Posts tagged Unemployment

America Needs A Better Measure Of Unemployment

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Source: http://www.againstcronycapitalism.org

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America Needs A Better Measure Of Unemployment

 

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Indeed we do. With the Fed coming out and saying (essentially) that it has abandoned the 6.5% unemployment target for raising rates, it is high time we start using a real number. As we said last week, the unemployment rate as currently calculated is little more than a propaganda tool at this point, and not even a good one.

 

Policy makers and the public need to know what is really going on with the employment situation. The old, garbage in, garbage out axiom applies here. If the employment data is manipulated for political reasons, how can anyone trust the data. How can anyone make a business decision in confidence?

(From IBD.com)
 
The current measure of the labor force includes those who are employed, in addition to unemployed individuals who are currently available and actively looking for work.
 
To maintain unemployed status, individuals must contact employers directly, have an interview, ask friends or professional organizations about job opportunities, send out a resume or fill out an application each month.
 
Given the historically high number of long-term joblessness, it’s no surprise that the share of out-of-work people who aren’t considered active enough in their search has surged since the Great Recession.
 
This — not rising employment — is the main cause of a drop in the unemployment rate since the end of the recession.

Click here for the article.

Image credit: http://www.againstcronycapitalism.org

How Pizza Hut Is Preparing for the Coming Hikes in the Minimum Wage

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Source: http://www.economicpolicyjournal.com

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How Pizza Hut Is Preparing for the Coming Hikes in the Minimum Wage

 

Super cool automation that will replace high cost waiters, waitresses and cashiers.

 

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Screen capture of pizzahut produced video added to Bob’s original post.

 

Should The Minimum Wage Be Raised?

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Source: http://www.paulcraigroberts.org

By Dr. Paul Craig Roberts

Should The Minimum Wage Be Raised?

 

Some years ago when I was Business Week’s columnist an up-and-coming academic economist published his conclusions that raising the minimum wage did not cause unemployment. An implication was that labor unions did not cause unemployment by forcing up wages.

These conclusions flew in the face of economic theory. Theory held that employees were paid the value of their marginal product. The value of the marginal product of labor is a measure of labor’s contribution to the firm’s revenues. As a factory, for example, increases its work force, after initially rising the contribution of each additional employee to output falls. Think of it in this way. As the work force expands, the fixed size of the factory means that additional workers have less technology and capital per capita with which to work.

Thus after some point the marginal product of additional workers falls. The value of the worker’s marginal product is his output times the price of the product.

Translated that means that employers expand the work force to the point that the last person hired adds as much value to the firm’s output as the cost of his wage.

Therefore, arbitrarily raising wages beyond this point by legislation or strikes would mean that the last employees hired cost more than they contribute to the value of the company’s output. (The wage rises, but not the marginal product of labor). In other words, the work force would be downsized to the point that the value of the marginal product of the last unit of labor hired equaled the higher wage. Think of it this way. As the number of employees shrink, the capital and technology of the firm is spread among fewer workers making them more productive.

I pounded the up-and-coming economist pretty hard for his conclusions. Having grown with age more skeptical of all explanations, today I probably would report his views, commend him for his courage in taking on established wisdom, and say that his findings should be examined for their correctness.

Like physics or chemistry or law or history or literature or whatever, there are far too many areas of economics for one economist to be informed about and to keep up with. I don’t know whether the economist I took to the woodshed prevailed and changed the theory of wage determination or whether some fault was found in his work.

California entrepreneur Ron Unz has reopened the case for raising the minimum wage. Unz advocates for a $12 per hour minimum wage. Allowing for an eight hour five day work week with two weeks vacation, this would produce an annual income of $24,000 the poverty level income for a family.

Unz has received more favorable attention than I gave the academic economist back in the 1980s or 1990s.

Unz makes a good case (see, for example, http://www.unz.com/article/the-conservative-case-for-a-higher-minimum-wage/ ). If Americans were paid a living wage for the jobs that Mexicans manage to do by living 10 to a trailer, illegal immigration would decline. Unz can convincingly argue that a higher minimum wage would actually increase the employment of American citizens as they would be able to scrape by on the wages from the higher minimum wage.

I endorse Unz’s proposal with reservations. My doubts about a healthy rise in the minimum wage are not based on the economic theory that the value of the marginal product curve of labor is the firm’s demand curve for labor. Nor am I opposed to a reduction of illegal immigration or to paying people a living wage. If the working poor made enough to live on, the social welfare budget could be cut.

From my standpoint, the problem with raising the minimum wage to a survivable level is that it pacifies the millions of Americans who are being oppressed by the greed of the one percent and the public officials who serve them. Making the survival of the oppressed easier keeps them from being in the streets protesting the rising inequality of income and wealth that jobs offshoring, financial deregulation, and cuts in social welfare programs such as food stamps have produced in America.

The ladders of upward mobility that made America an opportunity society have been dismantled by the movement abroad of America’s high value-added, high productivity jobs, leaving displaced Americans with only lowly paid domestic service jobs, such as retail clerks, waitresses, bartenders, and hospital orderlies. Making low pay jobs more livable makes the dismantling of the opportunity society more acceptable.

I think that Unz is correct that a significant rise in the minimum wage would both reduce illegal immigration by making it possible for Americans to survive on minimum wage jobs and provide a poverty level income for millions of Americans who currently live below the poverty line. But this amelioration of hardship suppresses protests and rebellion.

To recover justice, a reasonable distribution of income, the accountability of government, corporations, and banksters to the rule of law, and to revive the growth of consumer demand on which the success of the US economy depends, the existing order that serves the one percent needs to be altered. The ladders of upward mobility must be restored.

What is more imperative, a rise in the minimum wage that pacifies the work force and the downtrodden by making their survival easier, or a rising swell of disaffection that ultimately reforms or overthrows a government that is unaccountable both to law and to the people?

What I learned as a Washington insider for a quarter of a century is that Washington buys compliance. By purchasing compliance Washington can continue to masquerade the US as “the indispensable people, a light unto the world,” while Washington murders people in half a dozen countries and destroys the infrastructure, housing, and environment of those countries, simultaneously dispossessing the American middle class, destroying civil liberty, and locking the poor into an underclass.

