| Robs Real News |
| Send donations and comments to Robsrealnews@yahoo.com |
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| Mel Carnahan, democratic senator from Missouri who was assasinated right before the 2000 election on behalf of criminal conservatives mobsters who have taken over our government in order to pass legislation on behalf of criminals in the energy, healthcare and Tobacco industries and force their ideology on the world. Their agenda is to have an income distribution like Latin America. |
| Paul Wellstone, Democratic Senator from Minnesota who was assasinated before the 2002 election by the conservative mobsters that rules this country so they could take control of the senate and ram their agenda down the throats of the american people |
| Click on the links to read a rough draft of a screen play I started to write called "The New Deal" |
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| Wanted Dead- AIPAC, The American Enterprise Institute and the above slime-ball Jew cohorts in crime, murder and genocide. AIPAC is the force behind the neocons. I hold them more responsible than anyone for pushing the US into Iraq, costing the US tax payers trillions, ruining the lives of millions in Iraq, the destruction of the Iraqi economy. They should be executed like the Nazi leaders. Jews Like Rove and the Neocons should not be above ground. |
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| Click here to watch an excerpt from the film The Trials of Henry Kissinger and understand that the US is The Evil Empire, AVI File |
| Those above and those who allowed FOX News (CIA News) to get on the air, those behind Cerberus Capital, those responsible for the oil companies price gouging, those who allowed Exelon to buy Com-ed in Chicago, those opposed to regulation or nationalization of oil, water, utilities, energy, defense contractors, transportation, steel, other natural resources, banks, healthcare, mail delivery, and many big businesses. |
| The Ignorant, the Evil and the Corrupt.They deserve to be locked up in the Gitmo prison and tortured for the rest of their lives.Scott Peck defines the conservative mind in his book, "The People of the Lie." Newt Gingrich, Karl Rove and Bill OReilly are the epitomie of this personality described by Peck. |
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| The country needs the progressive tax rates it had post WW2 when the top tax rate was over 80% and the capital gains rate should be what it was before Reagan took office which I believe was 40%. I'd eliminate all taxes for people earning less than $20,000. Corporate rates should return to the post WW2 rates. Robert Eisner would recognize all capital gains when acrued. The proceeds should be used to eliminate poverty, provide free education and healthcare and nationalize the industries mentioned below to take the profits out of them and have them serve the interests of the people. |
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| Round up and hang everyone behind Jewish criminal (Fox) News. FOX News was created with Jewish money (with CIA support) to defend the interests of Jewish criminals intent on Jewish global domination and exploitation |
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| Click here to get your copy of "The Money and the Power" the making of Las Vegas and its hold on America |
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Speeches by Michael
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Speeches by Chomsky
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| Conservative thought is not thought but propaganda on behalf of the criminals. For that reason it should be removed from public discourse. The two links above concern the mafias attempt to rid the media of any real news. FOX, DowJones (everything owned by Murdock) Headline News and CNBC are devoted to conservative propaganda. |
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| Whacked by the demented mob |
Memorable quotes-"They're
not fit to lead" Their
objective is to comfort the
comfortable and afflict the
afflicted" by Noem Chomsky
not fit to lead" Their
objective is to comfort the
comfortable and afflict the
afflicted" by Noem Chomsky
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My favorite sites
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Not Whacked
by the mob
by the mob
In memerial to Walter Cronkite who
was before my time I post a picture
of my favorite news anchor the likes
of which we will never see again
since the mobsters have decided to
pollute the peoples mind with FOX
News, Beck and Limbaugh.
was before my time I post a picture
of my favorite news anchor the likes
of which we will never see again
since the mobsters have decided to
pollute the peoples mind with FOX
News, Beck and Limbaugh.
"The money powers prey upon
the nation in times of peace,
and conspire against it in
times of adversity. The
banking powers are more
despotic than a monarchy,
more insolent than autocracy,
more selfish than
bureaucracy. They denounce
as public enemies, all who
question their methods or
throw light upon their
crimes.” – Abraham Lincoln
the nation in times of peace,
and conspire against it in
times of adversity. The
banking powers are more
despotic than a monarchy,
more insolent than autocracy,
more selfish than
bureaucracy. They denounce
as public enemies, all who
question their methods or
throw light upon their
crimes.” – Abraham Lincoln
Property, said
proudhon, is theft
proudhon, is theft
In an ugly and unhappy world
the richest man can purchase
nothing but ugliness and
unhappyness. GBS
the richest man can purchase
nothing but ugliness and
unhappyness. GBS
A modern gentleman is
necessarily an enemy of his
country. Even in war he does
not fight to defend it, but to
prevent his power of preying
on it from passing to a
foreigner. Such combatants
are patriots in the same
sense as two dogs fighting
for a bone are animal lovers.
GBS
necessarily an enemy of his
country. Even in war he does
not fight to defend it, but to
prevent his power of preying
on it from passing to a
foreigner. Such combatants
are patriots in the same
sense as two dogs fighting
for a bone are animal lovers.
GBS
The reasonable man adapts
himself to the world: the
unreasonable man persists in
trying to adapt the world to
himself. Therefore all
progress depends on the
unreasonable man. GBS
himself to the world: the
unreasonable man persists in
trying to adapt the world to
himself. Therefore all
progress depends on the
unreasonable man. GBS
In his efforts to escape from
ugliness and unhappiness the
rich man intensifies both.
Every new yard of west end
creates a new acre of east
end. GBS
ugliness and unhappiness the
rich man intensifies both.
Every new yard of west end
creates a new acre of east
end. GBS
Gambling promises the poor what
property promises the rich: that is
why the bishops dare not denounce
it fundamentally. GBS
property promises the rich: that is
why the bishops dare not denounce
it fundamentally. GBS
Do not waste your time on social
questions. What is a matter with the
poor is poverty: what is the matter with
the rich is Uselessness. GBS
questions. What is a matter with the
poor is poverty: what is the matter with
the rich is Uselessness. GBS
If the wicked flourish and
the fittest survive nature
must be the God of tyrannts .
GBS
the fittest survive nature
must be the God of tyrannts .
GBS
Those who understand evil
pordon it: those who resent it
destroy it. GBS
pordon it: those who resent it
destroy it. GBS
Ladies and gentlemen are
permitted to have friends in
the kennel but not in the
kitchen. GBS
permitted to have friends in
the kennel but not in the
kitchen. GBS
What a man believes may be
ascertained not from his
creed but from the
assumptions on which he
habitually acts. GBS
ascertained not from his
creed but from the
assumptions on which he
habitually acts. GBS
Vice is waste of life. Poverty
obedience and celibacy are
the canonical vices.
obedience and celibacy are
the canonical vices.
We admit that when the
divinity we worshipped made
itself visible and
comprehensible we crucified
it. GBShaw
divinity we worshipped made
itself visible and
comprehensible we crucified
it. GBShaw
The rich are rich because the
poor are poor. GBS
poor are poor. GBS
All politician coming out of Wyoming such as Simpson and Dick Cheney are bankrolled by the mobsters.
Same is true with politicians out of Texas, New Orleans, Illinois, Indiana, Massachusetts, Oregon,
Nebraska Florida, Ohio, Alaska and Arizona. The fact that a politician from Wyoming has expressed a
desire simply means as usual the mobsters want to cut social security.
Some very smart people don't like these banks that are too big to fail. To name a few, Joseph
Stiglitz, and Jefffery Sacks, Russ Feingold and Paul Volker. But on the other hand Germany and
Japan were built with banks that were too big to fail and China's t tremendous growth was bankrolled
by state owned banks that poured purchasing power into the economy with some good and some bad
loans. Feingold has fought bank consolidation his whole career and voted against financial reform that
didn't address too big to fail. I guess the reform bill contained a loop hole that will allow the
mobsters to start new shadow banks to the banking system. GE Capital is like a giant shadow bank and
has started lending before the big banks. I havn't followed this issue.
The Jews like to control and exploit everything. They control the US government and through the
government and Jews like Henry Kissinger got the US involved in Vietnam and bombed cambodia into
oblivion in order to control it. Then the Jewish Neocons got us into Iraq. But maybe Saddam was a nut
case. The mobsters but him in power when kennedy was president. Chomsky follows all the crazy
exploits of the Jew neocons and mobsters in US wars of aggression. That is why the only way to get
a Palestinian agreement is to bomb the Jew sleeze-balls into submission. As an example I cite quotes
from Obama psycho Jew former Israeli military chief of Staff: The White House chief of staff was
known for being proud about his elegant office, bragging "that his first-floor office was eight square
feet larger than the Vice President's, and closer to the Oval." Rattner relates that Emanuel ruled
"by a mixture of respect and fear." Emanuel could also be spectacularly blunt, once telling Rattner
during a meeting about GM and Chrysler's massive problems and potential bankruptcies: "Why even
save GM?" When Rattner adviser Ron Bloom noted that tens of thousands of autoworker jobs were
at stake, Emanuel huffed, "Fuck the UAW," referring to the United Auto Workers union."
It would be easier than the US invasion of Iraq to round up all the Jews and deport them to Israel.
You need to keep all the Jew parasite sadists in one place.
First the mobsters find this idiot Bush and make him president. Then they find an idiot like Palin. When
will they ever learn?
If conservatives take over congress in November chances are the government will never fix the
economy and it will slowly sink into depression.
All three of these democrats are mobsters. Bayh, Ben Nelson of Nebraska and Kent Conrad of North
Dakota — have signaled that they won't back a permanent repeal of the tax cuts for the wealthy.
Evan Bayh from Indiana where mob controlled Wellpoint is based and John Dillinger was sprung from
jail. i once met a gangster who visited lincoln nebraska where Ben Nelson resides and fucks up the
country. The mobsters make nothing but shit in Hollywood. They fuck up just about everything. They
are probably sad they have no one in Iraq to torture. August 31, 2010, 9:50 am
The Unbearable Pettiness Of Being Rich
Andrew Ross Sorkin’s column today makes Wall Street honchos sound like spoiled kids; they went for
Obama because he seemed like their kind of guy, then turned on him with a vengeance because they
think he’s looking at them funny.
Based on what I know, that’s about right.
I talked to some financial-industry backers of Obama back during primary season; they really didn’t
know or care much about policy issues, but were in love with Obama over his style — and also over the
prospect of being in his inner circle, something they knew wouldn’t happen with Hillary. Now they’re
mad because they don’t feel that they’re getting enough stroking.
And you have to bear in mind that this comes after Obama has made immense efforts to placate the
financial industry. There were no bank nationalizations; there were hardly any strings attached to
bailouts; the financial reform bill was by no means draconian given the scale of the disaster. But Wall
Street is furious that Obama might even hint that they caused the crisis — which he does, now and
then, because, well, they did.
And as far as I can tell, hardly any of the new anti-Obamanites is thinking at all about what will really
happen once John Boehner is speaker.
