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The New Economics of Trade: Factories on Barges and the Race to the Bottom


Jack Welch, former CEO of General Electric, captured the new rules of the global economy when he talked of ideally having "every plant you own on a barge."
October 1, 2007 |

The classical theory of comparative advantage has driven US trade policy for the past fifty years. That policy, in combination with technical innovations that have lowered costs of transportation and communication, has opened the global economy. Yet paradoxically, this opening has rendered classical trade theory obsolete. That in turn has left the US economically vulnerable because its trade policy remains stuck in the past and based on ideas that no longer hold. The logic behind classical free trade is that all can benefit when countries specialize in producing those things in which they have comparative advantage. The necessary requirement is that the means of production (capital and technology) are internationally immobile and stuck in each country. That is what globalization has undone.

Several years ago Jack Welch, former CEO of General Electric, captured the new reality when he talked of ideally having "every plant you own on a barge." The economic logic was that factories should float between countries to take advantage of lowest costs, be they due to under-valued exchange rates, low taxes, subsidies, or a surfeit of cheap labor. Globalization has made Welch's barge a reality. However, in doing so it has made capital mobility rather than country comparative advantage the engine of trade. And with that change, "free trade" increasingly trades jobs and promotes downward wage equalization.

The U.S. and European response to Welch's barge has been competitiveness policy that advocates measures such as increased education spending to improve skills; lower corporate tax rates; and investment and R&D incentives. The thinking is increased competitiveness can make Europe and the US more attractive to businesses. Unfortunately, competitiveness policy is not up to the task of anchoring the barge, and it can even be counter-productive. The core problem is corporations are globally mobile. Thus, government can subsidize R&D spending, but the resulting innovations may simply end up in new offshore factories. Moreover, competitiveness policy easily degenerates into a race to the bottom. For instance, if the US cuts corporation taxes, other countries may match to stay competitive. The result is no gain for the US, while profit taxes are lowered and tax burdens shifted on to wages, which widens income inequality. Worse yet, capital mobility prompts countries to adopt unfair policies to increase their relative business attractiveness. These policies include disregard of environmental damage; suppression of labor to keep wages low; direct subsidies; and under-valued exchange rates. All are visible in China, which is the poster-child for such abuses.

A critical consequence of Welch's barge is the creation of a "corporation versus country" divide. Previously, when corporations were nationally based, profit maximization by business contributed to national economic success by ensuring efficient resource use. Today, corporations still maximize profits, but they do so from the standpoint of their global operations. Consequently, what is good for corporations may not be good for country....From an American worker perspective, the global economy has always had abundant supplies of cheap labor. In the past American workers were still able to compete and benefit from trade. The critical difference today is American corporations are taking their capital and technology offshore and equipping low-wage foreign workers. Those investments undermine American workers because that foreign production is intended for the US market...



Thomas Palley is the founder of the Economics for Democratic & Open Societies Project. Read more of his work at www.thomaspalley.com.

Ownership, Full Employment and Community Economic Stability


The great British economist, the late Joan Robinson, once observed that the only thing worse than being exploited by capitalism is not being exploited by capitalism. This truth is felt acutely by anyone who is unemployed and looking for work. As the pain of the economic crisis continues and millions struggle to find employment there is an obvious imperative to create jobs—any jobs. But we shouldn’t stop there. In Back to Full Employment, Robert Pollin makes the essential point that “a workable definition of full employment should refer to an abundance of decent jobs.” Poor jobs that keep workers minimally employed but leave them in precarious circumstances and unable to participate fully in civic and political life are better than no jobs at all. But in terms of public policy we can and should aim higher—especially as decent jobs not only benefit the workers that hold them but also the communities in which they live. Absent a stable economic base, community itself is compromised.

Three elements of the instability challenge lend critical perspective to the issue. The first can be seen in the long-term results of the decline of manufacturing industry in the rust belt. We have in fact been quite literally “throwing away” entire cities—cities like Cleveland, Detroit and St. Louis. Since 1950, Cleveland and St. Louis have each lost half a million people, drops of more than 50 and 60 percent respectively; in Detroit, the fall in numbers has topped a million, more than 60 percent. The uncontrolled corporate decision-making that results in the elimination of jobs in one community—leaving behind empty houses, half-empty schools, roads, hospitals, public buildings, and so forth—implicitly requires that they be rebuilt in a different location. Quite apart from the human costs involved, the process is extremely costly in terms of capital and also of carbon content—and at a time when EPA studies show that greenhouse gas emissions caused by human activity in the United States are still moving in the wrong direction (having jumped by over 3 percent between 2009 and 2010 alone).