Until the government is brought back into compliance with the rule of law and the will of the people, ameliorating hardships sustains the evil empire.

Unz is a genuine reformer. But reforms can have unintended consequences, and that is what worries me about raising the minimum wage.

Reprinted with permission from www.paulcraigroberts.org


 

About Dr. Paul Craig Roberts

Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. His latest book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is now available.

 

28 Signs That The Middle Class Is Heading Toward Extinction

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Source: http://theeconomiccollapseblog.com

By Michael Snyder

28 Signs That The Middle Class Is Heading Toward Extinction

 

Dilapidated-House-In-Indiana-300x300The death of the middle class in America has become so painfully obvious that now even the New York Times is doing stories about it.  Millions of middle class jobs have disappeared, incomes are steadily decreasing, the rate of homeownership has declined for eight years in a row and U.S. consumers have accumulated record-setting levels of debt.  Being independent is at the heart of what it means to be “middle class”, and unfortunately the percentage of Americans that are able to take care of themselves without government assistance continues to decline.  In fact, the percentage of Americans that are receiving government assistance is now at an all-time record high.  This is not a good thing.  Sadly, the number of people on food stamps has increased by nearly 50 percent while Barack Obama has been in the White House, and at this point nearly half the entire country gets money from the government each month.  Anyone that tries to tell you that the middle class is going to be “okay” simply has no idea what they are talking about.  The following are 28 signs that the middle class is heading toward extinction…

#1 You don’t have to ask major U.S. corporations if the middle class is dying.  This fact is showing up plain as day in their sales numbers.  The following is from a recent New York Times article entitled “The Middle Class Is Steadily Eroding. Just Ask the Business World“…

In Manhattan, the upscale clothing retailer Barneys will replace the bankrupt discounter Loehmann’s, whose Chelsea store closes in a few weeks. Across the country, Olive Garden and Red Lobster restaurants are struggling, while fine-dining chains like Capital Grille are thriving. And at General Electric, the increase in demand for high-end dishwashers and refrigerators dwarfs sales growth of mass-market models.

 
 
 

As politicians and pundits in Washington continue to spar over whether economic inequality is in fact deepening, in corporate America there really is no debate at all. The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away.

#2 Some of the largest retailers in the United States that once thrived by serving the middle class are now steadily dying.  Sears and J.C. Penney are both on the verge of bankruptcy, and now we have learned that Radio Shack may be shutting down another 500 stores this year.

#3 Real disposable income in the United States just experienced the largest year over year drop that we have seen since 1974.

#4 Median household income in the United States has fallen for five years in a row.

#5 The rate of homeownership in the United States has fallen for eight years in a row.

#6 In 2008, 53 percent of all Americans considered themselves to be “middle class”.  In 2014, only 44 percent of all Americans consider themselves to be “middle class”.

#7 In 2008, 25 percent of all Americans in the 18 to 29-year-old age bracket considered themselves to be “lower class”.  In 2014, an astounding 49 percent of them do.

#8 Incredibly, 56 percent of all Americans now have “subprime credit”.

#9 Total consumer credit has risen by a whopping 22 percent over the past three years.

#10 The average credit card debt in the United States is $15,279.

#11 The average student loan debt in the United States is $32,250.

#12 The average mortgage debt in the United States is $149,925.

#13 Overall, U.S. consumers are $11,360,000,000,000 in debt.

#14 The U.S. national debt is currently sitting at $17,263,040,455,036.20, and it is being reported that is has grown by $6.666 trillion during the Obama years so far.  Most of the burden of servicing that debt is going to fall on the middle class (if the middle class is able to survive that long).

#15 According to the Congressional Budget Office, interest payments on the national debt will nearly quadruple over the next ten years.

#16 Back in 1999, 64.1 percent of all Americans were covered by employment-based health insurance.  Today, only 54.9 percent of all Americans are covered by employment-based health insurance.

#17 More Americans than ever find themselves forced to turn to the government for help with health care.  At this point, 82.4 million Americans live in a home where at least one person is enrolled in the Medicaid program.

#18 There are 46.5 million Americans that are living in poverty, and the poverty rate in America has been at 15 percent or above for 3 consecutive years.  That is the first time that has happened since 1965.

#19 While Barack Obama has been in the White House, the number of Americans on food stamps has gone from 32 million to 47 million.

#20 While Barack Obama has been in the White House, the percentage of working age Americans that are actually working has declined from 60.6 percent to 58.6 percent.

#21 While Barack Obama has been in the White House, the average duration of unemployment in the United States has risen from 19.8 weeks to 37.1 weeks.

#22 Middle-wage jobs accounted for 60 percent of the jobs lost during the last recession, but they have accounted for only 22 percent of the jobs created since then.

#23 It is hard to believe, but an astounding 53 percent of all American workers make less than $30,000 a year in wages.

#24 Approximately one out of every four part-time workers in America is living below the poverty line.

#25 According to the most recent numbers from the U.S. Census Bureau, an all-time record 49.2 percent of all Americans are receiving benefits from at least one government program each month.

#26 The U.S. government has spent an astounding 3.7 trillion dollars on welfare programs over the past five years.

#27 Only 35 percent of all Americans say that they are better off financially than they were a year ago.

#28 Only 19 percent of all Americans believe that the job market is better than it was a year ago.

As if the middle class didn’t have enough to deal with, now here comes Obamacare.

As I have written about previously, Obamacare is going to mean higher taxes and much higher health insurance premiums for middle class Americans.

Not only that, but millions of hard working Americans are going to end up losing their jobs or having their hours cut back thanks to Obamacare.  For example, a fry cook named Darnell Summers recently told Barack Obama directly that he and his fellow workers “were broken down to part time to avoid paying health insurance“…

And the Congressional Budget Office now says that Obamacare could result in the loss of 2.3 million full-time jobs by 2021.

Several million people will reduce their hours on the job or leave the workforce entirely because of incentives built into President Barack Obama’s health care overhaul, the Congressional Budget Office said Tuesday.
 
