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Tuesday, December 27, 2011

Half of America In Poverty? The Facts Say It's True


Published on Tuesday, December 27, 2011 by CommonDreams.org

Recent reports suggest that almost 50% of Americans are in poverty or at a "low income" level. The claim is based on a new supplemental measure by the Census Bureau that includes health care, transportation, and other essential living expenses in the poverty calculation.

The concept of "low income" is controversial. It has been defined as earnings between 100 and 199 percent of the poverty level, a claim which, if true, would place every American family making $50,000 or less at a near-poverty level.

Conservative organizations believe the whole 'poverty' issue is overblown. The Cato Institute blames LBJ and Obama for reversing a declining poverty rate. Forbes blames the calculations. The Heritage Foundation argues, "The average poor person, as defined by the government, has a living standard far higher than the public imagines...In the kitchen, the household had a refrigerator, an oven and stove, and a microwave." The case for a growing "consumption equality" is alternately defended and denied.

With emotions running high on both sides, we need to take a balanced look at the available data to determine how well the highest-earning family of the poorest 50% -- a family with a $50,000 income -- can survive. (The maximum individual income for the poorest 50% is about $30,000.)

Start with taxes. It is frequently noted by conservatives that the richest 1% pay most of the federal income taxes, and indeed they paid about 37 percent in 2009, more than the poorest 90% of Americans. But only the richest 5% of Americans have experienced income growth since 1980. And during that time, their tax rate has dropped from 34% to 23%. As for the 3 percent rate paid by the poorest 50%, the Tax Policy Center sums it up nicely: "The basic structure of the income tax simply exempts subsistence levels of income from tax."

More relevant to the poverty issue is that federal income tax is only a small part of the tax expense for lower-income families. According to a study by The Institute on Taxation and Economic Policy, the poorest 50% paid about 10 percent of their incomes in state and local taxes (the richest 1% paid 5 percent). Congressional Budget Office (CBO) figures reveal that the bottom 50% pays about 9 percent of their incomes toward social security (the top 1% pays just under 2 percent). CBO also shows that the bottom 50% is paying about 2 percent of their incomes on excise taxes, a negligible expense for the people at the top. Another year of Bush tax cuts will chop another 1-2 percent off the taxes of the very rich.

So total taxes for the poorest 50% are 24 percent of their incomes (3% + 10% + 9% + 2%), as compared to 29 percent for the richest 1% (23% + 5% + 2% - 1%).

Other significant expenses for low-income people, based on the most conservative estimates from the Bureau of Labor Statistics, the Census Bureau, the National Center for Children in Poverty, the Carsey Institute, and the Economic Policy Institute, include food (10%), housing (27%), transportation (6%), health care (5%), child care (8%), and household expenditures (5%). Expenses for insurance and savings and entertainment, although important to most households, are not being included here.

Energy costs hit low-income families especially hard, taking about 20% of their incomes. At the $50,000 income level the burden is closer to 12%, as generally agreed upon by the Bureau of Labor Statistics, the Coalition for Clean Coal Electricity, the Department of Housing and Urban Development, and the American Gas Association.

Total expenses for the richest family in the bottom half of America?

  • 24% taxes
  • 27% housing
  • 34% food, health care, child care, transportation, household needs
  • 12% energy

That's 97% of their income. The richest family among 70,000,000 households is left with just $1,500 for a car, appliances, a TV, a cell phone, a loan repayment, an occasional night out. It comes to $30 a week, barely enough to take the family out for a pizza.

Critics bemoan the amounts of aid being lavished on lower-income Americans, making dubious claims about $16,800 in government funds going to every poor family and families with $90,000 incomes being classified as "near poor."

The fact is that only 4,375,000 families (out of 70,000,000 in the bottom half) received Temporary Assistance for Needy Families (TANF) in 2010, for a total expense of about $36 billion. Current federal budgets include about $350 billion for food, housing, and traditional 'welfare' programs for needy children, elderly care, and energy assistance. This averages out to about $400 per month per family.

Another fact is that earnings have remained flat for most people while productivity has grown 80% since 1980. If a $50,000 family had received a fair share from their contribution to America's growth, they'd be making $90,000, and they wouldn't need a dime from government.

Conservatives complain about the TVs and refrigerators owned by low-income people. But it's the height of insensitivity to admonish people who are trying to survive in a perversely unequal society.

Paul Buchheit

Paul Buchheit is a college teacher, an active member of US Uncut Chicago, founder and developer of social justice and educational websites (UsAgainstGreed.org, PayUpNow.org, RappingHistory.org), and the editor and main author of "American Wars: Illusions and Realities" (Clarity Press). He can be reached at paul@UsAgainstGreed.org.

Here's Why House Prices Will Now Drop Another 20% And House Prices Could Fall For Years

Money Game


House Prices Could Fall For Years

Editors Note: This is an interview conducted by Business Insider Editor in Chief Henry Blodget In Davos. Read the full transcription below.

BI: Where are we now in terms of the deflation of the housing bubble? I know the Case-Shiller numbers have started to turn down again; how much more of that is there to go?

RS: I wish I knew the answer to that. The housing market is behaving strangely. The peak in the market was around 2006; it went down for three years and if it behaved the same way it had in the last cycle, it would continue going down for years more. But then it had a sudden and sharp turn-around that we rarely see in this market, in the spring of 2009, and that seems to coincide with the American Recovery and Reinvestment Act, which created also the Homebuyer Tax Credit. And the recovery lasted about as long as the tax credit lasted.

And then it started turning down, a little bit, but I believe the Tax Credit was a good part of the story because the biggest price increases from 2009 – 2010 period was in the low priced homes. And remember the tax-credit was phased out for wealthy people, but even the high priced homes reversed, so it’s a little puzzling. UK home prices went up at the same time, so it’s not clear to me why this sudden shock … I think it’s also because of the panic over the Lehman crisis in September 2008 was beginning to wear off, because it wasn’t as bad as some people thought.

The question is will it resume the downward trend? I think it could, maybe not rapidly, but I think there could be further house price declines.

BI: You’re an expert in bubbles; you’ve studied them throughout history — what a lot of people will say, usually, is that after a bubble like this, is you don’t just return to the price trend you actually crash through the trend and spend a long time below the trend. Do you think that that’s possible? Because I think on your Case-Schiller index we’re still, even now, a little bit above the long-term trend.

RS: Right. It’s a question of how you define long-term trend. My company Macro Markets has a gap gauge which shows a picture, you can see it on our website. There are different ways to draw a trend, so it’s not so clear. If you do it in real terms and go back to 1890 there doesn’t appear to be any ? Well, we’re kinda close, but maybe not all the way back. It’s ambiguous; really unclear where we’re going, but could they go down more? Yeah, possibly.

BI: I know in the past you’ve called for more government stimulus. Do you think that would make sense here given that the price decline has resumed?

RS: I suspect so yeah. Right now, state and local governments are retrenching there’s this fear of their bankruptcy that is causing jobs to be cancelled. We just saw what happened with the austerity measures in the UK; they just had a negative GDP growth. I worry that’s going to happen. President Obama, in his State of the Union, promised five years freeze on discretionary spending. With state and local governments cutting back, that means negative growth. So I worry… I have my own definition for a double-dip recession. We already passed the time limit for a conventional double-dip, ‘cause we’ve been growing for over five quarters now … it’s a recession that occurs before we have healed from the last one.