A second aspect relates to democracy. Substantial local economic stability is clearly necessary if democratic decision-making is a priority. A local population tossed hither and yon by uncontrolled economic forces is unable to exercise any serious interest in the long-term health of the community. To the extent local budgets are put under severe stress by instability, local community decision-making (as political scientist Paul E. Peterson has shown) is so financially constrained as to make a mockery of democratic process. This becomes still more problematic if we recognize—as theorists from Alexis de Tocqueville and John Stuart Mill to Benjamin Barber, Jane Mansbridge, and Stephen Elkin have argued—that an authentic experience of local democratic practice is also absolutely essential for there to be genuine national democratic practice.

Thirdly, and straightforwardly, it will be impossible to do serious local “sustainability planning”—mass transit, high-density housing, and so forth—that reduces a community’s carbon footprint if such planning is disrupted and destabilized by economic turmoil. So yes, we need jobs. And yes, we need good jobs. But we also need an approach to good jobs that will allow us to grapple with the challenges indicated above while at the same time begin tackling the grotesque maldistribution of wealth in this country—a distribution that has reached literally medieval proportions. The top 400 individuals now control as much wealth as the bottom 180 million Americans taken together...MORE

Worker and community ownership OF THE MEANS OF MANUFACTURE AND SERVICE

Responding to Financial Crisis: Are Austerity and Suffering Inevitable? SWEDEN'S ANSWER


All too often people in countries experiencing financial crisis are told that the road to recovery necessarily involves pain, that fiscal austerity and cuts in spending that adversely affect the lives of ordinary citizens are necessary costs of correction of macroeconomic imbalances and the consequent adjustment that is considered essential for recovery. This is repeated so often that it is now taken as received wisdom by policy makers and civil society alike – yet in fact it is not true at all. It can actually be plausibly argued that in several situations the reverse is correct, that attempts to reverse economic downswings through cuts in public spending are counterproductive and makes matters much worse. This is clearly evident for all to see in the case of crisis-ridden countries in the eurozone, for example. And there are also positive counter-examples, that show how taking into account the concerns and requirements of ordinary citizens (and paid and unpaid workers in particular) can work as a positive macroeconomic strategy that actually provides a route out of crisis. Sweden provides an example of a country that responded to the financial crisis by explicitly recognizing and attempting to reduce the pressures on workers, and particularly women workers whose needs are often the last to be considered in such periods of crisis. Sweden incorporated measures to maintain or ensure favourable conditions of women’s work and life into its broader economic recovery strategy.

In the early 1990s, Sweden experienced a dual financial and real economic crisis that bears many similarities to the sub-prime crisis in the United States and to the current difficulties faced by some eurozone countries. Financial deregulation in the 1980s generated significant capital inflows and sparked a lending boom, which was then associated with rapidly increasing consumption, investment and asset price bubbles and heightened activity in the domestic non-tradable sector (particularly in real estate and construction). The Swedish krona was pegged to the US dollar, and so the real exchange appreciated—but this was not the only problem (because even if there were flexible exchange rates, the capital inflows may have nonetheless continued to drive up the nominal exchange). Around 1990, the bubble burst and the boom turned into slump, with capital outflows, widespread bankruptcies, falling employment, declining investment, negative GDP growth, systemic banking crises driven by deterioration in banks’ balance sheets and currency crises (Jonung 2010). As a result, Sweden experienced a severe depression in the early years of the 1990s. GDP fell by 5 percent, employment rates fell by nearly 10 percent and there was a massive increase in unemployment, almost 500 percent in absolute numbers of people (Freeman et al, 2010). However, the policy response was swift and positive, addressing not just the financial imbalances but also the real economic downswing and the impact on the labour market, including particular attention on the conditions facing women workers. In terms of financial policies, consolidation of struggling financial institutions was accompanied by an unlimited government guarantee against loss for all depositors and counterparties. This enabled credit lines to be re-established with foreign banks while maintaining the confidence of private retail depositors. The bailouts provided to banks were limited by the requirement that recipient banks had to fully disclose all their financial positions and open up their books to official scrutiny, so that only those banks that were deemed worth rescuing received government funds. Banks’ shareholders were not protected by any guarantees. Some banks were taken over and nationalized, with zero compensation to shareholders because they were deemed to be worthless. These measures not only prevented a credit crunch from creating a more severe downturn, they also limited moral hazard and reduced the cost of the financial rescue, increasing its political acceptability.