That would mean job losses equal to 2.3 million full-time jobs by 2021, in large part because people would opt to keep their income low to stay eligible for federal health care subsidies or Medicaid, the agency said. It had estimated previously that the law would lead to 800,000 fewer jobs by that year.

But even if we got rid of Obamacare tomorrow that would not solve the problems of the middle class.

The middle class has been shrinking for a very long time, and something dramatic desperately needs to be done.

The numbers that I shared above simply cannot convey the level of suffering that is going on out there on the streets of America today.  That is why I also like to share personal stories when I can.  Below, I have posted an excerpt from an open letter to Barack Obama that a woman with a Master’s degree and 30 years of work experience recently submitted to the Huffington Post.  What this formerly middle class lady is having to endure because of this horrible economy is absolutely tragic…

Dear Mr. President,
 
I write to you today because I have nowhere else to turn. I lost my full time job in September 2012. I have only been able to find part-time employment — 16 hours each week at $12 per hour — but I don’t work that every week. For the month of December, my net pay was $365. My husband and I now live in an RV at a campground because of my job loss. Our monthly rent is $455 and that doesn’t include utilities. We were given this 27-ft. 1983 RV when I lost my job.
 
This is America today. We have no running water; we use a hose to fill jugs. We have no shower but the campground does. We have a toilet but it only works when the sewer line doesn’t freeze — if it freezes, we use the campground’s restrooms. At night, in my bed, when it’s cold out, my blanket can freeze to the wall of the RV. We don’t have a stove or an oven, just a microwave, so regular-food cooking is out. Recently we found a small toaster oven on sale so we can bake a little now because eating only microwaved food just wasn’t working for us. We don’t have a refrigerator, just an icebox (a block of ice cost about $1.89). It keeps things relatively cold. If it’s freezing outside, we just put things on the picnic table.

You can read the rest of her incredibly heartbreaking letter right here.

This is not the America that I remember.

What in the world is happening to us?

This article first appeared here at the Economic Collapse Blog.  Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here.

 

 

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Image credit: http://theeconomiccollapseblog.com
 

What Is Supply-Side Economics?

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Source: http://www.paulcraigroberts.org

By Dr. Paul Craig Roberts

What Is Supply-Side Economics?

 

Supply-side economics is an innovation in macroeconomic theory and policy. It rose to prominence in congressional policy discussions in the late 1970s in response to worsening Phillips Curve trade-offs between inflation and unemployment. The postwar Keynesian demand management policy had broken down. The attempts to stimulate employment brought higher rates of inflation, and attempts to curtail inflation resulted in higher rates of unemployment.

In other words, the Phillips curve (named after economist A. W. Phillips) trade-offs between inflation and unemployment were worsening. Each additional job created had to be paid for with a higher rate of inflation, and each reduction in inflation had to be paid for with a higher rate of unemployment.

The Phillips curve met its nemesis in stagflation, a new term that entered economics in the late 1970s. Milton Friedman summed up the demise of the Phillips curve with his article, “More Inflation, More Unemployment.”

The appearance of stagflation–simultaneous inflation and unemployment–was a serious problem for Congress, as I pointed out in the late 1970s in an article in The Public Interest, “The Breakdown of the Keynesian Model.” Simultaneous inflation and unemployment meant that the federal budget would soon be out of control. In those days Congress actually worried about such an outcome.

The Keynesian economic establishment could offer Congress no solution other than an “incomes policy.” An incomes policy was wage and price controls. Inflation would be controlled by suppressing wages and prices, while expansionary monetary and fiscal policies boosted aggregate demand to raise employment. Even Congress understood that aggregate demand could not rise if wages were suppressed.

Congress looked for a different solution, and I, being on the scene as a member of the congressional staff, gave them the solution. In Keynesian economics monetary and fiscal policies only affect aggregate demand. If these policies were expansionary, aggregate demand increases, thus boosting employment and inflation. If these policies were restrictive, inflation and employment would fall with consumer spending. The fault in Keynesian theory and policy was the assumption that fiscal policy had no impact on aggregate supply.

I was able to explain to members of Congress, both Democrats and Republicans who were concerned about stagflation, that some forms of fiscal policy directly increase or decrease aggregate supply. High tax rates mean that leisure is cheap in terms of forgone current earnings–thus there is less labor supply–and current consumption is cheap in terms of foregone future income streams–thus less savings for investments. Keynesian demand management had run into trouble, because the high tax rates on income reduced the response of supply to demand stimulus. Thus, prices rose instead of output.

The solution, I said, was to reduce the marginal income tax rates across the board. This would increase the responsiveness of supply to demand and cure stagflation.

Both political parties listened. In the House it was the Republicans who took the lead–Jack Kemp and Marjorie Holt. In the Senate, Republicans Orrin Hatch and Bill Roth stepped forward. However, in the Senate the lead was taken by Democrats, especially Russell Long, chairman of the Senate Finance Committee, Lloyd Bentsen, chairman of the Joint Economic Committee of Congress, and my Georgia Tech fraternity brother, Sam Nunn.

As a result of Rep. Jack Kemp being the first congressional spokesman for a supply-side policy and President Reagan’s adoption of the policy, supply-side economics is associated with Republicans. However, Republicans almost lost the issue to Democrats. The first official government endorsement of supply-side economics was in the late 1970s by the Joint Economic Committee of Congress under the chairmanship of Democratic Senator Lloyd Bentsen of Texas.

The Joint Economic Committee under Senator Bentsen’s leadership put out Annual Reports two years in a row calling for a supply-side policy. As the presidential election approached that put Ronald Reagan in the White House, the majority Democrats in the Senate had a meeting to decide whether to pass the supply-side tax rate reductions prior to the presidential election, thus pulling the rug out from under Reagan on his main plank. The Senate Democrats were inclined to move forward with the tax rate reductions, but the Senate Majority Leader convinced them that it would look like an endorsement of Reagan over their own party’s candidate (Jimmy Carter). The Senate Majority Leader said that immediately after the election, the Democrats would take control of the issue and pass the marginal tax rate reductions. The great surprise of the election was that the Democrats lost control of the Senate.

