Able Archer

The new energy economy

Sorry I haven't posted in a few days. I have a few longer essays coming up, though, that should satisfy any lingering Able Archer cravings.

For now, read Michael T. Klare's revealing look at the new economy for energy resources at Tomdispatch.

—Douglas Carlucci

Bad news

Wednesday, ABC News’ hairspray-and-make-up “journalists” held a two-hour celebration of inanity. Every “culture war” trope was given a live airing—for the most insidious, about whether or not Barack Obama “believed in the flag,” the pressmen hid behind American Everywoman Nash McCabe in a pathetic effort to distance themselves from the ridiculous accusation. Neither of the “journalists” moderating the debate had the courage to say what was on their minds: “You’re different than us and the Republicans say you’re weird. Do you love America?”

While the pair of broadcasters held court with the candidates on behalf of the Republican disinformation apparatus, events in this country and around the world were causing chaos in the lives of millions of people.

A years-long increase in the price of food was causing bread riots in foreign countries and insecurity among the American middle- and working-classes.

A couple hundred miles off our coast the prime minister of Haiti was voted out by opposition lawmakers after a bread riot in front of the presidential palace. Chaos in Haiti could send hundred of thousands of refugees to American shores, but you won’t hear much about it here. There’s only so much time to broadcast, and, clearly, as much of it as possible needs to be dedicated to Obama’s bowling scores.

In this country, increased prices and uncertain employment have caused the most precarious economy since the 1970s. Companies dependent on consumer spending are cutting their payrolls as the consumer economy goes through its first painful contractions.

The gradual erosion of the paycheck has become a stealth force driving the American economic downturn. Most of the attention has focused on the loss of jobs and the risk of layoffs. But the less-noticeable shrinking of hours and pay for millions of workers around the country appears to be a bigger contributor to the decline, which has already spread from housing and finance to other important areas of the economy.

While official unemployment has risen only modestly, to 5.1 percent, the reduction of wages and working hours for those still employed has become a primary cause of distress, pushing many more Americans into a downward spiral, economists say.

The news is not well-hidden. The articles on the food supply and the payroll recession were both on the front page of today’s New York Times. But for most broadcasters, who despite all evidence to the contrary call themselves journalists, among the most pressing issues facing the nation’s political leaders is Obama’s supposed ties to a former 1960s radical and (still) Clinton’s silly statements about a trip to Bosnia she took 12 years ago.

Is there an effective way to make it clear to the most pathetic and adolescent members of the media that real people—people who have to work to feed their families, and are having a hard go of it lately—don’t care about their petty personality politics? How can Americans who don’t earn millions of dollars “reporting” on politics for network television make it clear that when journalists talk about “electability,” they should be talking about the value and reasonableness of the candidates’ policy proposals, not some imaginary rubric by which the candidates are compared to the Average American?

I’m not asking these questions facetiously. This is a real problem. We are in a presidential campaign that is the most important in decades, where real, life-and-death matters like a worldwide economic crisis and a failed colonial expedition are what the winner will have to deal with in January, and all evidence shows that the media, not even coming close to recognizing the gravity of the problems, is actually becoming more inane and less responsible in its reporting on politics.

It was 60 minutes into Wednesday’s “debate” before the moderators made their first, tentative efforts to question the candidates on what they would actually do as president. I assure you, who does and does not wear flag lapel-pins will not be the most important problem facing the country in January 2009.

—Douglas Carlucci

Food, fuel prices rise

Wholesale prices are rising faster than economists predicted.

The Labor Department reported Tuesday that wholesale prices rose by 1.1 percent last month, the largest increase since a 2.6 percent rise last November. The November gain in the Producer Price Index was the biggest one-month jump in 33 years.

Analysts had expected a much more moderate 0.4 percent rise in wholesale prices for the month. However, food costs, which had fallen by 0.5 percent in February, leapt by 1.2 percent last month, propelled upward by big gains in vegetables and beef and the biggest increase in rice prices in more than five years. Those were far higher increases in food prices than expected.

Core inflation, which excludes energy and food, was better behaved last month, rising by just 0.2 percent, down from a worrisome 0.5 percent rise in February.

But with the crude oil price rising to a record close of $113.79 per barrel on Tuesday, analysts said consumers should be braced for more bad inflation news to come.