BI: Do you think that’s possible?

RS: I think that’s definitely possible because the unemployment rate is very high now and it’s not going down very fast, so I’m still calling for a double-dip. I mean I wish we didn’t have it, but that’s what I always meant. Nobody ever defined double-dip anyway, if you look at history the only example that looks credible for what people seem to be talking about was the 1980, 81 and 82 recessions, it was less than a year between them. But we’ve already made sure that we’re not going to have that because we’ve already passed the time limit.

BI: Going back to the stimulus. Have you ever seen a bubble bursting like this, where government stimulus has been able to forever stave off the price correction?

RS: The funny thing is housing was never a speculative asset until the 70’s and the bubbles tended to be local back then. Allen Greenspan was right in a sense when he said, “From bubbles, all we see are froth,” if he was talking about history that’s all we’ve seen, but now we’ve seen something different, now we’ve seen a bubble that extended across most of the country. This is the problem with economics; economists are good at predicting a stable environment where people don’t change their patterns of thinking, but something has changed, we’ve gotten more speculative in housing and that speculative attitude means that; I hate to say it, but we could have another bubble. We could even have it soon.

Another one of my themes and it may not be appealing for me to lay out all of these possibilities and then say, “I don’t know,” but this is the way I think, that it’s possible we could launch into another housing bubble if people think that the recovery is real and they want to get in early. We know one thing: according to the Michigan survey on consumer sentiment, people think that prices are low and that good buys are available. There is the beginning of bubble thinking, right there; all it takes is some sense that it’s going now. I’m sorry to be so weak as a forecaster. I think it could go either way.

BI: you’ve been focused a lot on behavioral finance over the years and Irrational Exuberance obviously talked about the fact that there were all these new explanations why the market was so high. I think you make the point that these explanations actually follow the market performance. They don’t come in advance of it. If you look at Wall Street now, stocks are back, they’re high and moving higher and if we look at your Case-Shiller P/E where you lag earnings, they’re probably 30 to 40 percent overvalued. Do you think we’re in for a day of reckoning there too, or do you think it’s possible that we’re in a new paradigm again?

RS: I think day of reckoning is a bit strong. I think much more likely, is just flat, nothing happens, maybe goes down somewhat. Day of reckoning is very strong wording, umm, I don’t like to use that.

BI: But you do think P/Es will ultimately regress back to the mean?

RS: Possibly, yes. There’s two ways price-earning ratios can regress to the mean. One is, the price can go down (the numerator) and the other is the denominator should go up. Efficient Markets theory says that it’s going to be the latter — because you can never predict price. High price earning ratio is in itself a prediction. But in the study I did with John Campbell we looked at which one it has been historically and I’ll tell you, and hands down price does it. Price-earning ratio does not predict earnings growth. So, yeah, I think that the most likely scenario is that sometime over the next ten years is we will see a big downward correction. I just don’t know exactly when.

BI: One thing that’s always amazed me about your argument and so forth, I’ve read Jeremy Seigel’s book Stocks For the Long Run. I gather, from an article at least, that you two are good friends. You remember when the S& P was trading for something like 850 in the middle of the crash, Jeremy came out and said, “the S&P is worth 1200 on my metrics”, and your metrics said it was worth about 900…Who’s right and how do two incredibly smart academics who have years of research come to such differences in terms of what the stock market’s worth?

RS: Well, I’ll quote Alfred Marshall the great late-19th early 20th-century economist: “Economics is not an exact science.” And there are reasons for that; I don’t think that the problem is we don’t have the mind of scientists. I think if you bring scientists in they act just like us. Because it’s something different about economics; we’re looking at phenomenon that are human and always changing qualitatively. That’s a problem and I can’t quote probabilities. And this what John Maynard Keynes made as an important part of his theory, which is often neglected; that economists like to build models of people as optimizing decision theorists with decision trees and probabilities at each node, but the problem is we rarely have that. And so we are always in a situation of judgment, and it’s always in the situation in the judgment of the judgments of others and who is speaking the truth and who is dissembling? All this mixture just defies any … I still remark how much variation and opinion there really is. But, you know, I think on the whole it is not a bad thing. And I have debated Jeremy Siegel and I think our debate is productive. I think people probably come out ahead even though they don’t know who is right. At least they’re less likely to put their faith in some extreme view.

BI: But what does Jeremy say when he looks at your P/E ratio which has been you can just look at a chart 150 years, always regresses to the mean after maybe 15 to 20 years, but it gets there. What does Jeremy say when he looks at that? Can he explain why his theory is right? Even in the face of that?

RS: Well first of all I don’t think Jeremy is entirely unsympathetic to what I say. In fact he wrote in 2000, for the Wall Street Journal, about tech stocks being overpriced and he based it on a price-earnings index. He said some of them had P/Es over 100 and he said no stock with a P/E over 100 has ever succeeded. So, I think we’re sort of on the same wavelength. Maybe we appear to disagree more than we do.

BI: So, what are you doing with your own money now?

RS: Well I have it kind of diversified. It seems like everything is overpriced: stocks, bonds, and real estate. And index bonds were given a negative yield recently; maybe they’re coming back. Nothing looked attractive. There must be some people who can find attractive investments. But I’m really a professor, interested in broad issues. The question of whether you should put it in a hedge fund with an expensive manager. I think maybe you should, but only if you can judge managers right. I don’t think you should put it in a random one. Maybe this is my hubris, but I imagine I could make a lot of money investing — if I put my mind to it and stopped focusing on these big aggregates as I do. But I’m not, I’m an academic and I’ll let other people get rich. I don’t know what I would do with the money anyway.

Here's why Gary Shilling thinks house prices will fall another 20% >

Here's Why House Prices Will Now Drop Another 20%

Gary Shilling, A. Gary Shilling & Co.

Gary Shilling

Image: A Gary Shilling & Co.

One of our favorite economists, Gary Shilling of A. Gary Shilling & Co., has given us permission to publish the following excerpt from his latest monthly report.

Gary is also offering a special discount on his research service for Business Insider readers. To learn more, please visit Gary's web site or call 1-888-346-7444. Please mention Business Insider.

Housing: Great Expectations vs. Reality

Last spring, many believed that not only was the housing collapse over but that a robust rebound was underway. Investors were crowding into foreclosed house sales and bidding up prices in California, often the bellwether state for new trends. The tax credit of up to $8,000 for new homebuyers that expired in April spurred buyers and promised to kick-start housing activity nationwide. TheHomeAffordable Modification Program was trumpeted by the Administration to help 3 million to 4 million homeowners with underwater mortgages by paying lenders to reduce monthly payments to manageable size and then paying homeowners to continue to make those payments.

But then a funny—or not so funny—thing happened on the way to housing recovery...

Yes, with mortgage rates so low, houses look "cheap". And for a while this seemed to be helping...

Yes, with mortgage rates so low, houses look "cheap".  And for a while this seemed to be helping...

Image: Gary Shilling

With low mortgage rates and collapsed house prices, the National Association of Realtors’ Housing Affordability Index had leaped to all-time highs.