There was more opposition to Reagan’s tax bill from Republicans than from Democrats. Republicans believed that budget deficits ranked with the Soviet threat and were more willing to raise taxes than to reduce them. The Republican opposition was so strong that I had a hard time getting the tax bill out of the Reagan administration so that Congress could vote on it. In those days the great bogyman for Republicans was budget deficits, and deficits were what Treasury’s projections showed. Although the Treasury was, for the most part, committed to the President’s policy and believed that some part of the lost revenues from marginal tax rate reduction would be recovered, which is also what Keynesians believed, the Treasury’s revenue forecast was based on the traditional static revenue model that every dollar of tax cut would lose a dollar of revenue.

OMB director David Stockman and his economist Larry Kudlow covered up the revenue loss by assuming a higher rate of inflation. In those days the income tax was not indexed for inflation. Nominal income gains pushed taxpayers into higher tax brackets. The higher was inflation, the higher was nominal GDP and tax revenues. In order to raise the revenue forecast, Stockman only needed to raise the inflation forecast.

Senate Democrats complained to me that they were willing to cooperate with Reagan on the tax bill, but were being cut out. Sam Nunn, who had got “Reaganomics” passed in the Senate before Reagan was elected, only to have it nixed by President Carter, told me that no one in the Reagan administration had ever spoken to him or sought his support.

The White House chief of staff, James Baker, wanted a Republican “victory,” and proceeded to pick a fight with the Democrats who were willing to support President Reagan’s policy. I told Jim Baker that he was making a strategic mistake. By cutting out the Democrats, he was setting the policy up for criticism that would create the perception of failure. I told him that Stockman had hidden the deficit by over-estimating inflation, a ploy that contradicted the logic of our policy. If our policy was correct, inflation would be less than Stockman’s forecast. The tax revenues would not materialize, and the Democrats, cut out of the action, would seize on the deficits and pay the White House back for cutting them out of any credit for the new policy. (My prediction came true. Democrats, inured to deficits by decades of Keynesian demand management, suddenly became as rabid about budget deficits as Republicans.)

If I had known then just how corrupt politics was, I would have thought twice before warning Baker that the hidden deficits would be used to discredit the policy even if the policy cured stagflation. Baker was allied with George Herbert Walker Bush, Reagan’s VP, and the fight was on from day one for the succession to Reagan. Kemp was in the forefront, because he was identified with Reagan’s economic policy, and Bush had called it “voodoo economics.” If Baker could make Reagan’s policy appear to be successful only because Bush had moderated it, all the better for VP Bush’s claim to the succession.

Tip O’Neill, the Democratic Speaker of the House, offered an alternative supply-side tax rate reduction to the administration’s bill. Speaker O’Neill’s bill had a smaller reduction in marginal tax rates on personal income, but had a superior pro-growth tax reduction on the business side. The House Democrats’ bill offered expensing of business investment.

The Reagan administration was too fearful to propose expensing (immediate write-offs) of business investment, and here was the leading Democrat in the nation offering it to them. I told Jim Baker to jump on it, to work out a compromise with O’Neill on the size of the personal tax rate reductions and to give the Democrats equal credit for the policy. That, I told Baker, would ensure the policy’s acceptance and success.

For political reasons Baker was more committed to giving Reagan a “victory” over Democrats than he was to the success of the policy. Baker wanted a headline. I wanted a policy. From Baker’s standpoint, if Democrats for political reasons turned against the policy, they would help to create welcome roadblocks to Jack Kemp’s challenge to George H.W. Bush for the succession.

Reagan’s version of supply-side economics carried the day over Tip O’Neill’s version. Deputy Assistant Treasury Secretary Steve Entin prepared a graph comparing the Reagan and O’Neill tax rate reductions. The Democrats’ tax cut was initially larger, but Reagan’s was better over time. That let Reagan go on national TV, point to the graph and say, “the Democrats have the best bill–if you only expect to live one more year.”

The history and explanation of supply-side economics are in my book, The Supply-Side Revolution (Harvard University Press, 1984). Books published by Harvard are peer-reviewed, which means that publication depends on a go-ahead from outside experts. A book that was “voodoo economics” or simply said that “tax cuts pay for themselves” or that “trickle-down economics works by giving the rich money to spend and some of it will trickle-down to help the poor” will not clear peer review.

Thirty five to forty years after supply-side economics made its appearance in policy debates the vast majority of Americans, including apparently some economists and public intellectuals, have no idea what it is. For example, on February 1, 2014, Information Clearing House posted Bill Moyers interview of David Simon, “America as a Horror Show.” This important interview gets fouled in its opening lines when Simon declares: “Supply-side economics has been shown to be bankrupt as an intellectual concept. Not only untrue, but the opposite has occurred.”

Supply-side economics was not relevant to the interview. Yet off the bat Simon destroys the credibility of his interview. Supply-side economics cured stagflation exactly as supply-side economists said it would do. That was its only claim. I know. As Assistant Secretary of the Treasury for Economic Policy, I was in charge.

In 2013 The Supply-Side Revolution, which Harvard has kept in print for three decades, was published in China in the Chinese language. Why would a leading Chinese publisher translate and publish a 30 year old book about a subject that “has been shown to be bankrupt as an intellectual concept?” Why would Chinese economists request a publisher to translate and publish a book about a discredited and useless subject?

Why does Simon, a reporter who was on the Baltimore Sun’s city desk covering crime during the Reagan administration, think that he knows anything about supply-side economics?

How can America save itself when its public intellectuals have no idea what they are talking about?

As I am associated with supply-side economics and the Reagan administration, the coterie of Reagan haters will write in to the many sites that post my column with sarcastic comments denouncing me for “again defending Reagan.” I am not defending anyone. I am merely stating the facts. Anyone can find the facts. All they have to do is to look. But many had rather shoot off their mouths and demonstrate their ignorance. They can’t stand the thought of having one less reason for hating Reagan.