You know, one might have thought that having all the money in the world would make people less petty,
less concerned about whether they feel that they’re in the in-group. But nooooo [/Belushi]
The Billionaires Bankrolling the Tea Party
By FRANK RICH
Published: August 28, 2010
ANOTHER weekend, another grass-roots demonstration starring Real Americans who are mad as hell
and want to take back their country from you-know-who. Last Sunday the site was Lower Manhattan,
where they jeered the “ground zero mosque.” This weekend, the scene shifted to Washington, where
the avatars of oppressed white Tea Party America, Glenn Beck and Sarah Palin, were slated to
“reclaim the civil rights movement” (Beck’s words) on the same spot where the Rev. Martin Luther
King Jr. had his dream exactly 47 years earlier.
Fred R. Conrad/The New York Times
Frank Rich
Vive la révolution!
There’s just one element missing from these snapshots of America’s ostensibly spontaneous and
leaderless populist uprising: the sugar daddies who are bankrolling it, and have been doing so since
well before the “death panel” warm-up acts of last summer. Three heavy hitters rule. You’ve heard of
one of them, Rupert Murdoch. The other two, the brothers David and Charles Koch, are even richer,
with a combined wealth exceeded only by that of Bill Gates and Warren Buffett among Americans.
But even those carrying the Kochs’ banner may not know who these brothers are.
Their self-interested and at times radical agendas, like Murdoch’s, go well beyond, and sometimes
counter to, the interests of those who serve as spear carriers in the political pageants hawked on Fox
News. The country will be in for quite a ride should these potentates gain power, and given the
recession-battered electorate’s unchecked anger and the Obama White House’s unfocused political
strategy, they might.
All three tycoons are the latest incarnation of what the historian Kim Phillips-Fein labeled “Invisible
Hands” in her prescient 2009 book of that title: those corporate players who have financed the far
right ever since the du Pont brothers spawned the American Liberty League in 1934 to bring down F.
D.R. You can draw a straight line from the Liberty League’s crusade against the New Deal “socialism”
of Social Security, the Securities and Exchange Commission and child labor laws to the John Birch
Society-Barry Goldwater assault on J.F.K. and Medicare to the Koch-Murdoch-backed juggernaut
against our “socialist” president.
Only the fat cats change — not their methods and not their pet bugaboos (taxes, corporate
regulation, organized labor, and government “handouts” to the poor, unemployed, ill and elderly). Even
the sources of their fortunes remain fairly constant. Koch Industries began with oil in the 1930s and
now also spews an array of industrial products, from Dixie cups to Lycra, not unlike DuPont’s portfolio
of paint and plastics. Sometimes the biological DNA persists as well. The Koch brothers’ father, Fred,
was among the select group chosen to serve on the Birch Society’s top governing body. In a recorded
1963 speech that survives in a University of Michigan archive, he can be heard warning of “a takeover”
of America in which Communists would “infiltrate the highest offices of government in the U.S. until
the president is a Communist, unknown to the rest of us.” That rant could be delivered as is at any
Tea Party rally today.
Last week the Kochs were shoved unwillingly into the spotlight by the most comprehensive journalistic
portrait of them yet, written by Jane Mayer of The New Yorker. Her article caused a stir among
those in Manhattan’s liberal elite who didn’t know that David Koch, widely celebrated for his cultural
philanthropy, is not merely another rich conservative Republican but the founder of the Americans for
Prosperity Foundation, which, as Mayer writes with some understatement, “has worked closely with
the Tea Party since the movement’s inception.” To New Yorkers who associate the David H. Koch
Theater at Lincoln Center with the New York City Ballet, it’s startling to learn that the Texas branch
of that foundation’s political arm, known simply as Americans for Prosperity, gave its Blogger of the
Year Award to an activist who had called President Obama “cokehead in chief.”
The other major sponsor of the Tea Party movement is Dick Armey’s FreedomWorks, which, like
Americans for Prosperity, is promoting events in Washington this weekend. Under its original name,
Citizens for a Sound Economy, FreedomWorks received $12 million of its own from Koch family
foundations. Using tax records, Mayer found that Koch-controlled foundations gave out $196 million
from 1998 to 2008, much of it to conservative causes and institutions. That figure doesn’t include
$50 million in Koch Industries lobbying and $4.8 million in campaign contributions by its political action
committee, putting it first among energy company peers like Exxon Mobil and Chevron. Since tax law
permits anonymous personal donations to nonprofit political groups, these figures may understate the
case. The Kochs surely match the in-kind donations the Tea Party receives in free promotion 24/7
from Murdoch’s Fox News, where both Beck and Palin are on the payroll.
The New Yorker article stirred up the right, too. Some of Mayer’s blogging detractors unwittingly
upheld the premise of her article (titled “Covert Operations”) by conceding that they have been Koch
grantees. None of them found any factual errors in her 10,000 words. Many of them tried to change
the subject to George Soros, the billionaire backer of liberal causes. But Soros is a publicity hound
who is transparent about where he shovels his money. And like many liberals — selflessly or foolishly,
depending on your point of view — he supports causes that are unrelated to his business interests and
that, if anything, raise his taxes.
This is hardly true of the Kochs. When David Koch ran to the right of Reagan as vice president on the
1980 Libertarian ticket (it polled 1 percent), his campaign called for the abolition not just of Social
Security, federal regulatory agencies and welfare but also of the F.B.I., the C.I.A., and public schools
— in other words, any government enterprise that would either inhibit his business profits or increase
his taxes. He hasn’t changed. As Mayer details, Koch-supported lobbyists, foundations and political
operatives are at the center of climate-science denial — a cause that forestalls threats to Koch
Industries’ vast fossil fuel business. While Koch foundations donate to cancer hospitals like Memorial
Sloan-Kettering in New York, Koch Industries has been lobbying to stop the Environmental Protection
Agency from classifying another product important to its bottom line, formaldehyde, as a “known
carcinogen” in humans (which it is).
Tea Partiers may share the Kochs’ detestation of taxes, big government and Obama. But there’s a
difference between mainstream conservatism and a fringe agenda that tilts completely toward big
business, whether on Wall Street or in the Gulf of Mexico, while dismantling fundamental government
safety nets designed to protect the unemployed, public health, workplace safety and the subsistence
of the elderly.
Yet inexorably the Koch agenda is morphing into the G.O.P. agenda, as articulated by current
Republican members of Congress, including the putative next speaker of the House, John Boehner,
and Tea Party Senate candidates like Rand Paul, Sharron Angle, and the new kid on the block, Alaska’s
anti-Medicaid, anti-unemployment insurance Palin protégé, Joe Miller. Their program opposes a
federal deficit, but has no objection to running up trillions in red ink in tax cuts to corporations and
the superrich; apologizes to corporate malefactors like BP and derides money put in escrow for oil
spill victims as a “slush fund”; opposes the extension of unemployment benefits; and calls for a freeze
on federal regulations in an era when abuses in the oil, financial, mining, pharmaceutical and even egg
industries (among others) have been outrageous.
The Koch brothers must be laughing all the way to the bank knowing that working Americans are
aiding and abetting their selfish interests. And surely Murdoch is snickering at those protesting the
“ground zero mosque.” Last week on “Fox and Friends,” the Bush administration flacks Dan Senor and
Dana Perino attacked a supposedly terrorism-tainted Saudi prince whose foundation might contribute
to the Islamic center. But as “The Daily Show” keeps pointing out, these Fox bloviators never
acknowledge that the evil prince they’re bashing, Walid bin Talal, is not only the biggest non-Murdoch
shareholder in Fox News’s parent company (he owns 7 percent of News Corporation) and the
recipient of Murdoch mammoth investments in Saudi Arabia but also the subject of lionization
elsewhere on Fox.
No less a Murdoch factotum than Neil Cavuto slobbered over bin Talal in a Fox Business Channel
interview as recently as January, with nary a question about his supposed terrorist ties. Instead, bin
Talal praised Obama’s stance on terrorism and even endorsed the Democrats’ goal of universal health
insurance. Do any of the Fox-watching protestors at the “ground zero mosque” know that Fox’s
profits are flowing to a Obama-sympathizing Saudi billionaire in bed with Murdoch? As Jon Stewart
summed it up, the protestors who want “to cut off funding to the ‘terror mosque’ ” are aiding that
funding by watching Fox and enhancing bin Talal’s News Corp. holdings.
When wolves of Murdoch’s ingenuity and the Kochs’ stealth have been at the door of our democracy in
the past, Democrats have fought back fiercely. Franklin Roosevelt’s triumphant 1936 re-election
campaign pummeled the Liberty League as a Republican ally eager to “squeeze the worker dry in his
old age and cast him like an orange rind into the refuse pail.” When John Kennedy’s patriotism was
assailed by Birchers calling for impeachment, he gave a major speech denouncing their “crusades of
suspicion.”
And Obama? So far, sadly, this question answers itself.
James Galbraith says, "On the contrary: If unemployment can be cured, the
deficits we presently face will necessarily shrink. This is the universal experience
of rapid economic growth: tax revenues rise, public welfare spending falls, and the
budget moves toward balance. There is indeed no other experience in modern
peacetime American history, most recently in the late 1990s when the budget went
into surplus as full employment was reached." Now how do you argue with this
fact. It implies all the experts are parroting propaganda. There are plenty of
things the government could be spending money on. I'd like to see a per capita
arts budget equivalent to Vienna Austria and public transit like Germany.
This is what Jeffery Sack's says about Obama's economic policies. He's the guy
who fucked up the economies of Eastern Europe with the demise of the Soviet
Union. Passing Health care was more important to any other issue. There is plenty
of money to stimulate the economy. The US simply needs a wealth tax and to
spend it on the things Sacks recommends.
Posted: August 30, 2010 09:13 AM
Moving Beyond Washington's Stale Economic Debate
Last week's announcement of the slowdown in US economic growth underscores the
failure of the Obama Administration's economic strategy. The economy will not
grow fast enough to produce jobs and there is little recovery in sight. Moreover,
the budget deficit is likely to remain above $1 trillion for years to come, putting
America into a deeper and deeper fiscal crisis. Neither the Obama Administration
nor the Republican opposition has put forward a realistic response to the deepening
crisis.
It's easy to understand why the Administration's policies are failing. The
Administration believed that with a temporary stimulus the economy would revert
naturally to the situation before the financial crisis. The Administration counted on
personal saving rates reverting to the low levels of the pre-2008 period, at 3
percent of disposable income or less, and new home building to recover to more
than 1 million units per year. In this approach, the stimulus would boost the
economy during the short period needed to stabilize financial markets, after which
household spending on housing and personal consumption goods and services would
restore growth. Instead, the personal saving rate now tops 6 percent as debt-
strapped households continue to restrain their spending, and housing starts remain
below 600,000 units per year, and far below the rates of 2009, much less the
rates before the 2008 crisis.
The Obama strategy reflected a misjudgment about the macroeconomic situation.
The crisis of 2008 marked a watershed. The debt-driven consumer-led framework
of economic growth had hit the wall by 2008. Households were deep in debt after
years of over-spending, while critical investment needs (such as in infrastructure,
energy, and education) required our increased attention. The US economy was
losing long-term competitiveness. US consumer spending was creating jobs in China,
not in the US.