Earlier this year, sales of existing homes skyrocketed (temporarily)

Earlier this year, sales of existing homes skyrocketed (temporarily)

Image: Gary Shilling

The revival of home sales early this year proved to have less follow- through after the tax credit expired in April than did the previous expiration last November. Existing home sales subsequently fell to a new low, so the tax credits had only “borrowed” sales from future months with no lasting impact.

And housing starts finally bottomed

And housing starts finally bottomed

Image: Gary Shilling

And house prices seem to have bottomed, too. But...

And house prices seem to have bottomed, too. But...

Image: Gary Shilling

Don't forget about unemployment. Old measures of "affordability" no longer apply...

Don't forget about unemployment.  Old measures of "affordability" no longer apply...

Image: Gary Shilling

It’s also become clear that the NAR’s Housing Affordability Index in the earlier post-World War II years is not relevant to today’s conditions. Back then, unemployment rates were usually much lower than now (Chart 7, page 4) and the current threats of layoffs, wage and benefit cuts and being forced into part-time jobs were almost nonexistent. Who ventures into homeownership if he doesn’t know the size of his next paycheck or even if he’ll have one?

Also, with almost a quarter of all homeowners with mortgages under water with their mortgage principals exceeding the value of their houses, many can’t sell their existing abodes even if they wanted to buy other houses.

Mortgage refinancings are up, and they're helping, but most homeowners can't refinance

Mortgage refinancings are up, and they're helping, but most homeowners can't refinance

Image: Gary Shilling

About 60% of all borrowers with 30-year fixed-rate mortgages could lower their interest costs by one percentage point at current rates. But only 38% could actually refinance due to tighter lending standards.

Nevertheless, lower mortgage rates have encouraged many whose mortgages aren’t under water to refinance them. Some are even paying down their mortgages to bring them above water so they can refinance at lowerinterest rates. Mortgage applications to refinance have jumped lately, but remain well below the levels of early 2009.

Closing fees in refinancings, however, are an important offset to the reduction in mortgage rates. Closing costs in July were 37% higher on average nationwide than last year’s $2,739.

And don't forget that we now have MUCH TIGHTER lending requirements -- so much so that Fannie and Freddie and FHA now have to underwrite almost all mortgages

And don't forget that we now have MUCH TIGHTER lending requirements -- so much so that Fannie and Freddie and FHA now have to underwrite almost all mortgages

Image: Gary Shilling

At the same time, the house price collapse and subprime mortgage meltdown has led to a drastic tightening in lending requirements. In contrast to the no-document loose-lending practices of yesteryear, just listen to what it takes today to qualify for a mortgage. You’ll need a job and at least two recent paystubs, two years of W-2 forms, proof of other assets you own and your tax returns.

Then there is the property appraisal, which has morphed from ultra-liberal to excruciatingly conservative. So the appraisal may be well below your purchase price, especially in markets with falling prices, so you’ll have to come up with more cash for the downpayment or convince the seller to cut his price.

Downpayments have also leaped from the zero or even negative levels of the housing salad days, and Federal Housing Administration-insured loans as low as 3.5% require up-front mortgage insurance payments of 2.25%. Your alternative is essentially a loan insured by Fannie Mae or Freddie Mac since the Government-Sponsored Enterprises account for almost all new mortgages today (see chart above).

Mortgages with downpayments under 20% require mortgage insurance and mortgage insurers insist on FICO credit scores of at least 680 out of 850 and charge $300 to $1,000 per year for every $100,000 borrowed. Estimates are that almost a third of Americans can't qualify for a mortgage because of low credit scores.

And now everyone knows that house prices CAN actually fall

And now everyone knows that house prices CAN actually fall

Image: Gary Shilling

Most of all, the NAR’s Housing Affordability Index is largely irrelevant today because in contrast with the earlier post-World War II years, prospective buyers know that house prices can, and do, fall.

Who wants to buy an expensive asset with a big mortgage that may be worth much less shortly? And the financial leverage created by a mortgage magnifies the risk tremendously. Someone who buys a house with 5% down sees their equity wiped out if the price falls only 5%. So the fall in house prices and mortgage rates, which have driven up the NAR’s measure of affordability, have been offset by stronger forces.

So, too, will any future increases in the affordability index in all likelihood. The Fed may embark on further purchases of mortgage securities, which could reduce mortgage rates further, but the central bank will probably only act in response to additional economic weakness that will discourage homebuyers. The further declines in house prices we foresee will make them cheaper, but also convinces prospective owners that they are even worse investments.

The rebound in house prices is also suspect and may have peaked out (see chart above). Furthermore, both the previous decline and subsequent reversal probably overstate reality. Earlier, the many sales of foreclosed houses or by distressed homeowners tended to be lower-priced houses and, therefore, depressed average prices. The recent swoon in Los Angeles house prices compared with the early 1990s drop suggests this is true. Conversely, the recent rebound may be overstating reality since, as our good friend and great housing analyst Tom Lawler has noted, the homebuyer tax credit may have induced some to pay up to beat the deadline and to favor higher priced “traditional” house sales over “distressed” homes.

Tom also points out that the Case- Shiller price index for July, which showed increases in 13 of the 20 metro areas (not seasonally adjusted), was based on transactions from April to June and, therefore, included tax credit- related settlements in May and June. Also, seasonally-adjusted data reveals declines in 16 of 20 metro areas and a small 0.1% fall from June to July. Another Home Value Index compiled by Zillow reports that prices nationwide fell in July from June, the 49th consecutive monthly fall. That puts them down 24% from the May-June 2006 peak, similar to the 28% drop in the Case-Shiller index.

And then there's the still-massive number of foreclosures, which will keep pressure on prices

And then there's the still-massive number of foreclosures, which will keep pressure on prices

Image: Gary Shilling

The Administration’s HAMP initiative, introduced in April 2009, has been a huge disappointment...

But while mortgage modifications were attempted, lenders and servicers were basically forced by the government to suspend foreclosures. Now, as that program unwinds, foreclosures will again jump (Chart 12). Ironically, foreclosure rates have moderated recently because lenders tightened their standards in mid-2008 when housing and mortgages were in free fall. In 2009, two-thirds of all FHA- guaranteed new loans were to borrowers with credit scores over 660, up from 45% in 2008.

Nevertheless, lenders have been loosening in recent months. In January, Fannie initiated a program that allows first-time homebuyers to put down $1,000 or 1% of the purchase price, whichever is greater. In the first half of this year, credit card companies sent out 84.8 million offers to American subprime borrowers, up from 43.7 million a year earlier. In the second quarter of this year, 8% of new car oans were to borrowers with the lowest rank of credit scores, up from 6.2% in the fourth quarter of 2009.

The percent of mortgages past due is still climbing...

The percent of mortgages past due is still climbing...

Image: Gary Shilling

Nevertheless, look for delinquencies (Chart 13) and foreclosures to spike in the slow economic growth, high unemployment quarters that probably lie ahead.