As I am an interested party, let’s turn to a non-interested one, Paul A. Samuelson, “the father of modern economics.” Samuelson was the doyen of Keynesian economics, America’s greatest 20th century economist, and the first American economist to win the Nobel prize. If anyone was harmed by supply-side economics, it was Keynesian economists’ human capital. Yet in the 12th edition of his famous textbook published in 1985, Samuelson shows how supply-side policy can cause aggregate supply to increase or decrease, a first for economics textbooks. Samuelson validates supply-side economics in principle and says that its policy impact varies from “modest” to “substantial,” depending on circumstances. He also says that in Britain, “the supply side policies appear to have had an unexpectedly large impact, improving both inflation and productivity more than many observers expected.”

Is the “foremost academic economist of the 20th century” (New York Times) another trickle-down, voodoo kook like me and Ronald Reagan?

I met Samuelson in his MIT office when I gave the annual State of the Economy address to the combined economic faculties and graduate students of Harvard and MIT sometime in the 1980s. Samuelson had an open mind and could absorb new thinking. At the conclusion of my address, I received a standing ovation. No one in the large liberal audience of professors and graduate students said I was a voodoo economist or an agent for the rich. I have debated in public forums Keynesian economists who are Nobel prize winners, such as James Tobin and Larry Klein. They were always respectful. At a meeting of the Eastern Economics Association, Tobin acknowledged that I was correct.

Supply-side economics dealt with the problem of its time–stagflation. Supply-side economics has no cure for an economy decimated by jobs offshoring and financial deregulation. The problems of today are different. I have made this clear in my book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West.

The George W. Bush tax cuts have nothing to do with supply-side economics. The Bush tax cuts were nothing but a greedy grab, but they are not a signifiant cause of today’s inequality. The main causes of the unacceptable inequality of income and wealth in the US today are financial deregulation and the dismantling of the ladders of upward mobility by the offshoring of manufacturing and tradable professional service jobs. The wages and salaries denied to Americans are transformed into corporate profits, mega-million dollar executive bonuses, and capital gains for shareholders. Financial deregulation unleashed massive debt leverage of bank depositors’ accounts, backed up with Federal Reserve bailouts of the banksters’ uncovered gambling bets. Neither tax increases nor reductions can compensate for these extraordinary mistakes.

Intelligent people over the centuries have stressed that failure to understand the past endangers the present and the future. Across the American political spectrum policymakers, economists, media, commentators, and the public are ignorant of the past and in denial about the present. Those trying to inform are few and far between, and they are constantly under attack from the very people they are endeavoring to inform. What is the point of the effort to inform? Is it merely “sound and fury, signifying nothing”?

NOTE:
Some claim that stagflation was caused by the OPEC oil embargo in 1973, not by the interaction of demand management with high marginal tax rates. The claim is incorrect. By 1971 high US inflation had already wrecked the Bretton Woods fixed exchange rate system.

US inflation forced President Nixon to close the gold window in 1971. Under the Bretton Woods fixed exchange rate system, the currencies of countries were fixed to the dollar, and the dollar was fixed at $35 per ounce of gold. Foreign central banks could redeem dollars for gold. Gold redemption was regarded as a constraint on US money supply growth.

By 1971 the rate of US inflation was 6 percent. The US gold stock had fallen substantially from its 1960 level. Alarmed by countries redeeming their dollar holdings for gold, the Nixon administration closed the gold window and ended the conversion of dollars into gold.

Economists ascribe the monetary inflation that predated the 1973 oil embargo by many years to the Federal Reserve’s accommodation of President Johnson’s “guns and butter” fiscal policy in the 1960s (VIetnam War + Great Society programs).

A common mistake is to claim that oil producers can cause inflation by raising oil prices. Higher oil prices can cause higher costs of production and less output but cannot cause a rise in the general level of prices. In the absence of monetary inflation, higher costs in some areas divert purchasing power from other areas. Costs rise and output falls, but there is no rise in the general price level.

Economists understand that inflation is a monetary phenomenon. For there to be a rise
in the overall level of prices, either the supply of money or the rate at which money turns over (velocity) must rise. Generally, a rise in the velocity of money is a response to rising prices as the willingness to hold depreciating currency declines.

In countries with significant imports, declines in the exchange value of the currency can boost domestic inflation with rising import prices, but generally declines in currency exchange values are caused by domestic monetary inflation. However, a country with a dominant currency can manipulate the exchange values of currencies of smaller economies or impose sanctions which reduce the value of the targeted country’s currency. In a system of flexible exchange rates, international capital flows in and out of countries can destabilize the economies.

 

Reprinted with permission from www.paulcraigroberts.org


 

About Dr. Paul Craig Roberts

Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. His latest book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is now available.

 

How Junk Economists Help The Rich Impoverish The Working Class

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Source: http://www.paulcraigroberts.org

By Dr. Paul Craig Roberts

How Junk Economists Help The Rich Impoverish The Working Class

 

Paul Craig RobertsLast week, I explained how economists and policymakers destroyed our economy for the sake of short-term corporate profits from jobs offshoring and financial deregulation.
http://www.paulcraigroberts.org/2014/01/25/economists-policymakers-murdered-economy-paul-craig-roberts/

That same week Business Week published an article, “Factory Jobs Are Gone. Get Over It,” by Charles Kenny. http://www.businessweek.com/articles/2014-01-23/manufacturing-jobs-may-not-be-cure-for-unemployment-inequality Kenny expresses the view of establishment economists, such as Brookings Institute economist Justin Wolfers who wants to know “What’s with the political fetish for manufacturing? Are factories really so awesome?”

“Not really,” Kenny says. Citing Eric Fisher of the Cleveland Federal Reserve Bank, Kenny reports that wages rise most rapidly in those states that most quickly abandon manufacturing. Kenny cites Gary Hufbauer, once an academic colleague of mine now at the Peterson Institute, who claims that the 2009 tariffs applied to Chinese tire imports cost US consumers $1 billion in higher prices and 3,731 lost retail jobs. Note the precision of the jobs loss, right down to the last 31.