In terms of macroeconomic strategy, an immediate measure was the devaluation of the exchange rate, which dramatically improved the export competitiveness of the economy and led to a long period of rapidly growing exports. However, the crucial point is that export-led growth was not seen as the only means of economic expansion, and measures were taken almost immediately to provide countercyclical fiscal policies that would generate internal demand to bring the economy out of the recession. This included labour markets and social welfare measures that affected women, which provided important countercyclical buffers. Thus, instead of forcing reductions in fiscal deficits through austerity and contraction of public spending, the Swedish government let fiscal deficits increase during the crisis. This took the form of maintaining some earlier expenditures and expanding other spending to respond to the crisis and its employment effects. Sweden’s famous welfare system, an essential element of the Swedish model, simultaneously provided direct public employment for women and helped to reduced unpaid work in the care economy and household reproduction. Rather than allowing it to deteriorate, Sweden expanded the system with a renewed emphasis on employment programmes and active labour market policies. This protected women from the worst effects of the financial crisis and economic downswing and provided a demand cushion that assisted faster recovery of the real economy.

An important element of this strategy with direct contemporary relevance was the creation of a personalized youth employment guarantee programme (ILO 2012). This is a scheme in which all young people (18 to 24 years) in Sweden are offered employment in youth specific activities, following a period (90 days) of unsuccessful job search. The idea is to provide special measures and activities for the participant to enable him/her to get a job or return to education as soon as possible. In the initial period, the programme includes assessment, educational and vocational guidance and job search activities with coaching. Thereafter, these activities are combined with work experience, education and training, grants to business start-ups and employability rehabilitation efforts. The emphasis is on rapid integration with the labour market. A young person can participate in the job guarantee for up to 15 months. The programme is estimated to have been quite successful (with nearly half of the young jobseeker participants getting successful outcomes as a result of the scheme) at relatively low cost. Female participation in such programmes has been high, at around half. Given the high rates of youth unemployment that prevail currently not just in Europe but in many other parts of the world, such a programme can have positive effects in other contexts as well. The Swedish recovery programme also focused on avoiding labour market exclusion, particularly for women. Two cornerstones of Swedish family policy—paid parental leave and subsidies to day care for children—that were both maintained during the crisis and even expanded to some extent, have been recognized as being particularly beneficial to women workers, even by researchers who have otherwise queried the fiscal costs of such programmes, such as Freeman et al. The welfare state provisions continued to provide strong social protection and safety nets to those at the bottom of the income and wage pyramid. Government benefits supplemented the incomes of the lower-paid and non-working population. These measures prevented the emergence of poverty, reduced tendencies to enhance inequality in the wake of the crisis, and also operated as countercyclical buffers that cushioned domestic demand from further declines. Another important element in the Swedish success was the continued maintenance of social dialogue, particularly in wage bargaining. This was made possible by the developed institutional structure in which trade unions and employer associations were active participants in tripartite dialogues with government in the Nordic model well before the crisis. The financial crisis did not lead to the abandonment of such dialogue, and its continuation allowed wage increases that protected workers to some extent but also secured the benefits of exchange rate devaluation in the form of greater competitiveness of the domestic manufacturing industry.

The result of this combination of measures was a relatively quick recovery from the financial crisis in terms of both output and employment. Further, it was achieved at relatively small cost to the public exchequer, with recent estimates putting the cost of the financial rescue package at only 3 percent of GDP. In addition, it was achieved with relatively little increase in inequality or social disruption.

Weekend Economists Haunted by Mozart's Ghost January 25-27, 2013

It is, mercifully, that last weekend in January, a month that will leave indelible psychic scars on many--certainly on me. And Sunday, I am told by NPR, is Mozart's birthday.

Movies are full of awful websites, operating systems, and programs. Quite often you see the “total internet search” where someone types into an enormous text box, hits “search” and every detail they could possibly need to advance the plot is magically theirs for the taking. Genius!

My favorite movie website is Mozart’s Ghost, of the stellar “The Net”. Mozart’s Ghost is the best part of the movie’s horrendous “internet effects”. It’s a website which appears to be some super gnarly rock band, but if you click in JUST the right place you are given access to FBI files. Yeah. Seriously. Mozart’s Ghost is where all the super elite hackers hung out like Sandra Bullock. She would eat cold pizza, surrounded by monitors and just hack… stuff… and things… Pretty crazy.