"Wholesale prices are rising and the consumer should expect more shocks at the supermarket and the gas station," said Joel Naroff, chief economist at Naroff Economic Advisors.

As I have explained in the past, these increases always hit the working- and middle-classes first and hardest. If you are living paycheck-to-paycheck, as many Americans are, even incremental increases in the prices of food and fuel have serious effects if they are not matched by wage increases. Since no one is predicting wages will increase, we're in for some serious problems.

—Douglas Carlucci

Fake elite, real elite

O! The things you can find in the New York Times.

I was ready to make some new notes on my favorite columnist, Bill Kristol, knowing well he would take the "bitter" Barack meme and run with it up and down the Op-Ed page.

Kristol didn't disappoint me. He provides a classic example of Republican jujitsu: making the candidate who is objectively an economic liberal and fighter for the poor seem to be an "elitist" while insinuating his own Republican Party, which fights hard to preserve the prerogatives of the very rich, on the side of unpretentious working people.

This is the Obama comment from which Kristol is building his man of straw:

[T]he truth is, is that, our challenge is to get people persuaded that we can make progress when there’s not evidence of that in their daily lives. You go into some of these small towns in Pennsylvania, and like a lot of small towns in the Midwest, the jobs have been gone now for 25 years and nothing’s replaced them. And they fell through the Clinton administration, and the Bush administration, and each successive administration has said that somehow these communities are gonna regenerate and they have not. So it’s not surprising then that they get bitter, they cling to guns or religion or antipathy to people who aren’t like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations.

And here's the man of straw:

What does this mean for Obama’s presidential prospects? He’s disdainful of small-town America — one might say, of bourgeois America. He’s usually good at disguising this. But in San Francisco the mask slipped. And it’s not so easy to get elected by a citizenry you patronize.

And what are the grounds for his supercilious disdain? If he were a war hero, if he had a career of remarkable civic achievement or public service — then he could perhaps be excused an unattractive but in a sense understandable hauteur. But what has Barack Obama accomplished that entitles him to look down on his fellow Americans?

Of course, Kristol's opinion only makes sense if you omit the entire first part of Obama's statement. Kristol, savvy in the ways of the illiterate media, knows it's a safe assumption the first part will be omitted by cable newsmen and reporters. And as long as it is, it will appear that Obama was saying something he was not saying at all: that smalltown Americans are naturally bitter.

He was not saying that.

Obama was saying many Americans have become bitter because years ago, without their being consulted, decisions were made in Washington, D.C., and London to form a "consensus" whereby Western capital would be free to pursue cheap manufacturing and service labor overseas. And while all the factories in Pennsylvania and Ohio were shutting down, politicians from both parties were eager to tell the displaced workers that this was all part of the shining new global economy that in time would make us all dividend-rich.

But it never happened. Now the American economy is split in two: you can have a precarious existence as a service-sector wage slave (they can't, after all, outsource such things as waitressing and Wal-Mart clerks) or a precarious existence as a corporate salary slave (you're still a "labor input"; just because they make you wear a tie doesn't mean they won't kick you out the door to protect profits). Either way, one move by one of the small number corporate overlords who actually did become dividend-rich could put you out of work, and out of home, and out of food and medicine.

As though this weren't enough, while all this was occurring, in many parts of the country like Northern New Jersey where I live, those people who did get rich drove up the prices of necessities like housing and healthcare.

All of this is an effective recipe for bitterness. The working class in this country has been nothing short of fucked over by both parties, and I hope, desperately hope, Obama won't be too shy to make this point. (I also hope he'll use a more eloquent phrase than "fucked over".)

What is most remarkable about all this is the way the establishment media reacts to such ideas. Most reporters have as much as any Republican invested in the idea of a stolid, honorable Heartland, USA. So when it is explained to them that much of the nation's interior is depressed, and what economic activity remains is usually controlled by multinational corporations like Wal-Mart, they react ferociously. Who could expect anything else? In a rational conversation about the American economy, it would be apparent that the New York media is a guardian of the economic elite and its "consensus." Crass sentiment about the Heartland is, to borrow Kristol's term, the mask with which they hide this dangerous fact.

