A government watchdog is to investigate whether companies are exploiting thousands of graduates by employing them on unpaid, long-term internships during the recession, the Guardian has learned.

The Low Pay Commission is expecting to include recommendations on internships in its annual review in the new year amid concerns that companies are taking advantage of the tough jobs market.

A Guardian inquiry has also discovered that MPs could be breaking the rules. Ministers have estimated that unpaid interns work up to 18,000 hours a week inside parliament, a saving of more than £5m a year on the national minimum wage. MPs are each given a staffing allowance of £104,000pa.

Concern has become acute because of the huge numbers leaving university this year without a job. Official figures are likely to show one million young people in total out of work by the autumn.

Under the National Minimum Wage Act, interns who work rather than observe should be paid, but employers have taken advantage of a legally grey area, and the willingness of young people, to pay just expenses, or nothing at all.

A government-commissioned review of the corporate governance of the UK banking industry should be more radical in considering reform of bank ownership structures, the City minister, Paul Myners, said today.

Lord Myners suggested that the former regulator Sir David Walker should consider changes that would give greater voting rights to shareholders who stuck with companies rather than selling up when they got into difficulties.

He said Walker should force banks to disclose the names and pay packages of their top-earning staff, regardless of whether they were on the board.

Myners, a former investment banker, told the BBC: "I would like to see David Walker step one step further outside the box of thinking he is currently in and see what are the more radical, indeed the most radical, solutions."

In February, the prime minister, Gordon Brown, commissioned Walker to carry out a review of the governance of the banking industry.

Walker produced an interim report last month which recommended strengthening boards, in particular by boosting the role of non-executives in the risk and remuneration process.

One of the most remarkable aspects of the success of Wall Street in subordinating the real economy to its wishes and needs is the con job implicit in the application of the word "innovation" to what might more accurately be described as tax evasion, regulatory arbitrage, and chicanery. Martin Mayer once described innovation as "using new technology to do that which was forbidden under the old technology."

Rob Johnson, former economist to the Senate Banking Committee, has a new article that parses how the financial services industry has managed to wrap itself in the mantle of progress, when if anything its new products have been a force for destruction rather than creation.

The backward revision economic data train continues, this time in GDP, which came in at a "better" than expected 1% while the prior quarterly data was adjusted significantly downward from -5.5% to -6.4%. Additionally, per a brand new revision to the way GDP data is presented, the GDP decline demonstrated over the past year is now the largest since World War II. Current quarter jiggering aside, downward revisions to prior quarters have left the decline in real GDP at -3.9% in the year through Q2. And to demonstrate, the severity of this downturn, the Q2 data concluded the first three-quarter consecutive period of falling GDP since 1953-1954.

Economic indicators that many were looking to for an advance signal of the inflection point of the recession did not materialize. Most notably, consumer spending fell a more than expected 1.2%, after a 0.6% improvement in Q1, and even the Q1 blip was merely a function of one-time tax rebates that concluded in May. On an adjusted basis excluding the benefits of one-off consumer fiscal stimuli, the consumer deterioration is truly unprecedented.

Another major negative data point was inventories, which fell by a record $141 billion in Q2. Yet due to the major drop in Q1, this only accounted for a 0.8% decrease in GDP, which was less then expected. And keep in mind that this percentage drop was nearly completely offset by increased governmental defense spending! Nothing like Uncle Sam to keep plugging the holes as they appear.

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In summary employment, industry data, and profits were under severe pressure over the past year, and downward revisions to growth in the year behind us are not much of a surprise. The concern is that while governmental spending was critical and necessary over the past 2 quarters to keep the collapse from being unprecedented, this form of governmental intervention is merely a non-recurring event. Try as he might, Obama is helpless to singlehandedly prop up the 70% of the $14 trillion of US GDP which is accelerating its weakening support of the economy. The increase in total unemployment rolls will puts further pressure not just for continued government subsidies in all sectors of the economy (to the chagrin and detriment of key U.S. trading partners), but also for the need of Stimulus II. Without it, disinflation conversion into outright deflation is a practical certainty.

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It is a sorry state where the only thing that is propping the world's greatest economy are promises of improvement and confidence games via the traditional media, with hopes of propping up a stock market which has long since ceased to be an indication of economic reality. The convergence between the S&P and the underlying fundamentals is, unfortunately for the administration, inevitable, especially since the government has now single-handedly taken over a key portion of major GDP output industries. Numerous empirical studies, especially from communist block countries, demonstrate just how "effective" the government is, when it decides to get directly involved in running a substantial portion of the economy.

Norris: The accompanying charts show the trend in durable goods spending, for military purposes and for other shipments of durable goods, from 2000 through this June. In June, seasonally adjusted shipments for civilian purposes were 19 percent below the average monthly figure for 2000. Shipments of military items were running 123 percent above the 2000 average.

Those figures are in nominal dollars, not adjusted for inflation. That fact may exaggerate the trend, since prices of some durable goods, like computers, have fallen over the years.

The United States remains primarily a civilian economy. The military now takes about 8 percent of all durable goods, up from 3 percent in 2000.The charts also show just how much change there was in durable goods orders, and shipments, in the first half of 2009 compared with the first half of 2008.

Over all, shipments for nonmilitary purposes were down by 20 percent, while orders fell by 27 percent. The declines in some areas were much larger, with orders for primary metal products, like iron and steel, plunging by 44 percent. The government cannot track orders for semiconductors because Intel will not provide figures, but shipments in that category were down by a third.

Taplin: "We have so hollowed out our industrial plant that the only thing we are now producing is weapons of war. The great British Historian Arnold Toynbee's theory about the decline of the Roman Empire has lessons for our current age."

ht madman

Diversity is the key to economic and political evolution.