Mozart’s Ghost is just the tip of the iceberg, as this movie features more cliche’s and 90′s internet speak than you can shake a stick at. In fact I think the big bad virus is on a floppy disc. A FLOPPY DISC! Oh the humanity!

I can’t find a video of Mozart’s Ghost from the movie, so you will have to settle for the super bad-ass trailer: AT LINK


Homage to Mozart's Ghost

a completely unnecessary retrospective on a fad that no one remembers.

No one seems to remember this, but there was a brief internet fad in which everyone would have stupid pi symbols in the lower right hand corner of a webpage that would bring you to a secret page that did nothing.

Buckle Up Script Kiddies, here's a quick internet history lesson for you.

The Movie

So there was this terrible movie way back when called "The Net", in which Sandra Bullock plays a computer programmer who works from home and no one knows what she looks like so it is very easy for Jeremy Irons to somehow steal her identity and it's terrible. However, as it was one of the first mainstream movies to deal with the Internet, a lot of geeks (like me) went and saw the movie and even geekier geeks adopted some of the quirks from the movie as conventions.

The Fake Band

So very early on in the movie, the action that gets Sandra Bullock "red-flagged" is that she receives a disk that is ostensibly a promotional digital program for a fictional band "Mozart's Ghost", which is a very terrible site and it sucks, and now that I think about it it was just like those old Launch CDs, but she notices a supposedly hard to see "pi" hyperlink. When you hold shift and ctrl and click on the link you were taken to a secret terminal access page that let you steal everyone's identity or something stupid.

The Fad

So anyway, the completely stupid fad that everyone picked up was that everyone put a stupid pi symbol in the lower righthand corner of their stupid website and thought they were clever. So I thought I'd do the same thing just now. God I feel lame.

The Legacy

Well almost none really. This fad seems to have faded faster than you can say suck.com, and it would probably take hours of trolling the wayback machine to find these reprehensible websites. Still, while I was googling, I did find a pretty thorough rundown of the security concepts touched on and lovingly ignored in the movie that I thought was pretty amusing.

oh! also remember those cool laser whip things from Johnny Mnemonic? those were awesome.


Proof Is In the Pudding: Fewer Prosecutions Equals a Worse Economy (CONCLUSION)

Obama has prosecuted fewer financial crimes than any president in decades – less than Ronald Reagan, less than George H.W. Bush, less than Bill Clinton, and less than George W. Bush.

The economy is worse than it has been since the Great Depression, if not before.
See the connection?

Everyone Supports Laws Protecting Contract and Private Property Rights

Even the most radical free market advocates support laws protecting contract and private property rights. In other words, they support the judicial branch of government and the basic laws Congress passes to support such rights.

There are obviously good, pro-competitive laws and bad, anti-competitive laws.

Paul Craig Roberts – a true conservative, who was a Wall Street Journal editor and Assistant Secretary of the Treasury under Ronald Reagan, and is widely credited with being the “father of supply-side economics” – points out:

Regulation can increase economic efficiency and … without regulation external costs can offset the value of production.
Thirty-three years ago in an article in the Journal of Monetary Economics (August 1978), “Idealism in Public Choice Theory,” I developed a model to assess the benefits and costs of regulation. I argued that well-thought-out regulation could be a factor of production that increases GNP. For example, regulation that contributed to the quality and safety of food and medicines contributed to specialization in production and lower costs, and regulations enforcing contracts and private property rights add to economic efficiency.

On the other hand, bureaucracies build their empires and extend their regulations into the realm of negative returns. Moreover, as regulations increase, economic managers spend more time in red tape and less in productive activity. As rules proliferate, they become contradictory and result in paralysis.

I had hopes that my analysis would result in a more thoughtful approach to regulation, but to no avail. Liberals continued to argue that more regulation was better, and libertarians maintained than none was best.


Free Market Champions Demand Prosecution of Fraud (CONTINUATION)

A strong rule of law is the main determinant of prosperity. On the other hand, failure to prosecute fraud is destroying our prosperity.

Nuclear meltdowns, the financial crisis and the Gulf oil spill all happened for the same reason: fraud to make a few more pennies, and a subsequent cover-up to try to protect the wrongdoers and continue "business as usual".

This is not free market economics.

Indeed, the father of free market economics - Adam Smith - leading Austrian economists, and other free market advocates are for the prosecution of fraud:

There is a widespread myth that free market supporters are against regulation or prosecuting fraud.

In fact, Adam Smith – the father of free market capitalism – was for regulation of banks, and believed that trust is vital for a healthy economy. Because strong enforcement of laws against fraud is a basic prerequisite for trust, Smith would be disgusted by the lack of prosecution of Wall Street fraudsters today.