Which brings me back to the New York Times. Faithful readers know I don't love the New York Times, but I think it's an important newspaper and publishes the work of many truly talented and honest reporters. And today it did my work for me. While I was gathering my response to Kristol in my head, I noticed two articles on the front page that made my case better than I ever could make it.

The first concerns the fact that for the "ultrarich," the current recession hasn't crashed the party:

Who said anything about a recession? Sometime between the government bailout of Bear Stearns and the Bureau of Labor Statistics report that America lost 80,000 jobs in March, Lee Tachman spent roughly $50,000 last month on a four-day jaunt to Miami for himself and three close friends.

The trip was an exercise in luxuriant male bonding. Mr. Tachman, who is 38, and his friends got around by private jet, helicopter, Hummer limousine, Ferraris and Lamborghinis; stayed in V.I.P. rooms at Casa Casuarina, the South Beach hotel that was formerly Gianni Versace’s mansion; and played “extreme adventure paintball” with former agents of the federal Drug Enforcement Administration.

Mr. Tachman, a manager for a company that executes trades for hedge funds and the owner of “a handful” of buildings in New York, said he has not felt the need to cut back.

“I always feel like there’s a sword of Damocles over my head, like it could all come crashing down at any time,” he said. “But there’s always going to be people who are trading, and there’s always going to be a demand for real estate in New York.”

He is hardly alone in his eagerness to keep spending. Some businesses that cater to the superrich report that clients — many of them traders and private equity investors whose work is tied to Wall Street — are still splurging on multimillion-dollar Manhattan apartments, custom-built yachts, contemporary art and lavish parties.

Buyers this year have already closed on 71 Manhattan apartments that each cost more than $10 million, compared with 17 apartments in that price range during all of 2007. Last week, a New York art dealer paid a record $1.6 million for an Edward Weston photograph at Sotheby’s. And the GoldBar, a downtown lounge, reports that bankers continue to order $3,000 bottles of Rémy Martin Louis XIII Cognac.

The second describes the ugly reality that in order to protect their profits, insurance companies are making the insured pay more and more for essential medications. Yes, you read that correctly: the people who have insurance are getting screwed. If they can't afford the co-payments for their cancer medications, well, the insurance companies are saying to their customers, you better go see the medicine man, because we ain't paying:

With the new pricing system, insurers abandoned the traditional arrangement that has patients pay a fixed amount, like $10, $20 or $30 for a prescription, no matter what the drug’s actual cost. Instead, they are charging patients a percentage of the cost of certain high-priced drugs, usually 20 to 33 percent, which can amount to thousands of dollars a month.

The system means that the burden of expensive health care can now affect insured people, too.

No one knows how many patients are affected, but hundreds of drugs are priced this new way. They are used to treat diseases that may be fairly common, including multiple sclerosis, rheumatoid arthritis, hemophilia, hepatitis C and some cancers. There are no cheaper equivalents for these drugs, so patients are forced to pay the price or do without.

Insurers say the new system keeps everyone’s premiums down at a time when some of the most innovative and promising new treatments for conditions like cancer and rheumatoid arthritis and multiple sclerosis can cost $100,000 and more a year.

This, and nothing else, is the story of elitism in America.

—Douglas Carlucci

No shame in the game

You're probably going to hear a lot of crap from Hillary Clinton about how Barack Obama called smalltown folks "bitter." Here's what he actually said:

[T]he truth is, is that, our challenge is to get people persuaded that we can make progress when there’s not evidence of that in their daily lives. You go into some of these small towns in Pennsylvania, and like a lot of small towns in the Midwest, the jobs have been gone now for 25 years and nothing’s replaced them. And they fell through the Clinton administration, and the Bush administration, and each successive administration has said that somehow these communities are gonna regenerate and they have not. So it’s not surprising then that they get bitter, they cling to guns or religion or antipathy to people who aren’t like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations.

It's no wonder Clinton would be mad for Obama for saying such a thing, because it blows the Clintons' cover. While they've always talked about feeling our pain the truth is the Clintons, in power and out, have colluded as effectively as any Republican with the corporate powers in this country that have ruined the economy by moving this country's infrastructure of economic production to China and Mexico, where executives don't have to pay anything close to reasonable wages.