The US economy therefore needed structural change, not just a temporary boost
of deficit spending. The time had come to shift from consumption-led growth to
investment-led and export-led growth. The 2009 stimulus idea therefore failed on
three counts.
First, it distracted the government and country from the real task of building a
new framework for long-term growth. It squandered Obama's political capital in a
Hail Mary pass without a receiver downfield. Last year should have been the year
for carefully designing long-term investments in energy, transport, water and
sanitation, higher education and job skills. Instead, we got a hodgepodge of tax
cuts and scattered spending that is now running out. Second, it focused on "shovel-
ready" investments when few of those really exist, and what we needed was a
decade-long investment strategy based on well-designed policies. Third, Obama
took on the full political onus of the budget crisis by willfully boosting Bush's
roughly trillion-dollar deficit into a $1.5 trillion dollar deficit.
Readers of the economic news last week would have come across a report by the
Congressional Budget Office supposedly attributing between 2.0 million and 4.8
million jobs to the stimulus legislation compared with what would otherwise have
occurred. This report was used by the Administration to declare the stimulus a
great success, even in the same week that made clear that the economy is slowing.
Careful readers of the CBO Report, however, could quickly understand the paradox
of the supposed good news and poor economic outcomes.
The CBO didn't actually measure any actual effects of the stimulus, or suggest a
"counterfactual" economic scenario of what might have happened had the
Administration chosen a different strategy, such as one based on investment-led
recovery. All the CBO did was to apply assumed fiscal multipliers to the stimulus
policies, multipliers not based on observed outcomes but rather on economic
models. In other words, the CBO numbers are purely theoretical estimates, not in
any way tested or verified by actual outcomes. The CBO could have prepared its
report in January 2009 and come to the very same numbers it presented last week
since they were not based on actual outcomes during the past one-and-a-half years.
The debate over the stimulus is confused right across the political spectrum. On
the Administration's side and some on the left, the stimulus is defended on crude
Keynesian grounds (as in the CBO report) without recognizing that there are much
more promising alternatives that would address the economy's structural needs,
instead of a failed attempt to restore the pre-2008 consumption bubble. On the
Republican side, there is a far more reckless clamoring for further tax cuts on the
vague notion that tax cuts would spur growth and that spending cuts would follow on
to offset the tax cuts.
The Republican tax-cut approach lacks an iota of realism. The only major spending
cuts feasible are ending the two absurd and tragic wars and cutting back on
expensive and wasteful weapons systems. Yet the Republicans ardently support the
wars, the weapons systems, and the Pentagon budget. And even if we accomplished
all of the merited Pentagon cuts, that might reach around $300 billion of the more
than $1 trillion deficit.
While the Obama strategy offers us continued stagnation and chronic budget
deficits, the Republican strategy, if it can be dignified by that word, offers us a
complete collapse of the federal government (and state governments supported by
federal taxes) and of course even more explosive deficits. Neither side offers us a
realistic pathway to a healthy, growing, and job-creating economy, one based on
forward thinking with a time horizon of five to ten years.
Progressives have come to berate deficit hawks as if concern about the budget
deficit is somehow intrinsically reactionary. I view deficit reduction as progressive,
because it reflects a concern to protect our future wellbeing, and especially that of
our children. What counts is not deficit reduction per se, but how it's done. If it
comes as the Republicans propose, by slashing government programs for health,
education, retirement, and infrastructure, it would indeed be a disaster. If it
comes instead by taxing the banks, higher incomes, and fossil-fuel pollution
(initially at a low, but then rising rate), while simultaneously investing more in clean
energy, modern infrastructure, education and jobs skills, then deficit reduction is
prudent, progressive, and wholly supportive of sustainable prosperity.
The stimulus versus no-stimulus debate is passé. So too is the debate concerning
deficit increases versus deficit cuts. A new approach needs to be based on spurring
long-term investments -- in energy, infrastructure, environment, and people --
combined with a serious plan to restore fiscal integrity and the quality and honesty
of public-sector management. A serious plan should also cut outrageous CEO and
senior management salaries down to size, and use the saved enterprise income to
promote more job-sharing, skill training, improved pay, guaranteed leave and
vacation time, and improved work quality for the labor force. The poor and middle-
class need not suffer more in the process. They've been bamboozled for long
enough by the super-wealthy bankers and CEOs who took over both political parties
thirty years ago and have since manipulated Washington to ruin, for their own
personal benefit.
Why We Need a Second Stimulus
By LAURA TYSON
Published: August 28, 2010
Related
• Times Topic: Economic Stimulus (Jobs Bills)
OUR national debate about fiscal policy has become skewed, with far too much
focus on the deficit and far too little on unemployment. There is too much worry
about the size of government, and too little appreciation for how stimulus spending
has helped stabilize the economy and how more of the right kind of government
spending could boost job creation and economic growth. By focusing on the wrong
things, we are in serious danger of failing to do the right things to help the
economy recover from its worst labor market crisis since the Great Depression.
The primary cause of the labor market crisis is a collapse in private demand — the
same problem that bedeviled the economy in the 1930s. In the wake of the
financial shocks at the end of 2008, spending by American households and
businesses plummeted, and companies responded by curbing production and shedding
workers. By late 2009, in response to unprecedented fiscal and monetary stimulus,
household and business spending began to recover. But by the second quarter of
this year, economic growth had slowed to 1.6 percent, according to a government
estimate issued Friday. Clearly, the pace of recovery is far slower than what is
needed to restore the millions of jobs that have been lost.
Households and businesses are on a saving spree to rebuild their balance sheets.
Their spending relative to income has fallen more than at any time since the end of
World War II. So there is now a substantial gap between the supply of goods and
services the economy is capable of producing and the demand for them. This gap is
starkly reflected by the 23 million Americans who are looking for full-time jobs
and the millions more who have left the labor force because they could not find one.
The situation would be even worse without the $787 billion fiscal stimulus package
passed in 2009. The conventional wisdom about the stimulus package is wrong: it
has not failed. It is working as intended. Its spending increases and tax cuts have
boosted demand and added about three million more jobs than the economy
otherwise would have. Without it, the unemployment rate would be about 11.5
percent. Because about 36 percent of the money remains to be spent, more jobs
will be created — about 500,000 by the end of the year.
But by next year, the stimulus will end, and the flip from fiscal support to fiscal
contraction could shave one to two percentage points off the growth rate at a time
when the unemployment rate is still well above 9 percent. Under these
circumstances, the economic case for additional government spending and tax relief
is compelling. Sadly, polls indicate that the political case is not.
Two forms of spending with the biggest and quickest bang for the buck are
unemployment benefits and aid to state governments. The federal government
should pledge generous financing increases for both programs through 2011.
Federal aid to the states is especially important because they finance education.
Although the jobs crisis is primarily a crisis of demand, it also reflects a mismatch
between the education of the work force and the education required for jobs in
today’s economy. Consider how the unemployment rate varies by education level: it’s
more than 14 percent for those without a high school degree, under 10 percent
for those with one, only about 5 percent for those with a college degree and even
lower for those with advanced degrees. The supply of college graduates is not
keeping pace with demand. Therefore, more investment in education could reduce
both the cyclical unemployment rate, as more Americans stay in school, and the
structural unemployment rate, as they graduate into the job market.
An increase in government investment in roads, airports and other kinds of public
infrastructure would be cost-effective, too, as measured by the number of jobs
created per dollar of spending. And it would help reduce the road congestion,
airport delays and freight bottlenecks that reduce productivity and make the
United States a less attractive place to do business. The American Society of
Engineers has identified more than $2.2 trillion in public infrastructure needs
nationwide, and a 2008 study by the Congressional Budget Office found that, on
strict cost-benefit grounds, it would make sense to increase annual spending on
transportation projects alone by 74 percent.
Over the next five years, the federal government should work with state and local
governments and the private sector to finance $1 trillion worth of additional
investment in infrastructure. It should extend the Build America Bonds stimulus
program, which in the past year has helped states finance $120 billion in
infrastructure improvement.
The federal government should also create and capitalize a National Infrastructure
Bank that would provide greater certainty about the level of infrastructure
financing over several years, select projects based on rigorous cost-benefit
analysis, invest in things like interstate high-speed rail that require coordination
among states and attract private co-investors in projects like toll roads and
airports that generate dedicated future revenue streams.
But can the government afford this additional spending? The answer is yes. Despite
the large federal deficit, global savers, including savings-hungry American
households, are snapping up United States government securities at very low
interest rates. And they will continue to do so as long as there is ample slack in
the economy and inflation remains subdued. Over the next few years, there is little
risk that federal deficits will crowd out private investment or precipitate a crisis
of confidence in the American government, a spike in American interest rates or a
sudden drop in the dollar.
On the other hand, as long as private demand remains weak, the risk is
uncomfortably high that trying to reduce the deficit — by cutting spending or
increasing taxes — will tip the economy back into recession or condemn it to years
of faltering growth and debilitating unemployment. In fact, either outcome would
depress tax revenue and could mean larger deficits.
Faced with these risks, as long as the economy is operating far below potential,
policy makers should do two seemingly contradictory things. First, they should
provide additional fiscal support for job creation and growth. And, second, they
should enact a credible multiyear plan now to stabilize the ratio of federal debt to
gross domestic product gradually as the economy recovers.
By easing capital market concerns about the government’s future borrowing needs,
such a plan would permit larger deficits and slower debt reduction while
unemployment is still high. The long-run debt problem — the result of imprudent
fiscal decisions before the recession, escalating health care costs and an aging
population — must be addressed once the economy has recovered. But for now the
priorities of fiscal policy should be jobs and investment.
Laura Tyson, a professor at the Haas School of Business at the University of
California, Berkeley, was chairwoman of the Council of Economic Advisers and the
National Economic Council in the Clinton administration. She is a member of
President Obama’s Economic Recovery Advisory Board.
Taming Finance in an Age of Austerity
Joseph E. Stiglitz
NEW YORK – It was not long ago that we could say, “We are all Keynesians now.”
The financial sector and its free-market ideology had brought the world to the
brink of ruin. Markets clearly were not self-correcting. Deregulation had proven to
be a dismal failure.
The “innovations” unleashed by modern finance did not lead to higher long-term
efficiency, faster growth, or more prosperity for all. Instead, they were designed
to circumvent accounting standards and to evade and avoid taxes that are required
to finance the public investments in infrastructure and technology – like the
Internet – that underlie real growth, not the phantom growth promoted by the
financial sector.
The financial sector pontificated not only about how to create a dynamic economy,
but also about what to do in the event of a recession (which, according to their
ideology, could be caused only by a failure of government, not of markets).
Whenever an economy enters recession, revenues fall, and expenditures – say, for
unemployment benefits – increase. So deficits grow.
Financial-sector deficit hawks said that governments should focus on eliminating
deficits, preferably by cutting back on expenditures. The reduced deficits would
restore confidence, which would restore investment – and thus growth. But, as
plausible as this line of reasoning may sound, the historical evidence repeatedly
refutes it.