The number of bank-owned houses is still climbing (more future inventory)

The number of bank-owned houses is still climbing (more future inventory)

Image: Gary Shilling

Already, Real Estate Owned by lenders due to foreclosures—perhaps the most hated term among bankers—is climbing (Chart 14). Estimatesare that a major share of the 7 million houses that have delinquent mortgages or are in some stage of foreclosure, as well as those yet to come, will be dumped on the market, adding to the already huge excessive inventory glut. Some 4.5 million loans are now in foreclosure or at least 90 days delinquent.

Mortgage delinquencies are linked to job losses... and the number of weekly unemployment claims is still too high

Mortgage delinquencies are linked to job losses... and the number of weekly unemployment claims is still too high

Image: Gary Shilling

Mortgages delinquent 30 days, many of which will probably end in foreclosure, have risen lately. They peaked in the first quarter of 2009 at 3.77%, then fell to 3.31% at the end of 2009, but have since risen to 3.51%, according to Tom Lawler.

He goes on to observe that 30-day delinquencies are linked to initial claims for unemployment insurance, which fell last year but subsequently leveled off and are now rising (Chart 15). Also, the delinquencies are rising as weak borrowers with modified loans again miss payments. Fitch Rating believes that 65% to 75% of mortgages modified under HAMP will redefault within 12 months.

"Distressed" sales are still high (prices slashed to move inventory)

"Distressed" sales are still high (prices slashed to move inventory)

Image: Gary Shilling

Indeed, bank-owned houses for sale jumped 12% in August from July when newly-initiated foreclosures jumped 25% to a six- year high.

Unlike most homeowners, banks tend to slash prices to unload REO quickly. As a result, average prices fell rapidly in 2008 when lenders sold foreclosed houses at low prices, as noted earlier. By January 2009, the share of distressed sales leaped to 45% of the national total (Chart 16). With the default moratorium on foreclosures due to HAMP, the distressed share has fallen on balance more recently, coinciding with the flattening in prices. But now with HAMP unwinding, foreclosures will probably leap, REO sales at low prices jump, and average prices resume their slide.

The homeownership rate (percent of households that are homeowners) continues to decline, probably headling back to its long-term average

The homeownership rate (percent of households that are homeowners) continues to decline, probably headling back to its long-term average

Image: Gary Shilling

Back in the salad days of 10% annual price appreciation, a homeowner and/or investor who put down 5% enjoyed a wonderful 200%returnonhisinvestmentper year, neglecting taxes, interest and maintenance. But that hapless homeowner who bought at the peak lost all of his downpayment six times over as prices fell 30%.

No wonder that the homeowner rate, which spurted from its 64% norm to 69%, is now back to 66.9% in the second quarter and probably on its way back to 64% (Chart 18).

Meanwhile, household formation is lower than it was during the boom

Meanwhile, household formation is lower than it was during the boom

Image: Gary Shilling

The converse of the ownership rate is the rental rate, which obviously fell from 36% to 31% and is now back up to 33.1%. We’ll explore the newfound zeal to rent vs. own later.

Meanwhile, we’ll consider another important component of the equation, household formation. Many believe that household formation and, therefore, demand for either owned or rented housing units is closely linked to population growth. A Beazer Homes official said recently that demographics would normally produce household growth of around 1.5 million a year.

But note that those trendless series are extremely volatile, ranging from a peak of almost 2.3 million at annual rates in the current cycle to less than 500,000 recently. Household formation is similarly volatile (Chart 19), not surprising since a household is defined as one or more people living in a separate dwelling unit and not in jail, college, an institution or an army barracks. So household formation is affected bythelustforhouseappreciation, income growth, employment prospects, family size, mortgage availability and all the other factors that determine the desirability of owning or renting.

Image: Gary Shilling

With the negative zeal for homeownership of late and weak incomes and high unemployment deterring renting, household formation has been weak.

No wonder that the vacancy rate for single- and multi-familyhousingunitsremains high (Chart 21). Of course,

As they lose their jobs and houses, many Americans are "doubling up"--moving in with friends and relatives. This further reduces demand for housing.

As they lose their jobs and houses, many Americans are "doubling up"--moving in with friends and relatives. This further reduces demand for housing.

Image: Gary Shilling

Of course, homeowners thrown out of their abodes by foreclosures can continue to be separate households
by renting houses and apartments, but many of those and other discouraged folks are shrinking
households—and adding to vacant housing units—by doubling up with family and friends.

The Census Bureau reports that in the last two years, multi-family households jumped 11.6% ( Chart 22) while total households rose a mere 0.6%. Those aged 25-34 living with parents—many of them “boomerang kids” who have returned home—increased by 8.4% to 5.5 million. Not surprising, 43% of those were below the poverty line of $11,161 for an individual.

The number of houses for sale is still abnormally high... and house prices, like everything else, are a function of supply and demand

The number of houses for sale is still abnormally high... and house prices, like everything else, are a function of supply and demand

Image: Gary Shilling

As we’ve stated repeatedly in many, many past Insights, excess inventories are the mortal enemy ofhouse prices. And those excess inventories are huge.

Notice (Chart 23) that, over time, new and existing inventories listed for sale have averaged about 2.5 million. So, we reason, that’s the normal working inventory level and anything over and above 2.5 million is excess.

At the peak of 5 million reached in October 2007, that excess was 2.5 million. It subsequently fell but with the recent jump, the total is 4.0 million, implying excess inventories of 1.5 million.

That’s a lot considering the average annual build of 1.5 million houses. So the inventories over and above normal working levels equals one year's average demand. But wait! There’s more!

As noted earlier, as foreclosures pick up with the ending of the mortgage modification-related moratorium on lender takeovers, “shadow” inventory will become visible as many of those bereaved of their abodes join friends and family.

Furthermore, if we take the Total Housing Inventory numbers published by the Census Bureau at face value—and Tom Lawler, a very careful housing analyst concludes that it takes more than the faith of a mustard seed to do so—there are a lot ofhousing units that are likely to be listed for sale as owners give up trying to wait out the housing bust.

Recently, my wife told me of a friend who finally listed her house for sale right after Labor Day and got nary a nibble in the following three weeks. Then she was further discouraged when two other similar houses in her neighborhood were listed.

When you count "shadow inventory", the imbalance looks even worse

When you count "shadow inventory", the imbalance looks even worse

Image: Gary Shilling

Between the first quarter of 2006, the peak of house sales, and the second quarter of this year, the number ofhousing units, net of teardowns, conversions to non-housing uses and other removals, rose 5.7 million.

Of that total, 1.1 million were added to the pool of vacant units listed for rent or sale, 2.8 million were occupied by new households and so on down the list. Of the 1.3 million increase in those Held Offthe Market, the 1.1 million rise in the “Other” category is the one of interest. This component has leaped from the earlier norm of about 2.6 million to 3.7 million in the second quarter (Chart 25).

This rapid rise, coinciding with the collapse in housing, suggests strongly that many of these houses are indeed shadow inventory, units withheld in hopes ofhigher prices but highly likely to emerge from the woodwork sooner or later.

If we assume that half the 1.1 million increase since the housing peak in the first quarter o f2006 are shadow inventory, the total excess jumps from 1.5 million to 2 million at present, and is likely to rise further.