Now that I think about it, maybe that's what Bill Clinton meant when he said "I feel your pain." He feels our pain, but that's about it. He doesn't intend to do a damned thing about the rapid collapse of the middle-class and is content, just like Ronald Reagan or George W. Bush, to let the economy polarize into two distinct classes: rich corporate overlords and their faithful servants and a service-sector, minimum-wage-or-slightly-better underclass.

The fact is people in this country are bitter because the "globalized" free-market economy regularly insults them. They are expected to work harder than ever before in jobs that are more precarious than ever before for companies that no longer feel even a modicum of social responsibility for their "labor inputs." They are bitter because whether they bust their asses or sit on them, when they or their children or spouses get sick, no one is going to care and there's a good chance they'll have to create half-a-million dollars in debt to give them basic care.

And while all this occurring the politicians, Bush and Clinton alike, are nothing but pleased to create incentives for companies to stop producing useful manufactures in this country and enter into the swelling but essentially worthless business of financial speculation, which does little but concentrate the power of the wealthy and skew prices in real estate and consumer markets.

If you can only get outraged over one thing today, let that be it.

—Douglas Carlucci

A parade of bad news

Bad economic news invariably leads to more bad economic news. Don’t believe me?

¶ February ended with 63,000 fewer American jobs than when it began. It was the fastest loss in five years.
¶ Crude oil seems to have settled at over $100 a barrel; according to Bloomberg News, crude oil for April delivery was priced at $105. 15 at 3 p.m. today.
¶ American Automobile Association spokesman Geoff Sundstrom says the average price of a gallon of gasoline could reach $4 in some parts of the country this summer. Average pump prices for a gallon of regular gasoline are already over $3 in every state except Missouri and New Jersey. Here in northern New Jersey, most stations are stalled at $2.99, but it’s hard to see them putting off the big 3-0-0 much longer.
¶ The cost of diesel is also rising around the nation, especially in the interior; since most consumer goods in the U.S. are moved truck, expect a commensurate rise in the price of such goods.
¶ As usual, the housing news is pretty damned bad.

What ties all these pieces of information together is that they will hit the middle- and working-class first and hardest.

I was watching Wolf Blitzer’s daily political burlesque today (The Situation Room, in which the situation is always Blitzer interviewing some political figurehead by satellite) and I heard at least five times that Barack Obama fired adviser Samantha Power after she called Hillary Clinton a “monster.” Once, at the top of program, Blitzer mentioned the job losses noted above. All other discussions of the “economy” were about the candidates’ respective opinions on whether or not there is a “recession.” Instead of getting Donna Brazile’s opinion for the 456th time on the latest campaign rumors, why not try to ask some people who might actually know something about the economic news? CNN is now as inane and irresponsible as Fox News.

Making it worse

With all this bad news, Americans are doing exactly what they should not be doing:

The Federal Reserve reported Friday that consumer credit increased at an annual rate of 3.3 percent in January. That was up from a 1.8 percent growth rate in December and marked the fastest pace since November.

The pickup in January pushed up total consumer debt by $6.9 billion to $2.52 trillion. That was on target with economists' expectations.

The increase in borrowing was led by heavier use of revolving credit, primarily credit cards. Demand for revolving credit rose at a 7 percent pace in January. That was up from a 2.8 percent growth rate in December.

Demand for nonrevolving credit used to finance cars, vacations, education and other things, rose at an annual rate of 1.1 percent for the second month in a row.

Consumers have been moving to put more of their purchases on their credit cards as banks have tightened up on their lending standards for home equity loans in response to the deepening credit crisis.

The Fed's measure of consumer borrowing does not include any debt secured by real estate such as mortgage or home equity loans.

I understand many Americans might not have a choice here. Banks are anxious to lend while prices are rising and wages are not. But I get the feeling the worst news about the economy has not yet come, and one good way to lengthen the recession is to continue to buy on credit, especially at the credit card company's usurious rates.

—Douglas Carlucci

More credit market troubles

Here’s an effect of the credit crisis not many people are thinking about right now. Many student loan companies are having a hard time raising capital for loans from weary investors; to make things worse, the federal government had cut back subsidies for student loans.

The Pennsylvania Higher Education Assistance Agency, one of the nation’s largest student loan operations, announced Wednesday that it would suspend making federal-guaranteed loans starting early next month.

The move offered further evidence of how the tight credit markets are affecting the industry, with some lenders warning that it could be more difficult and more costly for many students to obtain college loans for the 2008-9 academic year.