When US President Herbert Hoover tried that recipe, it helped transform the
1929 stock-market crash into the Great Depression. When the International
Monetary Fund tried the same formula in East Asia in 1997, downturns became
recessions, and recessions became depressions.
The reasoning behind such episodes is based on a flawed analogy. A household that
owes more money than it can easily repay needs to cut back on spending. But when
a government does that, output and incomes decline, unemployment increases, and
the ability to repay may actually decrease. What is true for a family is not true
for a country.
More sophisticated advocates warn that government spending will drive up interest
rates, thus “crowding out” private investment. When the economy is at full
employment, this is a legitimate concern. But not now: given extraordinarily low
long-term interest rates, no serious economist raises the “crowding out” issue
nowadays.
In Europe, especially Germany, and in some quarters in the US, as government
deficits and debt grow, so, too, do calls for increased austerity. If heeded, as
appears to be the case in many countries, the results will be disastrous, especially
given the fragility of the recovery. Growth will slow, with Europe and/or America
possibly even slipping back into recession.
Stimulus spending, the deficit hawks’ favorite bogeyman, did not cause most of the
increased deficits and debt, which are the result of “automatic stabilizers” – the
tax cuts and spending increases that automatically accompany economic fluctuations.
So, as austerity undermines growth, debt reduction will be marginal at best.
Keynesian economics worked: if not for stimulus measures and automatic
stabilizers, the recession would have been far deeper and longer, and unemployment
much higher. This does not mean that we should ignore the level of debt. But what
matters is long-term debt.
There is a simple Keynesian recipe: First, shift spending away from unproductive
uses – such as wars in Afghanistan and Iraq, or unconditional bank bailouts that do
not revive lending – toward high-return investments. Second, encourage spending
and promote equity and efficiency by raising taxes on corporations that don’t
reinvest, for example, and lowering them on those that do, or by raising taxes on
speculative capital gains (say, in real estate) and on carbon- and pollution-intensive
energy, while cutting taxes for lower-income payers.
There are other measures that might help. For example, governments should help
banks that lend to small- and medium-size enterprises, which are the main source
of job creation – or establish new financial institutions that would do so – rather
than supporting big banks that make their money from derivatives and abusive
credit card practices.
Financial markets have worked hard to create a system that enforces their views:
with free and open capital markets, a small country can be flooded with funds one
moment, only to be charged high interest rates – or cut off completely – soon
thereafter. In such circumstances, small countries seemingly have no choice:
financial markets’ diktat on austerity, lest they be punished by withdrawal of
financing.
But financial markets are a harsh and fickle taskmaster. The day after Spain
announced its austerity package, its bonds were downgraded. The problem was not
a lack of confidence that the Spanish government would fulfill its promises, but too
much confidence that it would, and that this would reduce growth and increase
unemployment from its already intolerable level of 20%. In short, having gotten the
world into its current economic mess, financial markets are now saying to countries
like Greece and Spain: damned if you don’t cut back on spending, but damned if you
do as well.
Finance is a means to an end, not an end in itself. It is supposed to serve the
interests of the rest of society, not the other way around. Taming financial
markets will not be easy, but it can and must be done, through a combination of
taxation and regulation – and, if necessary, government stepping in to fill some of
the breaches (as it already does in the case of lending to small- and medium-size
enterprises.)
Unsurprisingly, financial markets do not want to be tamed. They like the way
things have been working, and why shouldn’t they? In countries with corrupt and
imperfect democracies, they have the wherewithal to resist change. Fortunately,
citizens in Europe and America have lost patience. The process of tempering and
taming has begun. But there is far more yet to do.
Joseph E. Stiglitz is University Professor at Columbia University and a Nobel
laureate in Economics. His latest book, Freefall: Free Markets and the Sinking of
the Global Economy, is now available in French, German, Japanese, and Spanish.
Copyright: Project Syndicate, 2010.
www.project-syndicate.org
For a podcast of this commentary in English, please use this link:
http://media.blubrry.com/ps/media.libsyn.com/media/ps/stiglitz127.mp3
Robert Reich: Why Cheaper Money Won't Mean More Jobs
from Politics on HuffingtonPost.com by Robert Reich
Can the Fed rescue the economy by making money even cheaper than it already is?
A debate is being played out in the Fed about whether it should return to so-called
"quantitative easing" -- buying more mortgage-backed securities, Treasury bills,
and other bonds -- in order to lower the cost of capital still further.
The sad reality is that cheaper money won't work. Individuals aren't borrowing
because they're still under a huge debt load. And as their homes drop in value and
their jobs and wages continue to disappear, they're not in a position to borrow.
Small businesses aren't borrowing because they have no reason to expand. Retail
business is down, construction is down, even manufacturing suppliers are losing
ground.
That leaves large corporations. They'll be happy to borrow more at even lower
rates than now -- even though they're already sitting on mountains of money.
But this big-business borrowing won't create new jobs. To the contrary, large
corporations have been investing their cash to pare back their payrolls. They've
been buying new factories and facilities abroad (China, Brazil, India), and new
labor-replacing software at home.
If Bernanke and company make it even cheaper to borrow, they'll be unleashing a
third corporate strategy for creating more profits but fewer jobs -- mergers and
acquisitions.
The M&A wave has already started. Continental and United Airlines just got
approval to merge. Biotech giant Genzyme is on the auction block after Sanofi-
Aventis announced a $18.5 billion bid. On Friday, 3Par, a data storage company,
accepted a $1.8 billion takeover offer from Dell -- one day after Hewlett-Packard
raised its offer. Campbell's Soup is eying parts of United Biscuits, BHP Billiton has
put in a takeover bid for Potash, Oracle or H-P are likely to pay up to $1.5 billion
for security software maker ArcSight. Bain Capital is expected to acquire Air
Medical Group for almost $1 billion. The insurance industry is headed for the
biggest merger boom in recent history.
Who wins from all this? If history is a guide, shareholders of acquired companies
do better than shareholders of companies doing the acquiring. Top executives who
end up running bigger corporations get fatter pay packages. And Wall Street and
big-name corporate law firms who engineer the M&As reap a bundle.
Who loses? Large numbers of ordinary workers will lose their jobs. After all, the
purpose M&As is to create greater economies of scale and more "synergies."
Translated: More pink slips.
Last week in Jackson Hole, Ben Bernanke insisted the Fed will do what's necessary
to increase consumer and business spending in order to keep the economy growing.
But cheaper money won't necessarily create the kind of spending that generates
more jobs. In fact, right now it's having the opposite effect. When consumers and
small businesses can't and won't borrow more, big businesses use cheap money to
bid up the prices of corporate assets and cut payrolls.
What we need now is more jobs, not bigger corporations.
This post originally appeared at RobertReich.org
Feldstein Sees `Significant Risk' of Recession Again
By Vivien Lou Chen and Kathleen Hays - Aug 27, 2010 10:16 AM CT Fri Aug 27 15:
16:28 GMT 2010
Martin Feldstein, professor of economics at Harvard University, poses for a
portrait during the Federal Reserve Bank of Kansas City annual symposium near
Jackson Hole, Wyoming. Photographer: Andrew Harrer/Bloomberg
Play Video
Aug. 27 (Bloomberg) -- Martin Feldstein, an economics professor at Harvard
University, discusses the outlook for the U.S. economy. Feldstein talks with
Bloomberg's Michael McKee and Betty Liu from the Fed's annual symposium in
Jackson Hole, Wyoming. (Source: Bloomberg)
The U.S. economy remains “weak” and “fragile” and has a “significant” chance of
falling back into a recession, Harvard University economics professor Martin
Feldstein said in an interview with Bloomberg Radio.
“I would say there’s still a significant risk, maybe one chance in three, that there
will be a double dip, real GDP falling, before we’re in the clear,” said Feldstein,
member of the committee at the National Bureau of Economic Research that dates
the beginning and end of recessions.
The U.S. economy grew at a 1.6 percent annual rate in the second quarter, less
than previously estimated, based on revised Commerce Department figures released
today. A separate report showed confidence among consumers rose less than
forecast in August from an eight-month low, indicating the biggest part of the
economy will be slow to recover.
“We see a weak economy,” Feldstein said. “We see a fragile economy that is
growing at a slower pace.”
Data released earlier this week show a further slide in home sales and a drop in
business spending on equipment, prompting economists such as Joseph LaVorgna,
managing director of Deutsche Bank Securities Inc., to reduce third-quarter
growth estimates.
1.6 Percent Growth
The 1.6 percent growth rate is still “very weak” and another slump would signal
that the nation remains mired in a recession, Feldstein, 70, said in a separate
interview with Bloomberg Television from Jackson Hole, Wyoming, where the
Federal Reserve is holding its annual symposium.
“If the economy turns down again, we would still be in recession, but that remains
to be seen,” said the New York-born economist, who twice served as president of
the NBER from 1977 to 1982 and from 1984 to 2008.
Today’s GDP estimate is the second for the quarter, with the final figures set for
release on Sept. 30. The economy grew at a 3.7 percent pace in the first quarter.
Feldstein’s remarks contrast with those of Federal Reserve Chairman Ben S.
Bernanke, who told conference attendees that “the preconditions for a pickup in
growth in 2011 appear to remain in place.”
U.S. stocks rose, paring the market’s weekly loss, as Bernanke signaled the central
bank is willing to do more to boost the economy. The Standard & Poor’s 500 Index
gained 0.5 percent to 1,052.38 as of 10:48 a.m. in New York.
To contact the reporter on this story: Vivien Lou Chen in San Francisco at
vchen1@bloomberg.net
Statement on Evans Stimulus Letter from Davidson,
Galbraith, Skidelsky
by James K. Galbraith
| 14 CommentsOn July 19, The Daily Beast published Harold Evans’s letter
“Stimulus Now“, which calls for urgent action on unemployment.
Signatories include Roosevelt Chief Economist and Senior Fellow Joseph Stiglitz as
well as Roosevelt Braintruster Sean Wilentz. While agreeing with the letter’
s central idea, Davidson, Galbraith, and Skidelsky declined to sign due to a
difference of opinion on deficits. Their position is outlined below.We three were
each asked to sign the letter organized by Sir Harold Evans and now co-signed by
many of our friends, including Joseph Stiglitz, Robert Reich, Laura Tyson, Derek
Shearer, Alan Blinder and Richard Parker. We support the central objective of the
letter — a full employment policy now, based on sharply expanded public
effort. Yet we each, separately, declined to sign it.Our reservations centered on
one sentence, namely, “We recognize the necessity of a program to cut the
mid-and long-term federal deficit.. ” Since we do not agree with this
statement, we could not sign the letter.Why do we disagree with this statement?