In support of the argument that Americans are better off without manufacturing jobs, Kenny cites MIT and Harvard academic economists to the effect that there is no evidence that manufacturing tends to cluster, thus disputing the view that there are economies from manufacturers tending to congregate in the same areas where they benefit from an experienced work force and established supply chains.

Perhaps the MIT and Harvard economists did their study after US manufacturing centers became shells of their former selves and Detroit lost 25% of its population, Gary Indiana lost 22% of its population, Flint Michigan lost 18% of its population, Cleveland lost 17% of its population, and St Louis lost 20% of its population. If the economists’ studies were done after manufacturing had departed, they would not find manufacturing concentrated in locations where it formerly flourished. MIT and Harvard economists might find this an idea too large to comprehend.

Kenny’s answer to the displaced manufacturing workers is–you guessed it–jobs training. He cites MIT economist David Autor who thinks the problem is the federal government only spends $1 on retraining for every $400 that it spends on supporting displaced workers.

These arguments are so absurd as to be mindless. Let’s examine them. What jobs are the displaced manufacturing workers to be trained for? Why, service jobs, of course. Kenny actually thinks that “service industries–hotels, hospitals, media, and accounting–have taken up the slack.” (I don’t know where he gets media and accounting from; scant sign of such jobs are found in the payroll jobs reports.) Moreover, service jobs have certainly not taken up the slack as the rising rate of long-term unemployment and declining labor force participation rate prove.

Nontradable service sector jobs such as hotel maids, hospital orderlies, retail clerks, waitresses and bartenders are low productivity, low value-added jobs that cannot pay incomes comparable to manufacturing jobs. The long term decline in real median family income relates to the movement offshore of manufacturing jobs and tradable professional service jobs, such as software engineering, IT, research and design.

Moreover, domestic service jobs do not produce exportable goods and services. A country without manufactures has little with which to earn foreign exchange in order to pay for its imports of its shoes, clothing, manufactured goods, high-technology products, Apple computers, and increasingly food. Therefore, that country’s trade deficit widens as each year it owes more and more to foreigners.

A country whose best known products are fraudulent and toxic financial instruments and GMO foods that no one wants cannot pay for its imports except by signing over its existing assets. The foreigners buy up US assets with their trade surpluses. Consequently, income from rents, interest, dividends, capital gains, and profits leave US pockets for foreign pockets. It is a safe bet that Hufbauer did not include any of these costs, or maybe even the loss of US tire workers’ wages and tire manufacturers’ profits, when he concluded that trying to save US tire manufacturing jobs cost more than it was worth.

Eric Fisher’s argument that the highest wage growth is found in areas where higher productivity manufacturing jobs are most rapidly replaced with lower productivity domestic service jobs is beyond absurd. (Possibly Fisher did not say this; I’m taking Kenny’s word for it.) It has always been a foundation of labor economics that workers are paid the value of their contribution to output. Manufacturing employees working with technology embodied in plant and equipment produce more value per man hour than maids changing sheets and bartenders mixing drinks.

In my book, The Failure of Laissez Faire Capitalism And Economic Dissolution Of The West (2013), I point out the obvious mistakes in “studies” by Matthew Slaughter, a former member of the President’s Council of Economic Advisors, and Harvard professor Michael Porter. These academic economists conclude on the basis of extraordinary errors and ignorance of empirical facts, that jobs offshoring is good for Americans. They were able to reach this conclusion despite the absence of any visibility of this good, and they hold to this absurd conclusion despite the inability of a “recovery” (or lack of one) that is 4.5 years old to get off the ground and get employment back up to where it was six years ago. They hold to their “education is the answer” solution despite the growing percentage of university graduates who cannot find employment.

Michael Hudson is certainly correct to call economists purveyors of “junk economics.” Indeed, I wonder if economists even have junk value. But they are well paid by Wall Street and the offshoring corporations.

What the Brookings Institute’s Justin Wolfers needs to ask himself is: what is the redefinition of economic development? For my lifetime the definition of a developed economy is an industrialized economy. It has always been “the industrialized countries” that occupy the status of “developed economies,” contrasted with “undeveloped countries,” “developing countries,” and “emerging economies.” How is an economy developed if it is shedding its industry and manufacturing? This is the reverse of the development process. Without realizing it, Kenny describes the unravelling of the US economy when he describes the decline of US manufacturing from 28 percent of US GDP in 1953 to 12% in 2012. The US now has the work force of a third world country, with the vast bulk of the population employed in lowly paid domestic services. The US work force no longer looks like the work force of a developed country. It looks like third world India’s work force of three decades ago.

Kenny and junk economists speak of the decline of US manufacturing jobs as if they are not being offshored to countries where labor is cheap but replaced by automation. No doubt there has been automation, and more ways of replacing humans with machines will be found. But if manufacturing jobs are things of the past, why is China’s sudden and rapid rise to economic power accompanied by 100 million manufacturing jobs? Apple computers are not made in China by robots. If robots are making Apple computers, it would be just as cheap to make the computers in the US. The Chinese manufacturing workforce is almost the size of the entire US work force.

US companies employ Americans to market the products that are produced abroad for sale in the US. This is why US corporations employ Americans mainly in service jobs. Foreigners make the goods, and Americans sell them.

Economic development has always been about acquiring the capital, technology, business knowledge, and trained workforce to make valuable things that can be sold at home and abroad. US capital and technology are being located abroad, and the trained domestic workforce is disappearing from disuse and abandonment. The US is falling out of the ranks of the industrialized countries and is on the path to becoming an undeveloped economy.

Reprinted with permission from www.paulcraigroberts.org


 

About Dr. Paul Craig Roberts

Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. His latest book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is now available.

 

Working Age Americans are the Majority of People on Food Stamps for the First Time

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Source: http://libertyblitzkrieg.com

By Michael Krieger

Working Age Americans are the Majority of People on Food Stamps for the First Time

 

Aer773When people ask me to describe the state of the U.S. economy, what I always say is that it can best characterized as an ongoing state-sanctioned theft. This theft consists of the 0.01% oligarch class intentionally leveraging a corrupt monetary and political system in order to funnel all of the wealth of the non-oligarch rich and middle-class upward to them. The underclasses are kept quiet and in-line via food stamps and other forms of so-called “welfare.”

