A Turning Point

Nancy Folbre, writing in the Economix blog at The New York Times, in a post called “Revolt of the Cheeseheads,” is calling the Saturday rally in Madison, Wisconsin, a threshold moment in U.S. history, but for different reasons than the ones I spelled out after following the rallies nationwide on Saturday.

Folbre happened to be in Madison last week and had the opportunity to see the protest signs and posters firsthand. She was surprised, I think, to find that the protest signs summarized the issues at hand better than anything the news stories had been saying up to that point. In other words, it is the protesters who really know what’s going on, while the politicians, press, and pundits have been in a state of denial.

In the last two days we’ve seen news reporters correct some of their earlier misreporting. Some of the credit for that goes to Forbes, where columnist Rick Ungar set the record straight about the Wisconsin pay cut package in “The Wisconsin Lie Exposed – Taxpayers Actually Contribute Nothing To Public Employee Pensions.” That was on Friday, and late on Saturday the news coverage of the labor dispute in Wisconsin started to use the phrase “pay cut.” Corrections of other details are starting to creep into the news reports too. The people who have the clearer understanding of a situation tend to win out in the end, and with Wisconsin’s governor now fleeing the state in a state of confusion, he is giving up any chance he may have had to frame the debate.

If the people out on the street know what’s going on, we had better find out what is going on too. That was that message that has been starting to sink in in Madison, and after the rallies on Saturday, nationwide. To call this a “revolt” at this point is a bit of hyperbole, of course, but the effect of the new worker’s rights movement is just as revolutionary. The Saturday rallies, you may recall, were planned in just five days. In the next five days, more things will change. The people in positions of power are on notice now that if they can’t keep up with the tide of change, they will be left behind, forgotten.

Ireland Elections

The bank-bailout regime is over in Ireland. It is hard to explain how big a political change the election represents. The political party that had led the government in Ireland almost continuously for 80 years, Fianna Fáil, lost 3/4 of its seats. It may be able to make a comeback in a few years, but this is a party where no one knows how to do that — it is in rebuilding mode for the first time in a lifetime, with most of its leaders voted out of office. For Fianna Fáil’s coalition partner, the Greens, the news was worse — they won no seats at all in the election.

The electoral changes are the direct result of the bank bailouts in Ireland and the subsequent European Union bailout package and austerity budget. Ireland is in dire financial shape after the bank bailouts. It is on the hook for possibly as much as €200 billion after an escalating series of attempts to keep all the major banks standing, a policy that failed in the end anyway. That is a lot of money for a country the size of Ireland, equal to almost 1 year of GDP.

If the combination of bank bailouts and draconian budget cuts was politically toxic in Ireland, it is not going over well in the United Kingdom either, and this pattern is something politicians in other countries will have to notice. It may be enough to dissuade politicians in the United States from attempting another round of major bank bailouts later this year if some of the largest banks continue to weaken.

Workers at Work

A rally of workers has a very different feeling than one populated by television viewers, for example. I didn’t see the same angry “get out of my way” crowd in today’s rallies that was so evident at many U.S. political rallies in the last couple of years. But you wouldn’t expect such a negative vibe from a rally populated by workers. Get a bunch of workers together, and they have the attitude and energy of finding a way around obstacles and getting things done. You can even see the difference in the body types of the protesters — not that obese people weren’t represented at all today, but the crowds I saw seemed to have about a 5 percent obesity rate, conspicuously below the national rate around 25 percent. The most reliable way to counter obesity, of course, is exercise — which, until a couple of generations ago, was known simply as work.

Perhaps a million people turned out for today’s hastily organized rallies in support of worker’s rights, held in about 100 cities around the United States — half union members, but virtually all, people who see themselves as workers. You look at them and you say, “This is a group that could really do something — that could build a nation, for example.”

The success of a nation does fundamentally depend on making good use of the energy of people who are eager to work. The United States has had a dismal record at this in recent years. Only about 3 out of 4 workers have real jobs because of the recession. People who do have jobs work in frequently stifling environments that often don’t encourage the direct, obvious solution to a work problem. Far from empowering workers, parts of the government seem intent on creating new obstacles for workers. That point, of course, was the subject of today’s rally, as people turned out to oppose a Wisconsin bill that would clamp down on collective bargaining in that state and add piles of unnecessary paperwork and red tape to any labor union that would still be allowed to exist under the new rules.

The corporate news media paid little attention to the rallies, but no matter — photos, video, and live accounts are pouring in from people on the street and are easily found online. The new citizen-based mass media represents, if you think about it, a kind of immediacy and productivity that the corporate world, with its committees, rules, layers of management, and often conflicting objectives, will never be able to match. Another example of this I witnessed today was a songwriter who, earlier this month, wrote a song that seemed like it was written for the problems in Wisconsin (though it was actually based on events elsewhere). The songwriter recorded the song this afternoon and put the record online, so that people were listening to it on their way home from the rallies. Compare that to the “rapid response” committees or “crisis teams” that, in the corporate world, hope to deliver their results within a couple of years. Part of the reason we were seeing so much vitality and energy at today’s rallies was that there were hundreds of thousands of workers let loose from the constraints of daily work and able to just do something of importance.