The answer is that apart from the effects of unemployment itself the United
States does not in fact face a serious deficit problem over the next generation,
and for this reason there is no “necessity [for] a program to cut the mid-
and long-term deficit.”On the contrary: If unemployment can be cured, the
deficits we presently face will necessarily shrink. This is the universal experience
of rapid economic growth: tax revenues rise, public welfare spending falls, and the
budget moves toward balance. There is indeed no other experience in modern
peacetime American history, most recently in the late 1990s when the budget went
into surplus as full employment was reached.We agree that health care costs are
an important issue. But health care is a burden faced by both the public and
private sectors, and cost control is a job for health policy, not budget policy.
Cutting the public element in health care - Medicare, especially - in response to
the health care cost problem is just a way of invidiously targeting the elderly who
are covered by that program. We oppose this.The long-term deficit scare story
plays into the hands of those who will argue, very soon, for cuts in Social Security
as though these were necessary for economic reasons. In fact, Social Security is a
highly successful program which (along with Medicare) maintains our entire elderly
population out of poverty and helps to stabilize the macroeconomy. It is a transfer
program and indefinitely sustainable as it is.We call on fellow economists to
reconsider their casual willingness to concede to an unfounded hysteria over
supposed long-term deficits, and to concentrate instead on solving the vast
problems we presently face. It would be tragic if the Evans letter and similar
efforts - whose basic purpose we strongly support - led to acquiescence in Social
Security and Medicare cuts that impoverish America’s elderly just a few
years from now.Paul Davidson is the Editor of the Journal of Post Keynesian
Economics and author of “The Keynes Solution.”James K. Galbraith
is a Professor at The University of Texas at Austin and author of “The
Predator State.”Lord Robert Skidelsky is the author, most recently, of
“Keynes: The Return of the Master.
”Paul DavidsonMaking dollars and sense of the U.S.government
debtAbstract: This paper explain why, given Keynes’s General Theory,
worries overthe size of the government’s national debt per se is foolish. It
is more importantto educate politicians and the public that government fiscal policy
should be designedto make sure that aggregate market demand will produce
sufficient profitsso that entrepreneurs will hire all domestic workers willing and
able to work.Empirical evidence is provided to demonstrate the correctness of this
conceptof fiscal policy of the balancing wheel for full employment effective demand.
Key words: deficits, national debt.No economic topic encourages more political
demagoguery than the“unsustainable” national deficits that face the
Obama administration asit tries to extricate the economy from this Great
Recession that beganin 2007. Even President Obama has appointed a commission to
developa plan to assure a reduction in future deficits by lowering
governmentexpenditures or raising taxes.A sage once said, “Those who
cannot remember the past are condemnedto repeat its errors.” So let us
review the past history of the national debtto make sure we avoid its errors and
repeat its successes.Is the national debt too large? In 1790, the newly founded U.
S. governmentassumed the debts that had been incurred during the
RevolutionaryWar. Thus, from the very beginning, the U.S. national debt
wasapproximately $75 million. In 1835, President Jackson reduced the debtto close
to a zero balance. By 1837, however, the economy went into asteep recession that
lasted approximately six years and the national debtincreased dramatically. Since
then, the U.S. government has always hada significant outstanding debt.Paul
Davidson is editor of the Journal of Post Keynesian Economics and author of
TheKeynes Solution: The Path to Global Economic Prosperity.10 editors corner.indd
663 4/25/2010 2:51:16 AM664 JOURNAL OF POST KEYNESIAN ECONOMICS
During World War I, the national debt increased substantially from
approximately$6 billion in 1916 to over $27 billion in 1919. The prosperousdecade
of the “roaring twenties” saw a decline in the national debtas tax
receipts exceeded government spending. By 1929, the total debthad been reduced
to $16.9 billion. This 1920s experience indicates thatwhen the private sector is
spending sufficiently to buy all the productsthat industry can produce in a fully
employed economy, then there is noneed for the government to deficit spend
merely to maintain a prosperouseconomy. The 1920s prosperity, however, was
partly the result ofsignificant bubbles in the stock market and in real estate.
(Shades of thedot.com bubble of the 1990s and the housing bubble of early 2000s.)
In 1929, private spending suddenly slowed causing a devastating dropin business
profits. Unemployment rose rapidly as the United Statesentered the Great
Depression. Tax revenues fell from $4 billion in 1930to less than $2 billion in
1932. When Roosevelt took office in 1933, thenational debt was almost $20 billion;
a sum equal to 20 percent of theU.S. gross domestic product (GDP).During its first
term, the Roosevelt administration ran large annualdeficits between 2 and 5 percent
of GDP. By 1936, the national debt hadincreased to $33.7 billion or approximately
40 percent of GDP. Many“experts” of that era said disaster
awaited the nation if the governmentcontinued to deficit spend and thereby burden
future generations with thishuge debt. Accordingly, as a part of his reelection
campaign, Roosevelt’sfiscal year 1937 budget submitted to Congress in
1936 cut governmentspending dramatically. As a result, in 1937, the economy fell
into a steeprecession. Tax revenues declined and the national debt increased to
$37billion. The government resumed significant deficit spending in 1938and the
economy quickly recovered. By 1940, the economy had grownsubstantially while the
national debt rose to $43 billion.When the United States entered the war in 1941,
the fear of deficits andthe size of the national debt were forgotten. The
important thing was todefeat the enemy. In the war years from 1941 to 1945, the
GDP doubledwhile the national debt increased by more than 500 percent as
Rooseveltfinanced much of the war expenditures by government borrowing. By
theend of the war in 1945, the national debt had increased to $258 billionand was
equal to approximately 120 percent of GDP.Rather than bankrupting the nation, this
large growth in the nationaldebt promoted a prosperous economy. By 1946, the
average Americanhousehold was living much better economically than in the
prewardays. Moreover, the children of that Depression–World War II
generationwere not burdened by having to pay off what then was considered10
editors corner.indd 664 4/25/2010 2:51:16 AMMaking Dollars and Sense of the U.
S. Government Debt 665a huge national debt. Instead, for the next
quarter century, the economycontinued on a path of unprecedented economic growth
and prosperitywith the Eisenhower administration launching the biggest public
worksproject—the interstate highway system—and the
Kennedy–Johnsonadministration spending large sums on sending a man to the
moon andthe escalating Vietnam War. At the same time, the inequality in the
distributionof income was significantly narrowed. It was the golden ageof economic
development for the United States as the rich grew richerwhile the poor gained
even more in a rapidly rising level of income thatcreated a large American middle
class.As a child of the Depression and a young teenager during the WorldWar II,
I have never felt burdened by the huge government deficits thataccrued due to
government spending during the Great Depression andthe war that followed. The
legacy that the Great Generation who wereadults during the depression and the war
left to their children was aneconomy of abundance and prosperity. I inherited an
economy that madefinding a good job easy for me and all of my cohorts and
provided excellentopportunities to improve our living standards. If this is
burdeningchildren and grandchildren, I hope the current generation can create
sucha “burden” for their progeny.The moral of this history of the
national debt and the economy duringthe Great Depression and World War II is
that we have nothing to fearabout running big government deficits when, during a
recession withsignificant unemployment, the federal government is the only
spenderthat can take the responsibility to sufficiently increase the market
demandfor the products of our industries and thereby maintain a profitable
entrepreneurialsystem. For government to spend less in the hopes of keepingdown
the size of the national debt will cause market demand to remainslack, thereby
impoverishing both our business firms and our workers.The idea that capitalism
works best when spenders cause healthy growthin market demands and thereby
generate profits and jobs for the communitywas the basic message of Keynes
theory.This was clearly demonstrated when government spending increasedduring
the years 1933–36 and 1938–45. When Roosevelt cut spendingin
1937, the sharp recession showed that at that stage of recovery, noother
spenders were willing or able to take over from government therole of generator of
market demand and profits for American businesses.Had Roosevelt, in 1938,
continued on the path of keeping governmentspending in check in order not to
increase the total national debt, theresult would have been to propagate the poorly
performing economyof 1937. When the war broke out and no further thought was
given to the size of the national debt, government spending quickly pushed
theeconomy to a profitable full employment status. Keynes’s ideas that
therole of government fiscal policy was to make sure that the total demandfor
goods and services provided profit opportunities to encourage businessfirms to hire
all workers who wanted a job was validated by thishistorical record.Business firms
will hire more workers only when they expect the marketdemand for their products
is increasing. Today, who are these buyers whowill be willing to buy significantly
more products from factories locatedin the United States in order to end this
Great Recession? Clearly householdssuffering from high unemployment, decreasing
market values fortheir homes, large credit card debt, and shrinking pension funds
are notlikely to rush to buy significant more goods and services. Entrepreneurswith
existing excess facilities and facing declining or at most not rapidlyrising market
demands are unlikely to invest significantly in new plant andequipment. Moreover,
foreigners such as China with its large savings ofU.S. dollar earnings appears
unlikely to spend more dollars to buy moreU.S.‑produced goods. With
falling property and sales tax revenues, localand state governments such as
California are cutting spending on publicservices and reducing purchases from
domestically located firms. Onlythe Federal government can afford to buy
significant additional productsto stimulate market demand for American products.
Just as we expect the Federal government to spend whatever is necessaryto
protect us from foreign enemies during a war, we should alsoexpect the government
to spend whatever is necessary to protect usfrom the economic terrorism of a
great recession. The public must beeducated to understand that a civilized society
is one that assures bothdomestic workers and enterprises prosper and that the
intelligent use ofgovernment fiscal policy can assure that total market demand is
alwayssufficient to generate domestic profits large enough to create a
fullyemployed economy.Some argue that tax revenues must finance all government
spendingso that the federal budget is always balanced without deficits, or at
leastannual deficits do not increase the debt-to-GDP ratio. As history shows,
however, even during World War II when America was attacked by foreignnations
(remember Pearl Harbor?) the U.S. government did not financethe entire defense
of this nation by raising taxes. Instead, during the waryears, deficits expanded
dramatically while no one worried (correctly)about burdening future generations with
debt.If wars are not sufficient (or necessary) reasons to raise taxes or
cutgovernment spending sufficiently to balance the budget while protecting the
nation, then why should defending the nation against serious economicthreats
require a balanced budget or a lower deficit? Our politicians andthe public must be
educated to understand that when total demand fordomestically produced goods is
low so that recession and depressionthreaten, then government must deficit spend
as much as necessary toencourage domestic entrepreneurs to hire all American
workers whoare willing and able to work. If, on the other hand, market demand
fordomestically produced goods and services exceed America’s full
employmentproductive capacity, then government must increase taxes andreduce
spending in order to reduce aggregate demand to a level that canbe met by a fully
employed labor force.When the public and politicians recognize that a primary
function ofgovernment fiscal policy is to act as a balancing wheel for
aggregatedemand to be sufficient to encourage America’s entrepreneurs to
createjobs for all our workers, we will have developed the political will todevelop a
perpetual prosperous American civilized society.At that point of time, our next
task will be to develop an internationalfinancial and payments system that will
provide for global full employmentand prosperity.Future generations will curse us
for cutting in a slump
Robert Skidelsky and Michael KennedyFinancial Times | Wednesday, July 28, 2010
In 1937 Keynes wrote: “The boom, not the slump, is the right time for
austerity at the Treasury.” Jean-Claude Trichet, president of the European
Central Bank, disagrees. Stripped of its jargon, his argument last Friday in the
Financial Times is that fiscal retrenchment is needed to “consolidate
recovery”. This has become the standard European – though not
American – line. “Failure to address the deficit is the greatest
danger we face,” said UK Treasury minister Lord Sassoon in the House of
Lords on Monday, faithfully echoing the words of his master, chancellor George
Osborne. But beyond vaguely referring to the need to restore “
confidence”, none of the cutters can explain how reducing public spending
when private spending is already depressed will “consolidate
recovery”.By contrast, Keynesian theory can readily explain why it will not.