“Widespread lack of confidence in the capital market has spilled over into other asset classes, driving up our cost of borrowing and denying us the capital needed to fund new student loans,” said James Preston, the interim chief executive of the Pennsylvania lender, a state-owned company that both makes and guarantees loans.

As a result, some lenders have curtailed their activities. The College Loan Corporation, a large lender, announced that it was leaving the federal loan program.

The Missouri Higher Education Loan Authority, a state-created company that buys student loans from partners, has temporarily stopped offering private loans, which are not guaranteed by the government, and federal consolidation loans, which allow borrowers to combine multiple federal loans into a single payment. A Michigan agency recently suspended its private loan program, too.

And Sallie Mae, the largest student lender, has tightened loan standards in what could be a blow to commercial colleges and their students.

It’s been my opinion for years—well, the years since I've been in college—that higher education finances have been out of line for a long time. Tuition has gone up too much at both private and public colleges; the increases have made college unaffordable for many families. There are many reasons for this that I won’t get into in this post. (This criticism isn't just based on my personal gripes; I covered the finances of the University of Missouri when I was there and I know many, many college students.)

Up until now, this disparity was covered by easy credit. But as the credit market tightens—as the above article makes clear it is—the true cost of college is going to become apparent to many families, since they can no longer defer the price of tuition by borrowing.

At the same time, colleges have been giving more and more diplomas, making such certifications less valuable on the job market. Colleges are mostly responsible for this glut, peddling so many degrees in so many different things to nearly anyone who can pay and is willing to spend the time that it’s getting to the point where the B.A. is the new high school diploma, and the M.A. is the new college degree.

Also, wages have not increased as quickly as tuition. Both of these things will make it harder for graduates to repay student loans and could lead to increased defaults.

James Surowiecki on the housing crisis

This article by the New Yorker’s financial columnist is one of the better analyses of the twin mortgage and home-equity crises.

—Douglas Carlucci

Bad news for the middle class

After days of funny outfits and calculated vitriol in the campaign for President, two devastating pieces of economic news were revealed today.

Consumer gasoline prices are catching up with the rising price of crude oil—which has hovered around $100 a barrel for the last few days—and could reach $4 a gallon by summer.

“As of Tuesday, regular gasoline was selling at a nationwide average of $3.14 a gallon, according to AAA, the automobile club, up from $2.35 a year ago. The price has jumped 19 cents a gallon in two weeks,” reports the Times.

The exponential growth of gas prices is concurrent with creeping inflation.

The Labor Department reported that wholesale prices, which exclude taxes and distribution costs, rose 1 percent in January, in contrast to a drop of 0.3 percent in December 2007. Compared with a year ago, prices were up 7.4 percent. Excluding food and energy prices, which are more volatile from month to month, the index increased 2.3 percent from a year ago, up from 2 percent in December.

The latest inflation report appears to corroborate a broader trend of higher prices.

Last week, the Labor Department reported that the Consumer Price Index rose 4.3 percent last month from a year ago, compared with a 4.1 percent increase in December. The core rate of inflation — which excludes food and energy — was 2.5 percent, up from 2.4 percent. The Fed’s target for inflation is 1 percent to 2 percent.

Price increases, however, are not the worst news. Homes, the main asset of most working- and middle-class families, are rapidly losing value. The supply of homes is high while the market for them is uncertain because of chaos in the mortgage industry and all the other problems in the economy, including the consumer price increases described above.

A widely followed index of home prices in 20 metropolitan areas fell by 9.1 percent in December from the month a year ago. Using a three-month moving average, the index, the Standard & Poor’s Case-Shiller, is falling at an annual pace of more than 20 percent. The index tracks repeat sales of single-family homes; it does not include condominiums.

Another index of home prices that covers more of the country but does not track loans above $417,000 fell 0.3 percent in the fourth quarter from the period in 2006. The index, compiled by the Office of Federal Housing Enterprise Oversight, showed prices declining in all states, except Maine.

Even with prices falling, home prices remain out of line with wages in many parts of the country. A report by investment bank Credit Suisse concluded that home prices in some metropolitan areas—including Sunbelt boomtowns Phoenix and Miami—would have to decrease by 20 to 40 percent to be considered affordable.