THE BOTTOM LINE: House prices probably have another 20% to fall

THE BOTTOM LINE: House prices probably have another 20% to fall

Image: Gary Shilling

This huge and growing surplus inventory of houses will probably depress prices considerably from here, perhaps another 20% over the next several years. That would bring the total decline from the first quarter 2006 peak to 42%.

This may sound like a lot, but it would return single-family house prices, corrected for general inflation and also for the tendency of houses to increase in size over time, back to the flat trend that has held since 1890 ( Chart 26).

We are strong believers in reversions to the mean, especially when it has held for over a century and through so many huge changes in the economy in those years—two world wars and the 1930s Depression, the leap in government regulation and involvement in the economy, the economic transformation from an agricultural base to manufacturing and then to services, the post- World War II population shift from cities to suburbs, the western and southern transfer of population and economic strength, the movement from renting to homeownership and the accompanying spreading of mortgage financing, etc.

Furthermore, our forecast of another 20% fall in house prices may be conservative. Prices may well end up back on their long- term trendline (Chart 26), but fall below in the meanwhile. Just as they way overshot the trend on the way up, they may do so on the way down, as is often the case in cycles. Furthermore, another big house price decline will spike delinquencies and foreclosures leading to more REO sales by lenders,whichwillfurtherdepress prices. Our analysis indicates that a further 20% drop in prices will push the number of homeowners who are under water from 23% to 40%, resulting in more strategic defaults, more REO, etc.

If house prices DO fall another 20%, a lot more homeowner equity will be wiped out

If house prices DO fall another 20%, a lot more homeowner equity will be wiped out

Image: Gary Shilling

At that point, the remaining home equity of those with mortgages would be wiped out on average (Chart 27. That, in turn, would impair already-depressed consumer confidence and their willingness and ability to spend, to say nothing of residential construction.

In California, epicenter ofthe housing boom-bust, construction jobs dropped 43% from June 2006 to June of this year, compared to a 28% decline nationwide, and the unemployment rate in the Golden State jumped to 12.3% in June, far above the 9.5% rate nationally.

No wonder REALTORS are so depressed

No wonder REALTORS are so depressed

Image: Gary Shilling

It’s not surprising that the confidence of those involved in residential real estate is low and declining. The NAR Realtor Confidence Index is again plunging (Chart 30). A neutral reading for this index is 50, and it's now 24.1. In June, 42% of realtors expected prices in their areas to fall in the next 12 months compared with 33% in May.

Fannie and Freddie are ending up owning more and more foreclosed houses (at taxpayer expense). This is prolonging the problem...

Fannie and Freddie are ending up owning more and more foreclosed houses (at taxpayer expense). This is prolonging the problem...

Image: Gary Shilling

Fannie and Freddie are also allowing homeowners who face foreclosure and qualify for mortgage modification to stay in their houses for up to a year by renting them. The goals are to help those folks, keep the homes occupied to avoid deterioration, realize some positive cash flow and keep more houses off the market. The rents, at market rates, are often lower than their monthly mortgage payments. Still, these programs simply add to shadow house inventory, which will be revealed as those one-year leases mature and foreclosures are implemented.

Due to foreclosures, Fannie and Freddie owned 191,000 houses at the end of June, double the year- earlier total (Chart 33). And the inventory is growing as they take back houses faster than they sell them. Newly-initiatedforeclosures at Fannie and Freddie rose to 150,000inJuly,up60%fromApril, as borrowers failed to qualify for loan modifications. And they are encouraging the lenders of the mortgages they guarantee to seize foreclosed houses more rapidly to avoid them deteriorating or being trashed. Fannie took a $13 billion charge in the second quarter for cleaning pools, mowing lawns ad other carrying costs on the properties it owns.

Given all this, it's not surprising that few folks are planning to buy new houses...

Given all this, it's not surprising that few folks are planning to buy new houses...

Image: Gary Shilling

As noted earlier, traffic through new homes by prospective buyers is again falling, according to home builders (Chart 37).

And that new mortgage applications remain back at 1990s levels

And that new mortgage applications remain back at 1990s levels

Image: Gary Shilling

New mortgage applications for home purchases continue to drop (Chart 38).

And that the number of people planning to buy a house in the next six months continues to drop

And that the number of people planning to buy a house in the next six months continues to drop

Image: Gary Shilling

And those planning to buy a home within six months persist in declining (Chart 39).

Depressed yet? We are, too. But at least, as a Business Insider reader, you'll get a discount on Gary Shilling's research...

Depressed yet?  We are, too.  But at least, as a Business Insider reader, you'll get a discount on Gary Shilling's research...

Image: A Gary Shilling & Co.

The previous essay was excerpted from the latest monthly research of Gary Shilling of A. Gary Shilling & Co. Gary is offering a special discount on his research service for Business Insider readers. To learn more, please check out Gary's web site or call 1-888-346-7444. Please mention Business Insider.

Sunday, December 25, 2011

The American Christmas: Half-Hearted and One Day a Year

Dissident Voice: a radical newsletter in the struggle for peace and social justice

My Declaration of War on Christmas

I don’t usually watch Today or any American TV because my reports appear on the British Broadcasting Corporation, a network run by highly-educated America-haters.

But there I was, last Friday, in this hotel room in Atlanta, a city pretending there’s no Depression, chewing my complimentary morning donut, and Today is telling us about the “new face of American poverty.”

“More than 49 million Americans now live below the poverty line and a number of them like the family you’re about to meet propelled into bankruptcy by a one-two punch of job loss and a catastrophic health crisis.”

Wow! US television finally grabs the Big Issue.

This white suburban family called the Kleins have lost their home to eviction. They’re completely broke, because one of their kids got a tumor in her face. They have no insurance so the $100,000-plus medical bills wiped them out.

They live with neighbors and they hoped to at least get their kids a couple pair of underwear as a Christmas gift.

But if you think America doesn’t give a crap about the cancerous growth of poverty, just keep watching: The Today reporter takes the white family to WalMart where the bubbly journalist gushes, “The wonderful people of WalMart opened up their stores and their aisles and their hearts. The store is your oyster, Michelle!”

Then some WalMartian PR person tells the bankrupt mom to address the issue of long-term unemployment, “Let’s go shopping!”

And you thought America was cold-hearted, just because the Republicans tried to block unemployment insurance this Christmas for three million families.

On their free shopping spree, the Kleins got laptops and a Kindle, and a big-ass TV and all the good things that WalMart can provide.

And if you think WalMart has shown how selfless and caring Americans are, just wait until you find out what the Today show is giving America’s desperate poor: Simply the best-est gift ever …

“We saved the best for last!” The reporter tells the Kleins that NBC is flying them to New York, “to be on the Today show, to be on our set with Matt Lauer and Ann Curry!”

Matt and Ann! Both of them! Well, I bet they wouldn’t do that in North Korea or Sweden! Only in America!

Mr. Klein is so happy he’s meeting Ann that he doesn’t seem care anymore that he lost his job at Ford Motor. He just has his family. In some other family’s house, of course. But that’s a detail.

And if you thought this was just some cheap publicity stunt by WalMart, dig this, Mr. Cynical: WalMart is going to pay for all the Klein’s medical bills for a full year! And to pay for it, WalMart’s 1.4 million employees will not have all their medical bills covered for the year. Now, that’s generosity!