Smith railed against monopolies and their corrupting influence. And Smith was pro-regulation, so long as the regulation benefited the little guy, as opposed to the wealthiest:

When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.

Richard Posner – one of the leading proponents over the course of many decades for removing the reach of the law from the economy – has now changed his mind. So has another leading proponent of deregulation and turning a blind eye towards fraud: Alan Greenspan. While some promoters of a fake version of Austrian economics are anti-regulation and against prosecuting fraud, the main Austrian economists were unambiguously for them.

William K. Black – professor of economics and law, and the senior regulator during the S&L crisis – notes that leading Austrian free market economists said that fraud must be prosecuted:

Real Austrian economists … hate elite frauds and want them prosecuted vigorously. Ludwig von Mises and Friederich Hayek are the two most famous Austrian economists.

Hayek, F.A. The Road to Serfdom

To create conditions in which competition will be as effective as possible, to prevent fraud and deception, to break up monopolies— these tasks provide a wide and unquestioned field for state activity.

The Constitution of Liberty

There remains, however, one other kind of harmful action that is generally thought desirable to prevent and which at first might seem distinct. This is fraud and deception. Yet, though it would be straining the meaning of words to call them ‘coercion,’ on examination it appears that the reasons why we want to prevent them are the same as those applying to coercion. Deception, like coercion, is a form of manipulating the data on which a person counts, in order to make him do what deceiver wants him to do. Where it is successful, the deceived becomes in the same manner the unwilling tool, serving another man’s ends without advancing his own. Though we have no single word to cover both, all we have said of coercion applies equally to fraud and deception.

With this correction, it seems that freedom demands no more than that coercion and violence, fraud and deception, be prevented, except for the use of coercion by government for the sole purpose of enforcing known rules intended to ensure the best conditions under which the individual may give his activities a coherent, rational pattern…..

Liberty not only means that the individual has both the opportunity and the burden of choice; it also means that he must bear the consequences of his actions…. Liberty and responsibility are inseparable.

Mises, L.

Government ought to protect the individuals within the country against the violent and fraudulent attacks of gangsters, and it should defend the country against foreign enemies.

Black also notes that fraud is a leading cause of financial bubbles and malinvestment – two of the greatest sins which Austrian economists rightly fight against.

Unless financial fraud is prosecuted, bubbles will be blown … and when they burst, the economy will tank. Fraud – along with bad Federal Reserve policy – is what causes bubbles in the first place.

Nuclear Power Would Not Exist In a Free Market


Initially, it is undisputed that nuclear power plants would not exist if operators had to obtain funding and insurance through the free market. Private insurers won’t touch nuclear energy. Investors run the other way, because the odds of losing all of their investment are so high.

No private company in the world would operate a nuclear plant unless the government put a very low cap on liability. In many parts of the world, governments cap liability at a mere $13 billion dollars. This is a little insane, given that “the risk of a nuclear catastrophe … could total trillions of dollars and even bankrupt a country”.


AP notes:

Nuclear power is a viable source for cheap energy only if it goes uninsured.
Governments that use nuclear energy are torn between the benefit of low-cost electricity and the risk of a nuclear catastrophe, which could total trillions of dollars and even bankrupt a country.
The cost of a worst-case nuclear accident at a plant in Germany, for example, has been estimated to total as much as €7.6 trillion ($11 trillion), while the mandatory reactor insurance is only €2.5 billion.

“The €2.5 billion will be just enough to buy the stamps for the letters of condolence,” said Olav Hohmeyer, an economist at the University of Flensburg who is also a member of the German government’s environmental advisory body.

The situation in the U.S., Japan, China, France and other countries is similar.
“Around the globe, nuclear risks — be it damages to power plants or the liability risks resulting from radiation accidents — are covered by the state. The private insurance industry is barely liable,” said Torsten Jeworrek, a board member at Munich Re, one of the world’s biggest reinsurance companies.
In financial terms, nuclear incidents can be so devastating that the cost of full insurance would be so high as to make nuclear energy more expensive than fossil fuels.
Ultimately, the decision to keep insurance on nuclear plants to a minimum is a way of supporting the industry.

“Capping the insurance was a clear decision to provide a non-negligible subsidy to the technology,” Klaus Toepfer, a former German environment minister and longtime head of the United Nations Environment Programme (UNEP), said.