This all adds up to one thing: people who aren’t rich are going to cut back on their spending. Most of the economic “growth” in this country in the last ten years has been based on this spending. The spending was sustained by two things: cheap consumer credit and illusory home equity. It’s one thing to have a house worth $600,000; it’s quite another to sell the house for that price on the open market. The “growth” was artificial because it did not include a key element of sustained economic growth: increased wages. Price increases have consistently outpaced wage increases. The only things that are becoming cheaper are things people can chose not to buy; probably those things are getting cheaper not because of increased efficiency or for any good reason, but because retailers are looking to dump them off at any price:

“The pressures are too great here,” said Seth B. Plunkett, a bond portfolio manager at American Century Investments, a mutual fund company. “Look at the things that are accelerating: food and energy. What is decelerating? It’s electronics and light trucks. These are not things that people buy every day.”

Reading between the lines

The Times article on gas prices contains two interesting pieces of information not entirely related to the point of the article.

The first is this:

[Phyllis Berry, a 31-year-old factory worker for General Motors in Cleveland] said that she used to take her four children to the movies four or five times a month. But with the cost of gas, tickets, popcorn and soda adding up to $70, they now go only once a month.

Economists rightly don’t like to rely on anecdotes, but this reflects my own experience. The costs of many things Americans routinely do—go to the movies, go to a ballgame, take a trip—are almost prohibitively high. There isn’t a lot of room for rising prices before consumers just cut these activities out. Seventy dollars is way too much for a family trip to the movies. If the big cinema chains and the studios don’t realize this, they are going to end up like the music industry: customers are going to find cheaper substitutes for their products. Consumers become more rational in tight times; they are going to realize they can watch a bunch of movies at home each month by subscribing to Netflix for $5 and cut out the trips to the movie theater unless the theater can offer them a bargain. Therefore, these non-essential industries are going to have to eliminate a lot of overhead if they are to survive a consumer spending slowdown.

And consider that Berry is paying $70 to take her kids to the movies in Cleveland; prices are almost always lower in the interior than on the coasts.

Also:

“An oil crisis is coming in the next 10 years,” John B. Hess, the chairman of the Hess Corporation, said at a recent conference held by Cambridge Energy Research Associates. “It’s not a matter of demand. It’s not a matter of supplies. It’s both.”

I’m familiar with the peak oil argument and the work of scholars who say such a crisis as Hess describes will occur; this, however, is the first time I’ve seen the head of a major American oil corporation say the same thing.

—Douglas Carlucci

Shipping slows at Port Newark

Who wants yesterday’s papers?

Well, hold onto yesterday’s Star-Ledger because there’s an insightful article on the shipping slowdown at Port Newark:

In 2006, Maher Terminal in Elizabeth created an overnight shift, assigning longshoremen to rearrange stacks of cargo containers that had been delivered during the day to make room for new shipments.

Now, in a sign of the downturn on the docks, Maher this month eliminated the overnight shift. The terminal just isn't that crowded with cargo anymore.

"The economy isn't doing real well," said Sam Crane, spokesman for Maher Terminal in Elizabeth, the largest terminal in the port. "We're not exempt from the economic cycles."

After several years of robust growth, shipping terminals in the Port of New York and New Jersey -- which in 2006 handled almost 3 million containers -- have run into an economic wall, along with other seaports around the country.

Port officials and business executives say the volume of cargo shipped to the docks in Newark, Elizabeth and other terminals in New York Harbor has been declining for several months.

"This is an industry that's gotten used to 5 and 10 percent growth," said Edward Kelly, executive director of the Maritime Association of the Port of New York.

The Port Authority of New York and New Jersey is still tabulating its trade statistics for 2007. Richard M. Larrabee, the agency's port commerce director, said initial indications are that the volume of containers increased by about 4 percent compared with 2006. But that growth mainly came from a surge in business in the middle of the year, he said.

"It was slow at the end of the year," Larrabee said.

Since Jan. 1, the volume of cargo has been down about 1 percent compared with 2007, Kelly said.

Those numbers could be worse were it not for changes in several trade routes that used to go through ports on the Pacific Coast and then used trucks that drove cross-country to deliver goods on the East Coast, he said.

At least four of those routes now come through the Panama or Suez canals to terminals in New York and New Jersey, largely because of increases in fuel costs, Kelly said.