In reality, I have frequently maintained that food stamps are actually corporate welfare and that the stock market represents food stamps for the 1%. The entire economy is a gigantic bait and switch in which a handful of people rape and pillage everyone else.

With unemployment and GDP statistics hopelessly manipulated, we must look at other data points in order to gain an understanding of how things really stand. Data related to food stamp rolls is one way to gain real insight into the true state of the U.S. economy.

In an excellent article from the Associate Press, we learn several things.

  • For the first time ever, working-age people now make up the majority in U.S. households that rely on food stamps.
  • Food stamp participation since 1980 has grown the fastest among workers with some college training.
  • By education, about 28 percent of food stamp households are headed by a person with at least some college training, up from 8 percent in 1980.

More from the AP:

WASHINGTON (AP) — In a first, working-age people now make up the majority in U.S. households that rely on food stamps — a switch from a few years ago, when children and the elderly were the main recipients. 

Some of the change is due to demographics, such as the trend toward having fewer children. But a slow economic recovery with high unemployment, stagnant wages and an increasing gulf between low-wage and high-skill jobs also plays a big role. It suggests that government spending on the $80 billion-a-year food stamp program — twice what it cost five years ago — may not subside significantly anytime soon.

“High employment, stagnant wages.” Huh? Don’t these people realize we’ve been in a recovery for almost five years now!

Food stamp participation since 1980 has grown the fastest among workers with some college training, a sign that the safety net has stretched further to cover America’s former middle class, according to an analysis of government data for The Associated Press by economists at the University of Kentucky. Formally called Supplemental Nutrition Assistance, or SNAP, the program now covers 1 in 7 Americans.

Notice the statement, “America’s former middle class.” At least they are honest. The middle class is gone.

Since 2009, more than 50 percent of U.S. households receiving food stamps have been adults ages 18 to 59, according to the Census Bureau’s Current Population Survey. The food stamp program defines non-elderly adults as anyone younger than 60.

As recently as 1998, the working-age share of food stamp households was at a low of 44 percent, before the dot-com bust and subsequent recessions in 2001 and 2007 pushed new enrollees into the program, according to the analysis by James Ziliak, director of the Center for Poverty Research at the University of Kentucky.

By education, about 28 percent of food stamp households are headed by a person with at least some college training, up from 8 percent in 1980. Among those with four-year college degrees, the share rose from 3 percent to 7 percent. High-school graduates head the bulk of food stamp households at 37 percent, up from 28 percent. In contrast, food stamp households headed by a high-school dropout have dropped by more than half, to 28 percent.

So basically, young people are being encouraged to take on a mountain of suffocating debt to go to college and get a worthless degree only to move into their parents basements and collect food stamps. Now that’s what I call a recovery.

Several economists say food stamp rolls are likely to remain elevated for some time. Historically, there has been a lag before an improving unemployment rate leads to a substantial decline in food stamp rolls; the Congressional Budget Office has projected it could take 10 years.

This is particularly the case when unemployment statistics are entirely fabricated.

Full- and part-time workers employed year-round saw the fastest growth in food stamp participation since 1980, making up 17 percent and 7 percent of households, respectively. In contrast, the share of food stamp households headed by an unemployed person has remained largely unchanged, at 53 percent. Part-year workers declined in food stamp share.

Welcome to serfdom. You have arrived America.

Full article here.

Follow Mike on Twitter.

Image added to original post, credit Wikimedia Commons.

 

20 Early Warning Signs That We Are Approaching A Global Economic Meltdown

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Source: http://theeconomiccollapseblog.com

By Michael Snyder

20 Early Warning Signs That We Are Approaching A Global Economic Meltdown

 

Earth-From-Space-2013-300x300Have you been paying attention to what has been happening in Argentina, Venezuela, Brazil, Ukraine, Turkey and China?  If you are like most Americans, you have not been.  Most Americans don’t seem to really care too much about what is happening in the rest of the world, but they should.  In major cities all over the globe right now, there is looting, violence, shortages of basic supplies, and runs on the banks.  We are not at a “global crisis” stage yet, but things are getting worse with each passing day.  For a while, I have felt that 2014 would turn out to be a major “turning point” for the global economy, and so far that is exactly what it is turning out to be.  The following are 20 early warning signs that we are rapidly approaching a global economic meltdown…
 
 
#1 The looting, violence and economic chaos that is happening in Argentina right now is a perfect example of what can happen when you print too much money

For Dominga Kanaza, it wasn’t just the soaring inflation or the weeklong blackouts or even the looting that frayed her nerves.
 
It was all of them combined.
 
At one point last month, the 37-year-old shop owner refused to open the metal shutters protecting her corner grocery in downtown Buenos Aires more than a few inches — just enough to sell soda to passersby on a sweltering summer day.

#2 The value of the Argentine Peso is absolutely collapsing.

#3 Widespread shortages, looting and accelerating inflation are also causing huge problems in Venezuela

Economic mismanagement in Venezuela has reached such a level that it risks inciting a violent popular reaction. Venezuela is experiencing declining export revenues, accelerating inflation and widespread shortages of basic consumer goods. At the same time, the Maduro administration has foreclosed peaceful options for Venezuelans to bring about a change in its current policies.
 
President Maduro, who came to power in a highly-contested election last April, has reacted to the economic crisis with interventionist and increasingly authoritarian measures. His recent orders to slash prices of goods sold in private businesses resulted in episodes of looting, which suggests a latent potential for violence. He has put the armed forces on the street to enforce his economic decrees, exposing them to popular discontent.

#4 In a stunning decision, the Venezuelan government has just announced that it has devalued the Bolivar by more than 40 percent.
 

#5 Brazilian stocks declined sharply on Thursday.  There is a tremendous amount of concern that the economic meltdown that is happening in Argentina is going to spill over into Brazil.