U.S. News and World Report reports:

The disaster insurance for nuclear power plants in the United States is currently underwritten by the federal government, Cooper says. Without that safeguard, “nuclear power is neither affordable nor worth the risk. If the owners and operators of nuclear reactors had to face the full liability of a Fukushima-style nuclear accident or go head-to-head with alternatives in a truly competitive marketplace, unfettered by subsidies, no one would have built a nuclear reactor in the past, no one would build one today, and anyone who owns a reactor would exit the nuclear business as quickly as possible.”

In other words, this is not a free market. Instead, the public has funded the nuclear industry. As such, we - the owners - should get some control over how nuclear plants operate. Likewise, the government created the mega-banks, big oil and the other mega-corporations.

How Big Was It?


By far and away, the worst financial crack-up in history was Fannie and Freddie. That disaster has cost $142 billion. The knock-on effects of the collapse of these two were devastating. F/F went out of biz on September 7, 2008. The next weekend Lehman blew up. F/F put the nail in the coffin at the “Brothers”, and after that, all the dominoes were falling.

With that in mind, I'm amazed that AAPL has blown off nearly twice the F/F losses in six-months, and there is not even a ripple in the water. Last night, in a few seconds of after-market trading, the stock got pasted for more than all of the losses for LEH. By the opening, the overnight losses exceeded more than LEH, AIG, GM, and Chrysler combined.

The market gets smoked for 1/4 Trillion in a single name, and we're trading at the highs. Go figure.



Exposed! How the Billionaires Class Is Destroying Democracy


...Yes, over the last hundred years, average American people have voted themselves benefits like Social Security, unemployment insurance, Medicare, and Medicaid. But at the same time, they've also supported tax increases to pay for all of these things. Remember, the Social Security tax only applies to the first $113,000 of wages - earned income. People like Paris Hilton and Mitt Romney, when they get all their money from capital gains, dividends, and carried interest, don't pay a penny of Social Security taxes on their millions of income. And the average top CEO in America, with an income of $13.7 million a year, over a million a month, only pays Social Security taxes on his first few days of income every year - every other day is Social Security tax-free. Quite literally, as Leona Helmsley famously said, only the "little people" pay such taxes. The safety net program for working class people is exclusively paid for by working class people.

On the other hand, when the Billionaire Class extracts benefits from the government for themselves, the generally don't pay higher taxes. The billions in taxpayer subsidies for Big Oil, trillions in bailouts and bonuses for Wall Street banksters, and hundreds of billions for war profiteers are always accompanied by demands for more tax cuts at the top. And, truth be told, billionaires aren't even receiving these benefits by voting for them. Instead, they always get them through the simple process of buying politicians. For example, Sheldon Adelson spent $150 million in the last election. That's more than any American spent in any election in American history. And he spent all that money to give himself the "benefits" of derailing an Obama Justice Department investigation into his casino in China and to get his taxes cut even further. Billionaires also corrupt democracy to get their benefits through billionaire-funded think tanks, like the Koch-funded American Legislative Exchange Council that writes legislation to benefit Corporate America, and then has Republicans state lawmakers introduce and pass laws in state after state, across the nation.

But despite this very clear reality of who is demanding largesse from our government, it's still working people and average voters who are targeted by right-wingers and their viral emails as the selfish "takers." That's the reason why the Business Roundtable is saying the best way to fix insurance programs like Social Security and Medicare is to raise the retirement age to 70 and voucherize Medicare...


Even With the Affordable Care Act, Health Insurance Coverage Remains Unaffordable for Many


Any hopes that large employers would be penalized for failing to offer affordable insurance coverage to the spouses and dependent children of their employees under the Patient Protection and Affordable Care Act (ACA) were recently dashed by a proposed interpretation of the law from the Obama Administration.

The interpretation, which was released by the Internal Revenue Service (IRS) late last month in the form of a proposed rule, related to the “Employer Shared Responsibility Provision” of the ACA, popularly known as the employer mandate. That provision provides that larger employers (those with more than 50 employees) offer insurance coverage not only to their employees, but to the “dependents” of those employees as well. If these employers fail to offer “affordable” coverage, they may be subject to monetary penalties.

But the IRS’s definition of dependents in the proposed rule excludes the spouses of employees, regardless of whether the spouse is employed.

Timothy Jost, a law professor at Washington and Lee University and an expert on legal interpretations of the ACA, explained that there is thus nothing in the proposed rule that would incentivize large employers who do not currently offer coverage to spouses to do so. And for employers who do currently offer coverage to spouses, he said, there is no disincentive in the proposed rule against dropping that coverage in the future...

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