Economic analysts are predicting the port slump should continue for several months.

"The ports are a very good mirror of what's happening with the economy," said J. Craig Shearman, a spokesman for the National Retail Federation, a trade group that helps produce a monthly report on the seaport industry. "The cargo that comes through the ports is a hard and fast representation of what retailers expect to sell."

An article by William Finnegan in the New Yorker described the present state of the New Jersey ports:

Global, at a hundred acres, is a relatively small terminal, but it's busy. Byan took me on a tour of the pier in his pickup truck, navigating between walls of containers and dodging big, fast-moving equipment-forklifts, bladed stackers, top loaders, and huge rubber-tired gantries, six stories high.

"Empty field!" Byan yelled, pointing at some tall piles of multicolored containers, each one eight feet wide by eight feet high and forty feet long, with "CHINA SHIPPING" and "HANJIN" and "P & O NEDLLOYD" painted on the sides. Empty containers are the Port of New York and New Jersey's biggest export, followed by wastepaper and scrap metal. The wastepaper mainly goes to China, and comes back later as paper goods. No empty containers arrive. ...

The largest American importer by far is Wal-Mart. Last year, it brought seven hundred thousand container units through the green lane into the country. The rise of the big-box retailers, with their global network of suppliers, has caused a shift in power in the international shipping business away from the steamship lines and terminal operators, and toward the importers. What is more, companies like Wal-Mart have been actively working against stronger port- and containersecurity laws since shortly after the September 11th terror attacks. The Retail Industry Leaders Association, a Washington lobby dominated by Wal-Mart, actually boasted, in a 2005 report to its members, about its "continued industry leadership in opposition to ill-advised and onerous port security measures (i.e. cargo fees, increased physical inspections)."

The container-ship revolution has effectively abolished distance as a pricing factor. For a pair of shoes made in China and sold in this country for fifty dollars, only about seventy-five cents of the retail cost derives from transportation. And the main costs in international shipping come from friction in the pipeline, particularly at the points of ship loading and unloading. The costs exacted by fraud and other crimes-the "Mob tax"-are small compared with the costs of ordinary, honest labor. It is, therefore, the latter costs-unionized labor, essentially-that concern global shipping interests, rather than the costs associated with reducing crime or with the industry's potential contribution to terrorism. ...

The American public was clearly disturbed to learn, earlier this year, that our ports are run largely by foreign corporations. But terminal operators tend to be owned by companies with steamship lines-the shipping business is highly vertically integrated-and the last major American line, American President, was sold to a Singapore conglomerate in 1997. American-flagged service in the North Atlantic actually ended in 1969. When the Administration of George H. W. Bush went looking for American firms to handle some of its stevedoring and shipping in the first Gulf War, it found virtually none with the needed capacity. Today, a Singapore company handles a large amount of U.S. government work in the Middle East. The largest American terminal operator is S.S.A. Marine, in Seattle, a family-owned company; with no ships or containers, or even a logistics business, it is hardly in the global big leagues. It's fair to say that, if foreign-owned terminal operators were barred from American ports, many terminals would cease functioning.

The main reason for America's absence from the field is that international shipping is a high-risk, capital-intensive business that periodically requires extensive state assistance, and neither Wall Street nor Washington has traditionally had much interest in it. (Military shipping is another matter: the United States Navy is by far the world's largest.) Other governments and other national financial establishments have made different calculations.

Orient Overseas, the Chinese company that owns Global and the terminal at Howland Hook, has a fleet of sixty-nine ships which includes some of the largest vessels afloat. They operate in a partnership known as the Grand Alliance, which includes Hapag-Lloyd, of Germany (a hundred and thirty-six ships), and N.Y.K., of Japan (a hundred and nineteen ships). Both Hapag-Lloyd and N.Y.K. also operate terminals. Maersk is the world's largest steamship line, with five hundred and seventy ships. When calling in New York, they use the company's own terminal, in Port Newark. [Emphasis mine.]

Oil prices are hovering around $100 a barrel this morning. I thought I would add that near-pertinent fact.

—Douglas Carlucci

Losing confidence in the finance industry

Gretchen Morgenson has a smart analysis of the uncertainty at the center of the present financial crisis. More to come this week at Able Archer on the listing economy.

—Douglas Carlucci