the hard-working landlords and property developers out there.

Let’s face it, we’ve had a good run lately. Housing prices are going through the roof – average home prices in Seattle are now over half a million dollars, an 11% increase in just the last year (more money for us!). New downtown luxury condos are selling like hotcakes (again, more money for us!). And we’re raising rents across the city – 30% in just the last four years (yep, that’s more for us again!).

But I have to share with you that this wonderful profit-taking is at risk. In the primary election several candidates made “affordable housing for all” a top issue. And guess what? They beat our candidates or exceeded expectations. If we don’t reverse this trend, we’re in trouble. Can you imagine being forced by Big Government to build housing that is affordable to baristas, office workers, bus drivers, machinists, and such?

Now I know what you’re thinking: Don’t worry, Jack, the conservative-leaning seniors will vote in droves in November.

Well, I have news for you: Seniors in Seattle are rallying to our opponents’ message about affordable housing. We’ve recently learned that many of them are living on fixed incomes and can’t afford the new rents. We’re going to need to convince them that rising housing costs are inevitable, that housing is a complex issue, and there’s little they can do about it. The Seattle Times editorial board has promised me they will drill down this point relentlessly.

Our problem? Take West Seattle’s District 1, for example: along with the Chamber of Commerce, landlords plunked down $73,000 to support Shannon Braddock. She came in second, behind Lisa Herbold. Do you know Lisa Herbold? She’s the long-time aide to Councilmember Nick Licata – no friend of us landlords and big developers. She’s for making developers pay for affordable housing. She’s for tenants’ rights. And she’s for letting Seattle decide if it wants rent control. She’s dangerous to our interests. We have to defeat Lisa Herbold.

Over in central Seattle’s District 3, that crazy socialist Councilmember Kshama Sawant – leader of the affordable housing movement – did well, scoring 52% of the vote. But I’m pleased to report that her opponent Pamela Banks polled respectably – 34%. That makes the District 3 race competitive. I want to thank the 100-plus big developers, landlords, bankers, timber company executives, hotel operators, and private equity partners who gave to Banks’ campaign. And a special shout-out to my friend, Alaska Airlines CEO Brad Tilden, who gave big to Banks. (Side note: Sorry, Brad, about losing your court case blocking airport living wages.)

In the at-large District 8 race, we’ve got our stalwart Council President, Tim Burgess. But guess what? He’s in trouble! Burgess, the incumbent, only got 46% of the vote – much worse, by comparison, than Sawant – and his November opponent, Jon Grant, is former director of the Tenant Union. Now if there are two words that we never want to see put together it’s “tenant” and “union.” But that’s Grant – standing up for renters. We must defeat him. Burgess outspent Grant by $177,000 to $38,000 in the primary. We will all have to open up our checkbooks to ensure Grant is defeated. (Special thanks again to Brad Tilden for the $950 Alaska Airlines contribution to Burgess.)

In District 4 (U-District and northeast Seattle), landlords and the Chamber teamed up with the Washington Restaurant Association to back Rob Johnson, donating $74,000. Johnson came in first, but with only 33% of the vote. His opponent, Michael Maddux, got 25%. Like our other opponents, Maddux also wants to limit housing costs. This race could go either way in November.

So please – open your checkbooks! Call your CEO friends! Do whatever is necessary to defeat this populist surge for “affordable housing!” What’s at stake is our profits, our ability to run our properties any damn way we like, and nothing less than our Free Enterprise Way of Life.

Sincerely yours,

Jack D. Rent III

Jonathan Rosenblum is a member of PSARA. He has served as a consultant to City Councilmember Kshama Sawant’s reelection campaign.