The government, Keynes argued, is the only agency that can prevent total spending
in the economy from falling below a full or acceptable employment level. If private
spending is depressed, it can restore total spending to a reasonable level by adding
to its own spending or reducing taxes.In doing so it will be adding to a deficit that
is already the result of falling tax revenues and rising benefits due to the
recession. The deficit, though, has the function of sustaining the level of total
spending and output in the economy.Any attempt to reduce it before a strong
momentum to private sector recovery is established will make matters worse. Once
the economy has started to grow, the deficit incurred during the recession will
automatically shrink to a pre-recession level. Deliberate steps to eliminate the
“structural” (ie non-recession induced) deficit should be postponed
until the recovery is firmly entrenched. With the budget balanced, or even in
surplus, at high employment, continued growth will steadily reduce the national debt
as a percentage of gross domestic product. This is what happened after the
second world war.In Keynesian theory, monetary and fiscal policy are parts of a
single process, not alternatives. In the early stages, money may have to be
created to finance the deficit; the spending of this money generates the extra
saving needed to “pay for” the investment; the rise in national
income improves public revenues, thus helping the deficit to fall.Contrary to a
widespread view, the deficit does not impose a burden on future generations.
There is no repayment burden because the government, unlike private individuals,
can and normally does repay its maturing debts by borrowing again. (In the last
resort, it can print money).As for the interest burden that is said to arise when
the interest is paid by taxation rather than by fresh borrowing, it is merely a
transfer payment. Income is transferred from taxpayers to bond-holders. In the
case of the UK, most of these bond-holders are domestic. The transfer is
therefore a redistribution rather than a loss of income.If, however, the public
deficit is cut now, there will undoubtedly be a burden on both present and future
generations. Income and profits will be lowered straight away; profits will fall,
pension funds will be diminished, investment projects cancelled or postponed,
schools not rebuilt – with the result that future generations will be worse
off, having been deprived of assets they might otherwise have had.The Keynesian
theory contradicts the Osborne-Trichet doctrine that private spending is depressed
because of fears about the sustainability or future cost of the deficit. The correct
causal explanation is that private spending is depressed because total demand in the
economy is depressed. The deficit is the consequence, not the cause, of depressed
business expectations. It is “nature’s way” of sustaining
economic activity in the face of a collapse of business confidence.Nevertheless,
confidence is a psychological phenomenon. Irrational though the fear of a recession-
induced deficit may be, it is a fact that governments have to face. So they should
aim to maintain total spending in a way that reinforces rather than diminishes
business confidence.One way would be to cut taxes by the same amount as they cut
their own spending. This would imply a reduction of taxes by about £100bn
over five years. This might appeal to the right, as over a period of years it would
reduce the size of the state. But the effect of tax-cutting on economic activity is
uncertain. A better way would be to offset any market-appeasing cuts in current
spending by an increase in capital spending. A recession is an ideal time to “
bring the country up to date”, since labour and capital will both be cheaper
than in boom times.The £38bn high-speed rail link from London to
Birmingham and beyond, unveiled in March by Lord Adonis, the former transport
secretary, is a perfect example. Like the smaller rail electrification schemes, it is
not “shovel ready”, but a determined government could get it going
long before the planned start in 2017. It would set up an immediate demand on the
construction industries while also offering returns in the long run.Former chancellor
Alistair Darling’s scheme for a Green Investment Bank to invest in
renewable energy and energy efficiency is another example. Industry experts
predict that up to £37.5bn will be needed each year to upgrade or replace
our old power plants over the next decade. Mr Darling’s £2bn plan
was a step in the right direction – a step that was then retracted in Mr
Osborne’s Budget.A government whose animating spirit was Lloyd George
rather than George Osborne would ask the public to subscribe to a National
Recovery Loan of £100bn, to be spent over five years, to equip the UK with
a modern transport system, energy-efficient housing and new power plants, and up-
to-date schools. Austerity in the capital budget is the worst possible remedy for a
slump.Michael Kennedy is a former economic adviser at the Treasury. Lord
Skidelsky is professor emeritus at Warwick UniversityOnce Again We Must Ask:
“Who Governs?”Robert SkidelskyFinancial Times | Wednesday, June
16, 2010
In 1974, Edward Heath asked: “Who governs – government or
trade unions?” Five years later British voters delivered a final verdict by
electing Margaret Thatcher. The equivalent today would be: “Who governs
– government or financial markets?” No clear answer has yet been
given, but the question may well define the political battleground for the next five
years.In one sense, next week’s emergency Budget is simply the logical
working out of an intellectual theorem. The implicit premise of the coming
retrenchment is that market economies are always at, or rapidly return to, full
employment. It follows that a stimulus, whether fiscal or monetary, cannot improve
on the existing situation. All that increased government spending does is to
withdraw money from the private sector; all that printing money does is to cause
inflation.These propositions are a re-run of the famous “Treasury
view” of 1929. By contrast, Keynes argued that demand can fall short of
supply, and that when this happened, government vice turned into virtue. In a
slump, governments should increase, not reduce, their deficits to make up for the
deficit in private spending. Any attempt by government to increase its saving (in
other words, to balance its budget) would only worsen the slump. This was his
“paradox of thrift”. The current stampede to thrift shows that the
re-conversion to Keynes in the wake of the financial collapse of 2008 was only skin-
deep: the first story remains deeply lodged in the minds of economists and
politicians.But this story alone does not explain the conversion to austerity.
Politicians clamouring for cuts in public spending do not cite Chicago University
economists. They talk about the need to restore “confidence in the
markets”. The argument here is that deficits do positive harm by
destroying business confidence. This collapse of confidence may come in several
forms – fear of higher taxes, fear of default, fear of inflation. Deficits
thus delay the natural (and rapid) recovery of the economy. If markets have come
to the view that deficits are harmful, they must be appeased, even if they are
wrong. What market participants believe to be the case becomes the case, not
because their beliefs are true, but because they act on their beliefs, true or false.
The parallel with what happened in 1931 is irresistible. In February of that year,
Philip Snowden, the Labour government’s chancellor of the exchequer, set
up the May Committee to recommend cuts in public spending. The committee
projected a budget deficit of £120m, later raised to £170m, the
latter figure amounting to about 5 per cent of gross domestic product, and
proposed raising taxes and reducing spending to “balance the
budget”. The international financial crisis caused by the collapse of the
Austrian Credit-Anstalt bank in July 1931 brought huge pressure on the government
to act on the May Report. In a notable display of patriotic fervour, the financial
and political establishment united to demand cuts in unemployment benefits to
“save the pound”.Keynes was one of the very few who stood out
against the herd. Of the May Report’s authors, he wrote: “I
suppose that they are such very plain men that the advantages of not spending
money seem obvious to them.” They had ignored the fact that their
proposed cuts would add 250,000-400,000 to the unemployed and diminish tax
receipts. “At the present time,” Keynes continued, “all
governments have large deficits. They are nature’s remedy for preventing
business losses from being ... so great as to bring production altogether to a
standstill.”When the Conservative-Liberal coalition that had succeeded the
Labour government introduced an emergency budget in September 1931, Keynes
again stood out against the chorus of approval. The budget was, he wrote,
“replete with folly and injustice”. He explained to an American
correspondent that “every person in this country of super-asinine
propensities, everyone who hates social progress and loves deflation, feels that his
hour has come and triumphantly announces how, by refraining from every form of
economic activity, we can all become prosperous again.”Conservative
spokesmen often claim that fiscal consolidation causes economies to recover. If so,
the effect of the outbreak of public frugality in 1931 was curiously roundabout.
Cuts in salaries produced a “mutiny” of naval ratings at
Invergordon, suggesting that the empire was crumbling. This was enough to force
Britain off the gold standard. A combination of sterling depreciation and lower
interest rates revived exports and started a housing boom. But there was never a
complete recovery until the war. Such evidence for the success of the cuts is the
stuff of castles in the sky.We are about to embark on a momentous experiment to
discover which of the two stories about the economy is true. If, in fact, fiscal
consolidation proves to be the royal road to recovery and fast growth then we
might as well bury Keynes once and for all. If however, the financial markets and
their political fuglemen turn out to be as “super-asinine” as Keynes
thought they were, then the challenge that financial power poses to good
government has to be squarely faced.
This Onelli who runs Intel is another arrogant egotistical mobster who thinks he
knows it all. For Onelli to call the stimulus package a keynsian experiment means he
got the job as CEO of Intel because he is another ignorant mafia ass-hole. Then
you have another mobster running Loew's Jim Tisch. You got mobsters Mitt
Romney and Onelli parrotting the FOX News mafia ideology. Corporations are
sitting on billions. They become short sighted and only think of their own bottom
line which is what has caused the economic crisis. FDR got the economy out of the
great depression by taking the money the wealthy were sitting on and spending it,
unfortunately on the war. Germany has the world's highest labor costs in
manufacturing and the world's largest manufacturing export surplus relative to
gross domestic product. By lowering the value of the dollar you don't make
american products more competitive in an industry america no longer has. You just
make the german product more expensive. Thats why you need an industrial
strategy to preserve those jobs and protect those industries. Kuttner talks about
it below.During the great depression FDR tried to get the economy going without
increasing the deficit. None of the deficit neutral things he tried were a success.
I wrote a screen play on it somewhere above.
The Milton Friedman ideology that the well being of all is maximized when everyone
pursues their personal selfish interests isn't really true. It's just a self serving
ideology.
Alan Simpson is unfit to lead the Deficit Commission! He lashed out AGAIN at
Social Security defenders!
That is a head line from Moveon.org. I havn't commented on this commission
because i thought it was a joke. The presence of Alan Simpson indicates other
people are telling Obama what to do. There isn't a chance in hell Barack Obama
would pick Allan Simpson to head such a commission.
FOX News expresses a desire to replace Summers and Geithner when these people
where also employed by Bush. It simply means the mobsters told Bush and Obama
to hire all three of these people. It appears that just as the head of the central
bank is chosen by the powers that be so is the economic leadership selected by a
non-democratic process.
The government could create jobs by creating an agency to take the profit out of
health care, reducing medical errors and fraud. Raise taxes on the wealthy and
bring back social welfare that was cut under Clinton.
Playing Ourselves for FoolsThe trading system America sold the world is
killing U.S. industry. Here's a better way.