It is a rule of political economy that wherever productivity goes, power follows. The corporate world is meant to foster productivity, but it is rapidly becoming the opposite of this — it is becoming an obstacle to productivity. If we get to the point where workers find ways to become more productive by working outside of the corporate system, then the power that corporations currently enjoy will fade, and this transition might happen rather quickly — too fast for some of those “crisis teams” to write their reports on what the corporations need to do to respond.

This Week in Bank Failures

The U.S. banking system became legitimately profitable in the fourth quarter of 2010, but the financial condition of the industry is still bad news. It is a rare bank at this point that is profitable in an investment sense; most are bringing in enough money to keep going, but aren’t making the kind of profit that would draw capital away from other investments. One measure of this is the interest rates banks are paying on savings accounts — still averaging well below 1 percent, and more importantly, now well below the rate of inflation. Another sign of trouble: one of the reasons banks are becoming more profitable is that the amount of lending they are doing is falling. That strongly suggests that banks will be more successful in the current economic circumstances if they lend even less than they are lending now. Less lending, of course, means fewer jobs for bankers. But the worst news is that there is little sign of troubled banks returning to profitability. Instead, the financial condition of about one sixth of banks, already in poor condition at the beginning of 2010, just got worse as the year went along.

It is the perhaps the most challenging time for banks in the history of banking in the United States, as they go from crisis to malaise in a period in which the industry as a whole is overbuilt by about 25 percent and massive technological changes are on the horizon. Historically, it has been hard for a struggling business to get ahead in a declining industry, but if all the banks that are on the brink now fail over the next three years, this will be the largest episode of bank failures ever.

Now, the good news: banks have been closing branches. The pace of branch closings is slight, and some areas are being left without a banking office, but in most cases, a branch closing now means fewer that will have to be closed in distress or liquidation later. With the real estate lending business shrinking and banks losing their competitive position in it in the coming years, the financial justification for bank branches will mostly evaporate, so it won’t be a surprise if half of the bank branches in the United States close or move into supermarkets within the next seven years.

The FDIC is convinced that the number of bank failures will be lower this year than it was last year. It also says the total assets of failed banks will be lower, but that is an easy prediction to make if you are looking at the smaller and medium-sized banks. The troubled banks’ assets continue to shrink with every foreclosure and every loan that has to be written off.

The parade of Illinois bank failures continued at closing time tonight, with state banking regulators closing Valley Community Bank, on the western fringe of the Chicago metro area with five branches around St. Charles, Illinois. The bank had $124 million in deposits. Its assets had shrunk to an amount smaller than this.

The bank had worked out a deal with investors for additional capital in 2009, but the deal fell through. The extra money would not have been enough to save the bank anyway. The bank spent last year searching for investors without success.

Illinois-based First State Bank is taking over the deposits and purchasing the assets.

Rising Oil Prices May Just Stay Up

The civil war in Libya, as strongman Moammar Gaddafi attempts to retake control of at least the capital city, saw Libya’s oil and natural gas production fall by at least one fourth on Tuesday and at least three fourths by yesterday. Some insiders believe Gaddafi will be able to sabotage oil fields. This puts world oil production down by 2 percent for several days or weeks, or in the worst case, for a year or longer. That is a possibility that has already sent world oil prices above $100 for the first time since 2008. Oil prices were going to pass $100 this year anyway because of economic expansion in Asia, Europe, and South America. It may have happened early because of the war in Libya, but prices may simply stay up even if Libya’s problems are resolved quickly. The northern temperate zone planting season, with its prodigious use of diesel fuel, is coming in just a few weeks, and then the summer driving season which annually drives up U.S. demand for motor fuel.

We knew all along that the recession’s retreat in energy prices was temporary, and that we would have to climb out of the recession with oil prices at least as high as they were before. World oil consumption is higher than it was when prices were at $120. Production has been able to keep up with the increasing demand until this year because of the global economic recession, but from here forward, with economies expanding, production increases will fall farther and farther behind the increase in demand, resulting in higher prices not just for oil and gasoline, but for all energy sources.

In the United States in the short term, gasoline prices will be going up to about $3.45, perhaps as soon as next week. In a matter of a few years, we will pass $6 a gallon for gasoline, a point at which the cost of fuel for transportation and heat will put millions of people into poverty. U.S. policy on this issue for the last two years appears to have been based on the hope that oil prices would stay artificially low for several more years. The window of opportunity that low oil prices have provided is closing already, and it is hard to say that we have made much use of it.