(This heartwarming segment of the Today show about the Klein kids, by the way, is sponsored by — no points for guessing: WalMart.)

But then I thought: wait a minute. What about ObamaCare? Once the plan is in place, no American can be denied insurance, even someone with a tumor in their face.

Americans love to hate ObamaCare. But isn’t that more valuable to the Kleins than a TV screen with no house to put it in?

Now, many of my friends will be surprised to hear me say this, as I’ve been quite skeptical about the accomplishments of the Pope of Hope. But let’s admit that Barack Obama tried to save the Kleins from medical-bill devastation, that he is trying to get them some unemployment insurance, trying (if on sketchy terms) to save the auto industry, all in the face of resistance of America’s hatred of Socialist Government.

Maybe we don’t need Santa Claus. Maybe we need Anti-Claus: A skinny ‘Muslim’ from Kenya squirming down your chimney!

America’s problem seems to be that it can only be cruel 364 days a year. Christmas is that time of year when the United States of Scrooge takes a vacation from heartless profiteering and the nasty joy Americans get, that “I’m-not-one-of-those-losers” frisson.

Listen to Rick and Newt and Mitt and Michele and Ron and what you get is the Great American F***’em! They lost their jobs? F***’em! Their kid has a tumor and they don’t have health insurance? F***’em!

Unless, of course, it’s Christmas and you have to look at the tumor on TV. Then, it’s like, Someone buy them a big-screen television so we don’t feel bad.

Santa’s erstaz elf, Bill O’Reilly, keeps talking about the “War on Christmas.” Because one day a year he has to dress up in Good Will to All Men drag. He can deck his halls with bags of bullshit make-believe kindness.

The rest of the year, he’s jerking off while talking dirty to his horrified female producers and raking in millions from the yahoos who haven’t lost their jobs yet.

So that’s it: for me, no more chestnuts roasting on an open fire. My chestnuts have gone down with my Lehman bonds, anyway. I’m declaring war on Christmas.

Don’t like that, O’Reilly? Then eat my shorts — with cranberry sauce.

Surgery for kids with cancer, a house to live in that’s not a relatives’ basement, and a job making something other than “financial products”… These are rights, not gifts. They don’t come down the chimney, they come from a community that can set aside its bred-in-the-bone meanness for more than one day a year.


And to all a good night.

Merry, um, Festivus, from the Palast Investigative Team.

Greg Palast studied healthcare economics at the Center for Hospital Administration Studies at the University of Chicago. His investigative reports can be seen on BBC Television's Newsnight. Read other articles by Greg, or visit Greg's website.

Saturday, December 24, 2011

Time to resurrect an old idea: Economic Rent

Daily Kos

Mon Oct 24, 2011 at 08:34 AM PDT

Time to resurrect an old idea: Economic Rent

by maddogg

Have you ever heard of the term “economic rent”? No? That’s probably because of the greatest political coup in the history of our republic. In politics, true power comes – not from your argument – but from the ability to steer the conversation to what you want to talk about and away from what you don’t want to talk about. The true elites in our society have continued “winning” the political debate by removing a very important concept from the political conversation.

I admit, reading the term, “economic rent” can cause eyes to glaze over quickly. A more accurate description is “unearned income”. It is people and companies who make money by doing zero work and risk little or none of their own assets.

Taking Back Adam Smith and “Classic Liberalism”

Many conservative economists claim to be staunch followers of Adam Smith. They shout slogans such as “Supply and Demand!” “Capitalism”! “ “Let the markets work!” However, for anyone who actually read Adam Smith, you would note that the “invisible hand” was not his only observation of the inner workings of capitalism. Adam Smith recognized that many in the economy were making gobs of money, but weren’t contributing anything. He was referring to what was eventually called “economic rent”.

Smith observed that all production required 3 things. Land, Capital, and Labor. A very simple example would be a brick factory. The building and oven needed to create the bricks are the “capital” – the owners are the capitalists. The people making the bricks is the “labor” – the people doing the actual work. The Land the factory occupies and the clay used to make the bricks is the “land” – the owners of the land are the “Rentiers”. Any money made by selling the bricks is then divided up between these three groups: the rentiers, the capitalists, and the workers.

Adam Smith observed that only 2 of the 3 groups made any real contribution to the production process. The workers contributed their time. The capitalists contributed their capital that they either bought, but is now used and worth less than before it was used. The Rentiers contributed their land, but have lost nothing. Once the manufacturing of the bricks is done, they get their land back and it is still worth the same as it was before. Any income they made by renting out their land was made without work, and without risk to their assets. There is a word for someone that only takes, but doesn’t give back: a parasite. Smith and those who carried on his work used the nicer term, Rentier. This is where the phrase “economic rent” originates. It originally described a no value-ad landlord.

Adam Smith and future classical economists existed in a time where the noble families of medieval Europe were still the large landowners. The nobles had just turned into Rentiers. Because they owned the land, they were able to rent it out to capitalist and workers and claim a portion of their profits and wages by charging “rent”. They were able to do this without ever working. It was unearned income.

Much of the work done by economists from Adam Smith until the late 19th century was all about finding and identifying “rent-seeking”. These classical economists didn’t want to overthrow capitalism, they wanted to free it from the “rent-seeking” parasites.

The Neoclassical School “loses” rent

Right before the turn of the 20th century a new school of economists appeared. They were later named the Neoclassical school and it continues today. When the transition from classical to neoclassical occurred, one of the things that was lost was the concept of “economic rent”. The Neoclassicals started treating land and capital as the same thing and therefore interchangeable. In a world without land, economic rent no longer makes sense. Some would argue(e.g. Gaffney’s Neo-classical Economics as a Stratagem against Henry George – pdf) that this was intentional. If it was intentional, it was the greatest coup of ideas the elite class came up with to justify their existence since The Divine Right of Kings. On the other hand, It may have just been a simple intellectual decision based on their new approach to economics. In any case, the decision to treat land and capital as the same, haunts us to this day. If land is treated as capital then the concept of “rent” goes away and rentiers can masquerade as capitalists and cloak their unearned “rent” income as justifiable profit.

John Maynard Keynes blew away everybody and what they thought they knew about economics in the 20s and 30s. In response to Keynesian economics, the neoclassical economists didn’t die, they decided to fight back. Milton Friedman is the most famous of this group. To fight against keynesian economics, he and his contemporaries tried to lay claim as resurrecting the classic school of economics that said “less government is good”. They even called themselves New Classicals. However, this “revival” of the classical economics was actual a revival of the neoclassical school. They, like the neoclassicals before, again conflated capital and land. Therefore, many modern economists no longer make a distinction between land and capital. They group together income from rent and income from capital and call it profit. This school remains in the mainstream and therefore the concept of economic rent is no longer discussed in our politics.


In the late 60s and early 70s “economic rent” saw a small revival among select economists. For those select few, “Rent-seeking” was no longer defined as just “ownership of the land”. It can take several shapes. Rent-seeking is any income that is unearned. An alternative definition is “profit without a corresponding cost of production”. “Economic Rent” can come from ownership of land and just “renting” it out for money. It can also come from collecting so much capital that a firm now has a monopoly and can set the price independent of supplydemand considerations, It can be from government monopoly granting, control of other “land” like our rivers, broadband spectrum, or “mineral rights” of land. It can come from control of financial assets like capital gains, dividends, and interest on loans(especially usury). It can also come from political favors from the government.