Robert Kuttner | January 25, 2010Amid a generally poisoned atmosphere of
vicious partisan combat, trade policy is unfortunately the last bastion of
relentless bipartisanship. I say "unfortunately" because there is
a stunning disconnect between America's trade policy and America's
national interest. Since World War II, administrations of both parties have
been promoting a design for global trade that displays a studied
indifference to the fate of U.S. manufacturing.U.S. trade negotiators
strive for an ever purer strain of free trade (combined with protection for
agriculture but not industry). But in the real world of industrial
competition, governments help their industries -- except for the American
government. Dissenters from the prevailing free-trade fantasy are
dismissed as protectionist, a word that ranks in the foreign-policy lexicon
slightly below terrorist.Why would the U.S. government, which has not
been shy about defending the nation's military security, be such a pushover
when it comes to trade? The story begins with the recovery of Europe and
Japan from World War II and with the logic of the Cold War. In that
era, the U.S. was industrially pre-eminent. We were building an alliance
system. One of the perquisites of membership in our system was access to
the huge consumer market of the United States. We were so far ahead
that it didn't matter if military allies like Germany or France, Korea or
Japan, practiced a somewhat different form of capitalism, namely state-led
economic development, or that contrary to the dogmas of laissez-faire,
state-led development actually worked.Moreover, we had our own vast,
unacknowledged system of industrial planning and research and development.
It was called the Pentagon. Even as American diplomats began venturing
cautious criticisms of "Japan, Inc." or "Deutschland, A.G.,
" and of flagrantly state-subsidized ventures such as the Airbus
consortium, U.S. industry was enjoying huge spillovers from technologies
created by military agencies such as the Defense Advanced Research
Project Agency (DARPA) and from the research spending of the National
Science Foundation and the National Institutes of Health that subsidized
our great universities as incubators of industry. We were hypocrites. We
had our own closet industrial policy -- though it was not coherent or
strategic, and it withered over time.Fast forward to the 1980s. By now,
the state-led industrial development of nations such as Japan is more than
a minor pinprick. Europe has recovered, with no small dose of planning
(actually initiated by an American named Marshall.) The Cold War is ending.
China is knocking on the door. Entire domestic industries are being
displaced. The role model for newly emergent nations is not the laissez-
faire model that the United States is promoting to the world but frankly
mercantilist forms of capitalism such as those of Korea and Brazil.So what
did the United States do? It would have made sense for our leaders to
realize that we were no longer in the cozy womb of 1950s industrial
supremacy. We might have initiated a new round of trade talks intended to
clarify which policies of industrial aid, applied research-and-development
assistance, wage subsidies, regional policies, domestic content requirements,
and other forms of mercantilism are legitimate tools of economic
development and which ones are predatory. We might have created robust
tribunals to identify and punish illicit behavior. We might have used our
still-substantial economic leverage to deny market privileges to flagrant and
chronic violators. We might have devised an industrial policy of our own.But
we did none of these. Instead, we doubled down on a fantasy of ever purer
free trade that nobody else really bought. But if we were willing to play by
the rules of an imagined free trade while others practiced state-led
growth, our trading partners were more than happy to indulge our delusion.
Why did America behave this way? The reason for this seemingly irrational
trade diplomacy was one part military goals crowding out industrial ones,
one part ideology, and one part the increasing influence of Wall Street.The
military part of the story is little appreciated. As the leader of an alliance
system, the United States promotes the idea that allied nations should have
common weapons systems, ideally American ones. But other nations have
demanded in return that before they agree to buy very expensive fighter
planes, we must agree that most or all, and in some cases more than 100
percent of the plane, be produced in the purchasing country. This is known
as domestic content. (How can more than 100 percent of a product be
made in the importing country? As part of the deal, the seller agrees to
buy other products from the customer nation. This is called an offset.
Boeing has found itself having to use or unload billions of dollars of gadgets
made in Poland or Korea that were part of offset deals negotiated by the
Pentagon.) Paradoxically, the need to do military deals for U.S.?designed
weapons has actually turned out to be a big export loser for U.S. industry,
for it has accelerated the transfer of production technology and the
offshoring of manufacturing to mercantilist competitor nations. These
military bargains, further, set a bad precedent that the U.S. government
acquiesces to content requirements that have come back to haunt us in
purely commercial deals.Then there is ideology, also known as neoclassical
economics. Within the economics profession, only a very self-confident (and
tenured) economist is willing to challenge the dogmas of free trade, and
when such challenges are ventured they are done with careful disclaimer
and politesse. The young Paul Krugman made his scholarly reputation by
very gently, and with impeccable algebra, questioning some of the
theoretical assumptions of free-trade theory. Laura Tyson, just before her
appointment as President Bill Clinton's chief economic adviser, published a
brave book in 1992, Who's Bashing Whom, cataloging all the ways that
foreign governments advantage their industries. But by the time Tyson took
office, she and such other advocates of more muscular trade diplomacy and
industrial policy as Robert Reich were marginalized by the Wall Street wing
of the Clinton presidency: Robert Rubin, Larry Summers, and their allies at
the office of the U.S. trade representative.Free-trade economists
provided intellectual cover, but the push for ever "freer" trade
mainly came from the U.S. financial industry seeking global reach and from
allied industries eager to produce in the cheapest possible location far from
all forms of domestic regulation. Rather than trying to create a trading
system that offered a level playing field for U.S. industry, the free-trade
establishment launched a broad expansion of its hapless efforts at being
laissez-faire to a skeptical world, in the so-called Uruguay Round of trade
negotiations, launched in 1986 and completed in 1994. Despite some weak
gestures toward greater symmetry, the Round was mainly aimed at global
deregulation.Ostensibly, the Uruguay Round aimed at breaking down "
non-tariff barriers," protecting intellectual property and above all
opening up trade in "services." Some of this sounded good. If
the global trading system came down hard on nations like Japan and Korea
whose manufacturers often pirated and copied American technologies, this
would be a blow against foreign mercantilism. But the new intellectual
property protections had little beneficial effect on U.S. industrial
innovations. With violations rampant, enforcement through the World Trade
Organization process was selective. Mostly, cases had to be tried in the
courts of the offending countries, which almost never ruled against local
manufacturers. But the new WTO rules did forbid preventing the U.S.
from imposing retaliatory sanctions through its unilateral intellectual-
property enforcement mechanisms, which had been permissible before the
Uruguay Round."Services" turned out to mean mainly financial
services -- the global financial bubble that crashed the economy. The real
teeth of the Uruguay Round had to do with promoting financial deregulation
and making it more difficult for nations to control their own financial
systems.The North American Free Trade Agreement of 1993, likewise, was
less about trade and more about making it easier for U.S.?based
multinationals and banks to take over Mexican companies and to set up
branch plants in Mexico for re-export to the U.S. It also had the handy
and deliberate side effect of defining a lot of ordinary health, safety, and
environment legislation as a violation to the free-market precepts of
NAFTA. A plan to extend this principle to all of the Organisation for
Economic Co-operation and Development member nations, the proposed
Multilateral Agreement on Investment, was averted in 1997, when word of
the scheme was prematurely leaked and a storm of protest killed the plan.
In 1999, when China was negotiating its entry into the WTO, it was a lot
weaker economically and financially, and the stench of the Tiananmen
massacre still lingered, the U.S. had far more diplomatic leverage than the
rather pitiful show of humility befitting a debtor nation displayed on
President Barack Obama's recent maiden trip to Beijing. But as the
memoirs of both Robert Rubin and Joseph Stiglitz confirm, that leverage
was used mainly to gain access for U.S. banks and insurance companies to
Chinese markets, not to require China to modify its system of predatory
industrial mercantilism.***Curiously, the high watermark of American
pushback against Asian mercantilism came during the Reagan era. Though
Ronald Reagan was ideologically a free-marketer, he was also a nationalist.
At the time, there was still a large rump group of U.S.?based
manufacturers such as Intel, Motorola, Boeing, Corning, and others, which
functioned as a lobby against foreign mercantilism. The military was also
alarmed that we might be falling behind in technologies critical to the
national defense. Reagan's purely economic advisers were traditional
conservatives, but his trade officials, led by Clyde Prestowitz, mounted an
offensive against foreign, most notably Japanese, mercantilist practices,
and actually made some headway. The pre-WTO 1980s were also the
golden age of DARPA, of the Plaza Accord that enlisted the cooperation of
other nations in reducing an overvalued dollar in a fashion that made U.S.
products more competitive without roiling money markets, and of the Super
301 provision of U.S. trade law, which allowed effective retaliation against
unfair foreign trade practices.But beginning in 1989 with George H.W.
Bush, and continuing under Clinton and George W. Bush, the U.S.
government largely ceased defending U.S. manufacturers against predatory
practices of foreign companies and states. Most American multinational
companies, abandoned by their government, have been left to make a
separate peace with foreign mercantilist practices.That means accepting
deals to shift their research, technology, and production offshore,
sometimes in exchange for explicit subsidies for land, factories, research
and development, and the implicit subsidy of low-wage and powerless
workers and weak environmental or safety requirements. At other times,
the terms of the deal are more stick than carrot: If you want to sell here,
the companies are told, you must manufacture here. Or even worse, you
can manufacture here but only for re-export to your own domestic market
and not for local sale.For the most part, American industry has accurately
concluded that the U.S. government could not care less where it
manufactures. This is true of both traditional low-skill industries, which are
often seen as logical candidates to move offshore, and the most advanced
industries as well. Prestowitz tells the story of an American entrepreneur
named Igor Khandros, a man who epitomizes why the U.S. possesses --
and squanders -- great competitive advantage.Khandros, an engineer, was a
refugee to the U.S. from what was then Soviet Ukraine. He worked at
IBM and eventually invented a brilliant new technology for testing
semiconductor wafers. By 2000, he was president of his own company,
FormFactor, which now has $500 million in sales, employs 1,000 people in
Livermore, California, and exports 80 percent of its products -- an all-
American success story.A Korean firm, Phicom, paid Khandros the ultimate
compliment. It stole his technology. Unable to get redress in the Korean
courts, Khandros enlisted Prestowitz's help and took his case to the U.S.
government, then in the process of negotiating a trade deal with the
Koreans. Our government told Khandros, however, that it had more
important issues with Korea. But a senior Commerce Department official
had a consolation idea -- Khandros could cut costs by moving his own
production to Asia!With government help like this, it's a small wonder that
U.S. firms just make their own deals with predatory states and move
offshore. With the exception of intellectual-property thefts, trade law
stipulates that a manufacturer who is the victim of foreign subsidy, or
dumping, or coercive terms of market access, has no direct legal remedy.
Rather, the plaintiff files a complaint with a body called the U.S.