#6 Ukraine is rapidly coming apart at the seams

A tense ceasefire was announced in Kiev on the fifth day of violence, with radical protesters and riot police holding their position. Opposition leaders are negotiating with the government, but doubts remain that they will be able to stop the rioters.

#7 It appears that a bank run has begun in China

As China’s CNR reports, depositors in some of Yancheng City’s largest farmers’ co-operative mutual fund societies (“banks”) have been unable to withdraw “hundreds of millions” in deposits in the last few weeks. “Everyone wants to borrow and no one wants to save,” warned one ‘salesperson’, “and loan repayments are difficult to recover.” There is “no money” and the doors are locked.

#8 Art Cashin of UBS is warning that credit markets in China “may be broken“.  For much more on this, please see my recent article entitled “The $23 Trillion Credit Bubble In China Is Starting To Collapse – Global Financial Crisis Next?

#9 News that China’s manufacturing sector is contracting shook up financial markets on Thursday…

Wall Street was rattled by a key reading on China’s manufacturing which dropped below the key 50 level in January, according to HSBC. A reading below 50 on the HSBC flash manufacturing PMI suggests economic contraction.

#10 Japanese stocks experienced their biggest drop in 7 months on Thursday.

#11 The value of the Turkish Lira is absolutely collapsing.

#12 The unemployment rate in France has risen for 9 quarters in a row and recently soared to a new 16 year high.

#13 In Italy, the unemployment rate has soared to a brand new all-time record high of 12.7 percent.

#14 The unemployment rate in Spain is sitting at an all-time record high of 26.7 percent.

#15 This year, the Baltic Dry Index experienced the largest two week post-holiday decline that we have ever seen.

#16 Chipmaker Intel recently announced that it plans to eliminate 5,000 jobs over the coming year.

#17 CNBC is reporting that U.S. retailers just experienced “the worst holiday season since 2008“.

#18 A recent CNBC article stated that U.S. consumers should expect a “tsunami” of store closings in the retail industry…

Get ready for the next era in retail—one that will be characterized by far fewer shops and smaller stores.
 
On Tuesday, Sears said that it will shutter its flagship store in downtown Chicago in April. It’s the latest of about 300 store closures in the U.S. that Sears has made since 2010. The news follows announcements earlier this month of multiple store closings from major department stores J.C. Penney and Macy’s.
 
Further signs of cuts in the industry came Wednesday, when Target said that it will eliminate 475 jobs worldwide, including some at its Minnesota headquarters, and not fill 700 empty positions.

#19 The U.S. Congress is facing another deadline to raise the debt ceiling in February.

#20 The Dow fell by more than 170 points on Thursday.  It is becoming increasingly likely that “the peak of the market” is now in the rear view mirror.

And I have not even mentioned the extreme drought that has caused the U.S. cattle herd to drop to a 61 year low or the nuclear radiation from Fukushima that is washing up on the west coast.

In light of everything above, is there anyone out there that still wants to claim that “everything is going to be okay” for the global economy?

Sadly, most Americans are not even aware of most of these things.

All over the country today, the number one news headline is about Justin Bieber.  The mainstream media is absolutely obsessed with celebrity scandals, and so is a very large percentage of the U.S. population.

A great economic storm is rapidly approaching, and most people don’t even seem to notice the storm clouds that are gathering on the horizon.

In the end, perhaps we will get what we deserve as a nation.

This article first appeared here at the Economic Collapse Blog.  Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here.

 


Image credit: http://theeconomiccollapseblog.com
 
 

Bill Gates: Minimum Wage Causes Job Destruction

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Source: http://www.againstcronycapitalism.org

By

Bill Gates: Minimum Wage Causes Job Destruction

 

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As we have said many times before, the temptation to raise the minimum wage is understandable. Who wouldn’t want people who struggle economically to struggle a little less? But the people who advocate for increasing the minimum wage can’t have thought the issue through very far.

First, if one was to mandate that all $7.25/hour jobs are now $15.00/hour jobs, many employers will just automate the formerly $7.25/hour jobs and those jobs, as little as they paid will be gone forever.

Second, many jobs will shift overseas. In the case of fast food restaurants this isn’t possible and as a result restaurants will be forced to raise their prices, customers will leave, and again the low paying jobs will disappear.

The counter argument to the second objection is that higher wages will be extracted from the fat cats in management.

On some marginal level (if that) that might happen at a place like McDonalds.  (I wouldn’t count on it.) But most of the jobs which are affected by an increased minimum wage mandate are not in companies rolling in cash. Many, if not most companies employing minimum wage workers are just getting by in this economy. Raise the price of employees and many of those companies will simply close their doors. Those jobs will again be gone forever. Not to mention the loss of  tax revenue generated by the company and the employees. The burden is then also increased for taxpayers that much more as new formerly employed people hit the social safety net.

Third, and my wife and I were talking about this the other night – putting everything above aside – if flipping burgers becomes a $15/hour job many college graduates are going to move right into those positions. There are plenty of college grads out there making less than $15 an hour right now who would love to work at Dairy Queen for more pay.

The people doing the protesting right now in front of Wendy’s? Guess what? They will be long gone because Brad has to find a way to pay his student loan back. Again, as far as the working class is concerned, those jobs have vanished.

The people calling for a higher minimum wage can’t have thought things through. It is pretty easy to see that a rise in the wage means job losses for many people who are now just barely making it. Raising the minimum wage will further exacerbate societal inequality not reduce it.

But yet, this seems impossible for some to understand.

Bill Gates however understands.

 

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Image credit: http://www.againstcronycapitalism.org


Nick Sorrentino
About Nick Sorrentino

Nick Sorrentino is the co-founder and editor of AgainstCronyCapitalism.org. A political and communications consultant with clients across the political spectrum, he lives just outside of Washington DC where he can keep an eye on Leviathan.

 

Nigel Farage: Europe Run by Big Banks, Big Business and Big Bureaucrats (Video)

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Source: http://www.againstcronycapitalism.org

By

Nigel Farage: Europe Run by Big Banks, Big Business and Big Bureaucrats (Video)

 

European elections are coming.

UKIP MEPs video capture

UKIP MEPs video capture

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Video capture added to original post.

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