Political Implications

Economic rent was something I’d learned about in school several years ago and quickly forgot about it once the class was over. Now in a post bank-bailout world, I ran across it again one day while researching another article, It was like a light-bulb clicking on in my head. (A high-efficiency light bulb). This is what progressives are currently fighting against. This is the concept, the vocabulary, the name for the rage I feel in my gut at what’s happened. The rentiers have taken over our country by masquerading as capitalists.

How did this happen? It was simple, once the neoclassicals removed the entire concept of “rentier” from the economic, and eventually political, conversation. It was all capitalism and capitalists in their world. Therefore, now when progressives rail against the unearned income of the rentiers, we lack the vocabulary to properly express what is happening. Instead, conservatives try to make it look like liberals are railing against capitalism itself or against businesses in general. In some cases we may even come to believe it ourselves. Many times when we’re fighting against the “excesses of capitalism”, what we are actually fighting is parasitic rentiers that are hurting the true capitalists as much as the workers.

  • When a company has a monopoly and can charge whatever they want, that’s not being a capitalist or an entrepreneur, that’s being a “Rentier”.
  • When oil company’s make “windfall profits” as the price of oil goes up, that’s not profit, that’s “economic rent”.
  • When a drug company can keep the government from negotiating lower prices, that isn’t capitalism, that’s classic “rent-seeking” behavior.
  • 99% of the money made on wall street is nothing but pure rent-seeking.
  • Companies lobbying for tax loop holes is just more unproductive rent-seeking.

Fortunately, some well known economists do talk about The Rentiers. Unfortunately, not nearly enough are. I’m guessing it’s because the vast majority of influential economists are still neoclassicals and don’t believe land and rentiers exist. They can try to deny their existence, but when I see the top 1% of the country make more money in one night while they are sleeping then most will make working at their job for 6 months, it’s hard to deny their existence. It’s unfortunately that our intellectual class “lost” these words and concepts from the mainstream discussion.

So where does that leave us now? One could argue history is repeating itself. 200 years ago, the conservative vs. liberal mantra was that conservatives were fighting to keep the power of the nobles and large landlords intact. The liberals were the ones trying to free themselves politically and economically from their control. Today it’s the same. Conservatives are fighting to maintain the privilege of the Rentiers by pretending to defend capitalism itself. And once again, us liberals are fighting to free the market from the parasitical Rentiers.

Cross Posted Our Dime.

Originally posted to maddogg on Mon Oct 24, 2011 at 08:34 AM PDT.

Also republished by Money and Public Purpose and Community Spotlight.

Wednesday, December 21, 2011

Why do people defend unjust, inept, and corrupt systems?

Medical, health and wellness news

Why do people defend unjust, inept, and corrupt systems?

December 12, 2011

Why do we stick up for a system or institution we live in—a government, company, or marriage—even when anyone else can see it is failing miserably? Why do we resist change even when the system is corrupt or unjust? A new article in Current Directions in Psychological Science, a journal published by the Association for Psychological Science, illuminates the conditions under which we're motivated to defend the status quo—a process called "system justification."

System justification isn't the same as acquiescence, explains Aaron C. Kay, a psychologist at Duke University's Fuqua School of Business and the Department of Psychology & Neuroscience, who co-authored the paper with University of Waterloo graduate student Justin Friesen. "It's pro-active. When someone comes to justify the status quo, they also come to see it as what should be."

Reviewing laboratory and cross-national studies, the paper illuminates four situations that foster system justification: system threat, system dependence, system inescapability, and low personal control.

When we're threatened we defend ourselves—and our systems. Before 9/11, for instance, President George W. Bush was sinking in the polls. But as soon as the planes hit the World Trade Center, the president's approval ratings soared. So did support for Congress and the police. During Hurricane Katrina, America witnessed FEMA's spectacular failure to rescue the hurricane's victims. Yet many people blamed those victims for their fate rather than admitting the agency flunked and supporting ideas for fixing it. In times of crisis, say the authors, we want to believe the system works.

We also defend systems we rely on. In one experiment, students made to feel dependent on their university defended a school funding policy—but disapproved of the same policy if it came from the government, which they didn't perceive as affecting them closely. However, if they felt dependent on the government, they liked the policy originating from it, but not from the school.

When we feel we can't escape a system, we adapt. That includes feeling okay about things we might otherwise consider undesirable. The authors note one study in which participants were told that men's salaries in their country are 20% higher than women's. Rather than implicate an unfair system, those who felt they couldn't emigrate chalked up the wage gap to innate differences between the sexes. "You'd think that when people are stuck with a system, they'd want to change it more," says Kay. But in fact, the more stuck they are, the more likely are they to explain away its shortcomings. Finally, a related phenomenon: The less control people feel over their own lives, the more they endorse systems and leaders that offer a sense of order.

The research on system justification can enlighten those who are frustrated when people don't rise up in what would seem their own best interests. Says Kay: "If you want to understand how to get social change to happen, you need to understand the conditions that make resist change and what makes them open to acknowledging that change might be a necessity."

Provided by Association for Psychological Science (news : web)

Tuesday, December 20, 2011

Migrants’ Rights Are Human Rights!

Dissident Voice: a radical newsletter in the struggle for peace and social justice

Migrants’ Rights Are Human Rights!

Take Local Police Out of Immigration Enforcement

Nations and organizations around the globe observed yesterday as International Migrants Day. Twenty-two years ago, on December 18, 1990 the General Assembly of the United Nations adopted the International Convention on the Protection of the Rights of All Migrant Workers and Members of their Families, affirming the fundamental principle of the Universal Declaration of Human Rights that “all human beings are born free and equal in dignity and rights.”

Unfortunately, this year the United States’ treatment of migrants has been dismal. Nearly 400,000 people have been deported, often without adequate due process. Anti-immigrant and xenophobic laws have been passed in state legislatures of Alabama, Arizona, South Carolina, and Utah. The US has increased fear and isolation in our migrant communities.

Last week the U.S. Department of Justice Civil Rights Division (DOJ), to its credit, made public the findings of its investigation, initiated in March 2009, into civil rights violations in Arizona by the Maricopa County Sheriff’s Office (MSCO) headed by the notorious Sheriff Joe Arpaio. The investigation uncovered what many local advocates have suspected for years: that Sheriff Arpaio and his subordinates engaged in a pattern and practice of racial profiling against Latinos and also unlawful retaliation against individuals critical of the Sheriff’s policies.

Shortly after the DOJ’s findings became public, the Department of Homeland Security (DHS) ended its agreement allowing certain Maricopa County deputies to act as immigration agents on behalf of the federal government, a step community leaders have demanded for years. These agreements with local law enforcement, called 287(g) agreements, are authorized by Congress under section 287(g) of the Immigration and Naturalization Act to allow local police to act as immigration officers. In ending the agreement with Maricopa, DHS acknowledges that abuse of authority will occur when law enforcement agencies, especially those like Arpaio’s, get in the immigration business.

However, while DOJ’s investigation and DHS’ suspension of the 287(g) agreement with Maricopa are steps forward, a hugely problematic situation remains. DHS continues to have a relationship with the Maricopa County Sheriff’s Office through another program, Secure Communities, the federal deportation dragnet program, which will continue its legacy of mass deportations and destruction of communities.

Through Secure Communities, local law enforcement agencies automatically provide immigration authorities fingerprint information for every person arrested. After comparing the fingerprint information with its own databases, ICE can either try to deport the person or store the information in a massive database for future use. Secure Communities is already used in 1882 jurisdictions and 44 states, even in places where local officials and organizers have asked not to have any part in the program and in jurisdictions with human rights records as horrific as Maricopa County.

Think about the consequences of such a widespread program. With Secure Communities, immigration agencies automatically learn the identity of any non-citizen in the custody of local police and can initiate deportation. This is the case even if the arrest was illegal and even if the charges are dropped or never prosecuted.

Secure Communities Through a Human Rights Lens:

First, a central norm in human rights is proportionality: the punishment must fit the crime. With Secure Communities, we have witnessed record deportations and detentions, often for minor offenses where the criminal courts don’t even seek jail time.

Second, even though human rights standards require freedom from all forms of discrimination, Secure Communities is plagued with racial and ethnic profiling. Anti-immigrant jurisdictions use it to hide illegal and race-based arrests, and the federal government allows places like Maricopa County, Los Angeles, New York and New Orleans, places with well documented histories of racial profiling and abusive cops, to use Secure Communities without meaningful oversight.

Third, human rights principles require full and fair hearings and urge release from detention over incarceration, but in localities with Secure Communities, immigration holds prevent release of thousands of non-citizens at the expense of local jailers and with the consequence of coercing criminal pleas and deportation.

Fourth, human rights treaties provide special protections to women, children and victims of violence, but Secure Communities is criticized for placing trafficking and domestic violence survivors at risk of removal.

Fifth, a common thread in human rights is the idea of engagement. A government should listen and engage with the people it represents and allow us to have a real voice in setting policy. But Secure Communities, despite heavy resistance and requests by states and localities to end the program, has been forced on us. Even though the people and officials of places like San Francisco, Santa Clara, and Arlington, and entire states such as New York, Illinois and Massachusetts have said they don’t want anything to do with Secure Communities, it’s being implemented anyway.

The Center for Constitutional Rights has the honor and privilege of representing one of the national leaders in the movement towards immigrant justice – the National Day Laborer Organizing Network – in a lawsuit against federal agencies for information about Secure Communities. Through this lawsuit we have uncovered literally thousands of pages of internal documents that expose a record of the federal government’s deceit and misrepresentation. These documents have been used in a national campaign to uncover the truth behind police and ICE collaborations. Advocates around the country have questioned the government’s policy, educated local police and state officials and created a groundswell of resistance against merging the criminal and immigration systems.

Secure Communities is now a symbol of government dishonesty and deception. The Obama administration was not transparent with Congress about Secure Communities’ true purpose when it asked for over $2 billion for the program; it tricked state and local officials into believing they could limit or opt out of the program; and worst of all the government sold untruths to the public to get this program launched at any cost.

Kofi Annan, former Secretary-general of the United Nations, once said: “Human rights are what reason requires and conscience demands. They are us and we are them. Human rights are rights that any person has as a human being. We are all human beings; we are all deserving of human rights. One cannot be true without the other.”

The United States has failed to recognize the universality of human rights for migrants, rights we are all entitled to just because we are human.

As we begin a new year, let’s take a step forward toward recognizing the fundamental human rights of all people. The United States must change course. DHS should recognize the complete failure of programs like Secure Communities that put local police at the center of immigration enforcement. Terminate them immediately, especially in cities with open DOJ investigations or historic records of police misconduct, and start to honor our commitment to human rights for migrants.

Sunita Patel is a human rights attorney with the Center for Constitutional Rights and can be reached at spatel@ccrjustice.org. Bill Quigley is a law professor at Loyola University New Orleans and volunteers with the Center for Constitutional Rights and can be reached at quigley77@gmail.com . Read other articles by Bill Quigley and Sunita Patel.

Friday, December 16, 2011

The Two-Party System is a Charade

Dissident Voice: a radical newsletter in the struggle for peace and social justice

The Two-Party System is a Charade

Many people are under the misguided impression that The United Nations Climate Change Conference in Durban, South Africa, constituted a failure on the part of the world’s leadership to come to terms with the implications of global warming. Nothing could be further from the truth. Their failure to reach an agreement was a forgone conclusion, and as predictable as Exon’s profits in the coming quarter.

It should be obvious at this point that neither the U.S. government, nor the corporate oligarchy (forgive the redundancy), is interested in formulating and carrying out solutions to the problems facing the world: poverty, inadequate health care, meaningful education at affordable prices, world peace, environmental protection, sustainability and justice, to name just a few.

It is not that the powers-that-be disagree as to the ways to deal with these problems. On the contrary, there is total unity that meaningful solutions to the problems would affect corporate profits, and accordingly the parties simply agree to disagree. In that way, the status quo remains intact, assuring the destruction of the earth, the economic disenfranchisement of the masses of people, and the ongoing monopolization of wealth into the hands of the billionaires.

Indeed, the charade that is seen every day on national media and within all three branches of government, suggests that there are significant differences between Newt, Romney, Obama and the other charlatans who pass themselves off as credible candidates. There are no differences – only a façade to placate the average Americans’ reaction to the outrageous policies hammering us farther into the ground. By pretending to offer us a choice, they cover up reality: the leadership of both parties like the situation just the way it is.

Who is in a position to argue for the arrest of Wall Street gangsters, of corrupt politicians, of corporate boards that destroy our economy and our natural resources? Where is the political power to demand justice for the many, and the imprisonment of the profligate few?

No candidate in any of the current political parties calls for the prosecution of the criminals who have destroyed our economy. None has identified the enemies of the environment – those who eat up the world’s natural resources for individual profit. None calls for the redistribution of wealth from the 1% to the 99%. None calls for an end to our imperialist, religious crusades throughout the world.

Until there are voices to carry out an agenda that helps the poor, and punishes the super rich, voting for representatives of either ruling class party is a meaningless act. It is a fool’s game. Do not get caught up in the tweedle-dee, tweedle-dumb conundrum. Let the oligarchs continue to occupy the White House, the Congress, the Pentagon and the board rooms until such time as we, the people, can identify and support legitimate alternatives to illegitimate impostors.

Organize locally, build upon a solid foundation, and abandon any hope of obtaining co-operation from the rich. Supporting the lesser of two evils is simply not possible in this climate. This is a period that demands serious action, and not trite sloganeering. Supporting one millionaire over another offers nothing to the 99%.

Luke Hiken is an attorney who has engaged in the practice of criminal, military, immigration, and appellate law. Marti Hiken is the director of Progressive Avenues. She is the former associate director of the Institute for Public Accuracy and former chair of the National Lawyers Guild Military Law Task Force. Read other articles by Marti Hiken and Luke Hiken, or visit Marti Hiken and Luke Hiken's website.