International Trade Commission. The USITC makes a fact-finding and
recommendation, but then it is up to the president to decide whether to
retaliate. Invariably, the State Department and the Pentagon have other
fish to fry with nations as diplomatically important as China, Japan, Korea,
Brazil, or Germany. Cases in which our government grants a remedy, such
as imposing a tariff, are the exceptions, but such scattershot remedies
against dumping are no substitute for reform of the whole trading system
or for a U.S. decision to adopt an industrial policy of its own.***In this
fashion, we are losing industry after industry. The ranks of the companies
that behave like patriots have dwindled. Most big multinationals are now too
cozy with foreign mercantilists to put up much of a fuss anymore. It has
fallen to smaller companies, trade unions, and a few large firms still
committed to producing domestically, such as Corning and U.S. Steel, to
fight to continue production within the U.S.In the meantime, the promise
of an industrial renaissance spearheaded by the Obama administration's
investment in green energy or mass transit or high-speed rail or a smart
grid is now running up against the hard reality that there are just too many
products that we no longer make and too many foreign links in the
industrial supply chain. It will not do to have made-in-America mean only
the final assembly of rail cars or wind turbines while the engineering and
advanced manufacturing reposes abroad. We need a comprehensive
industrial strategy to reclaim manufacturing, and a companion trade policy
to make sure that foreign producers do not capture advantage by placing
thumbs on the scale.China is surely at one end of the mercantilist
spectrum, with its direct government subsidies of local industry and its
strategic government carrots and sticks for Western multinationals. Its
entire industrial system is a violation of the premise and spirit of open
trade. If the Western democracies had a realistic conception of their long-
term interest, they would add high tariffs to Chinese goods until China
began behaving like a normal commercial nation. The proceeds could be used
to rebuild our own industry.However, there are other nations that practice
what can be called a kind of soft mercantilism. And much of what they do
is less to be deplored than imitated. The chart opposite lists foreign
industrial strategies that are arguably predatory and compares them with
other tactics that could be considered legitimate tools of development.
Some of the practices, such as China's use of artificially cheap capital and
outright subsidies to develop new industries, could be considered legitimate
domestic development tools but predatory in the context of trade. Tariffs
could be fairly imposed to offset the anti-competitive effect on companies
that enjoy no such government aid. That would also push China toward
increasing its domestic consumption and growth, rather than enabling
Beijing to base its development on a beggar-my-neighbor strategy of
chronic trade surpluses.Japan and Korea rank somewhere in the middle of
the list. Both countries industrialized by showing government favoritism to
domestic industrial groups that were almost impossible for foreign
companies to break into. Both showered favored industries with artificially
cheap bank and public capital. Both used a thicket of subtle barriers that
made it hard for exporters to crash their markets, and Korea maintains
selectively high tariffs. Taiwan, generally considered a more market-
oriented country, launched its information-technology industry with a state-
led program, in which the Taiwanese government acquired the necessary
technology through the creation of two government-funded research
institutions and presided over a planning process of nominally private firms.
Today, this small nation is the world's dominant manufacturer of laptops,
motherboards, computer monitors, and a great deal more. According to Dan
Breznitz, author of the definitive English-language book on the Taiwan
miracle, Innovation and the State, "The decision of the state to focus
its attention on building a local supplier network for [multinational
corporations], coupled with the way it constructed its capital markets,
paved a development path for an IT industry."A good example of soft
economic nationalism is the research and development, industry, and labor
subsidies of the European Union and member nations such as Germany and
Denmark. Remarkably enough, Germany has the world's highest labor costs
in manufacturing and the world's largest manufacturing export surplus
relative to gross domestic product. Germany doesn't have a planning czar,
but it has a tacit understanding among government, industry, and labor
that the whole system works to keep high-end manufacturing in Germany.
An elaborate apprenticeship system and a program of wage subsidies helps
assure the high productivity of German workers in return for their high
wages. The German federal government and state governments also have
subsidized the creation of new, green industries and used regulatory policy
to create domestic demand for their products. Some free-trade purists
would argue that subsidizing workers is a covert form of subsidizing
industry, and they would be right. The policy is sensible nonetheless.I
conclude from all of this that trade policy and industrial policy are
inextricably linked; that we need a radically different approach to trade,
so that the global trading system has a single set of rules rather than a
maze of double standards; and that we need standards to differentiate
legitimate development policy from predation, as well as buffers to protect
our legitimate interests when other nations pursue predatory policies. And
just as we need to drop the fantasy that other nations admire our fantasy
of laissez-faire, we need to jettison the delusion that industrial policy
doesn't work. Judging by the success of Japan, Korea, China, Brazil,
Taiwan, and the U.S. at an earlier stage of our history, it works just fine.
All that remains to accomplish this is to wrest control of policy-making
from Wall Street, so that Main Street can have healthy industries once
more.Robert Kuttner is co-founder and co-editor of The American Prospect
magazine, as well as a Distinguished Senior Fellow of the think tank Demos.
He was a longtime columnist for Business Week, and continues to write
columns in the Boston Globe. He is the author of Obama's Challenge and
other books. For more read our "about the editors" page
Navigating the Jobs Crisis: Old Mistakes Die Hard
Monday, 11/23/2009 - 9:18 am by James K. Galbraith | 6 Comments
In the wake of the highest unemployment rate in 25 years, the Roosevelt
Institute asked historians, economists and other public thinkers to reflect
on the lessons of the New Deal and explore new, big ideas for how to get
America back to work. James K. Galbraith warns that without a bold
change in course, the jobs problem won’t go away.
I’m tempted to say that the United States is plainly unable to cope with
the economic crisis in a serious way. The barriers are philosophical,
procedural, and constitutional. So long as economic thinking is mired in a
world that disappeared with the collapse of the Bretton Woods system in
1971, so long as any action requires 60 Senate votes, and so long as
political capital erodes from the start of a fixed four-year presidential
term, we’re stuck.
Technically it would have been fairly easy, 10 months ago, to get this bus
back on the road. There could have been open-ended fiscal assistance to
stop the budget hemorrhage of the states and cities. There could have
been a jobs program and effective foreclosure relief. There could have
been a payroll tax holiday. There could have been a strategy for sustained
massive effort on infrastructure, energy and climate. There could have
been prompt corrective action to resolve, instead of coddle, the worst of
the banks.
I mostly don’t blame President Obama; he and his team went as far as
they felt they could. I blame the head-in-the-sand politicians in Congress,
the over-optimistic forecasters, the half-educated press, and the power of
the financial lobby. I blame the avatars of fiscal virtue, the public debt
scare-mongerers, the astrologers for whom thirteen significant digits (a
trillion) for the stimulus package was just too much. I blame the Senate,
which hands the balance of power to small states at the expense of
disaster areas like California, Florida and New York. I do blame the Bush-
Obama financial policy team, who either believed that “credit would flow
again” if you stuffed the banks with money, or knew that it wouldn’t.
The Bretton Woods point deserves another word. According to the system
established in 1944, the U.S. current account deficit — and by extension
our public budget deficit — was limited by an obligation to exchange foreign-
held dollars for gold. Richard Nixon abolished that arrangement. Since the
early 1980s, the world has held the Treasury bonds that the U.S. chose to
issue. The system is fragile. But so long as it lasts, it doesn’t discipline our
budget (and if it broke, we could replace it). Low interest rates prove this:
despite all the dire predictions, there is no difficulty in placing Treasury
debt. Hence, we are free to pursue high employment, if we choose to do it.
Can anything be done now? Well yes, technically: the same steps that could
have been taken in January 2009 could be taken in January 2010. But they
won’t be, because for the moment we are seeing the inventory bounce, a
productivity surge, real GDP growth, and other “good signs.” So we’ll be
told to wait, to be patient, and to make sure we don’t buy what we can’t
afford. And double-digit joblessness will linger on, breeding frustration and
anger — perhaps all the way through to the mid-term elections. After
which, what will be possible is anyone’s guess.
Sorry to be defeatist - it’s the way I feel. Prove me wrong.
James K. Galbraith is the author of The Predator State: How
Conservatives Abandoned the Free Market and Why Liberals Should.
Jobless Claims Rising, Manfacturing Slowing, GDP Shrinking
Recovery Summer Hits the Rocks
By MIKE WHITNEY
At the time, the idea of a nationwide "Recovery Summer" tour must have
seemed irresistible. After all, the stock market was inching its way higher
every week and there were convincing signs that the economy was on the
rebound. What better time for President Barack Obama to barnstorm his
way across the heartland singing praise for his $787 fiscal stimulus
package?
All of that has now changed.
Jobless claims are rising, manufacturing is slowing, housing sales have fallen
off a cliff, GDP is shrinking. The whole notion of declaring "mission
accomplished" over the recession seems ridiculous, which is why "Recovery
Summer" has turned into a public relations nightmare. The economy hasn't
reached "escape velocity" as economics czar, Lawrence Summers boasted
earlier in the year.
It's is barely limping along and the prospect of another slump looms larger
by the day. Obama's woefully undersized stimulus is quickly evaporating
leaving a gigantic hole in spending that will inevitably lead to another
contraction.
That's what makes the whole "Recovery Summer" pitch so pathetic and
shows just how out-of-touch Obama's economics troupe really is. The
latest downturn was entirely foreseeable. Obama needs to get rid of the
Wall Street suck-ups and build a new team
This is from the New York Times for Monday, August 23:
"Investors withdrew a staggering $33.12 billion from domestic stock market
mutual funds in the first seven months of this year, according to the
Investment Company Institute, the mutual fund industry trade group...If
that pace continues, more money will be pulled out of these mutual funds in
2010 than in any year since the 1980s, with the exception of 2008, when
the global financial crisis peaked....
“On Friday, Fidelity Investments reported that a record number of people
took so-called hardship withdrawals from their retirement accounts in the
second quarter. These are early withdrawals intended to pay for needs like
medical expenses." ("In Striking Shift, Small Investors Flee Stock Market
Graham Bowley, New York Times)
Retail investors are saying "enough" and heading for the exits. The market-
flight has gone on for some time, but it's gained momentum since the May
6, "Flash Crash" when the Dow Jones plunged nearly 1,000 in less than an
hour. That really put the stampede in motion. A late-day rebound did nothing to
allay investor fears or convince traders that the problems had been fixed. The
trust is gone. Investors feel that the new architecture of the markets has
fundamentally changed and that innovations like high-frequency trading, dark pools
and complex derivatives have stacked the odds against them, making it impossible
for them to succeed. That's why they continue to leave in droves. They've lost
confidence in the markets.
Who has confidence in these markets? Who believes that a well-informed investor
that has reasonable expectations of future performance can compete with high-
speed speculators? No one. That's why more money is being stuffed into
mattresses than into stock funds.
Chief enabler of fraud
The Fed's task is to perpetuate the "free market" fraud for as long as possible.
That's why the Fed has pushed for "regulatory forbearance" so that insolvent,
capital-starved banks can conceal their losses from the public. The Fed has
transferred $1.7 trillion in toxic securities and non-performing loans from the
banks to its own balance sheet to preserve the illusion that "all is well" and that
asset prices will eventually return to precrisis levels. It's all smoke and mirrors.
Securitization, derivatives trading, and repo market activity are all based on the
same principle, which is, to give the financial giants the ability to generate windfall
profits on microscopic morsels of capital that have been leveraged into bloated
debt-balloons. The banking system is not funded on loans made from deposits, but
through the exchange of high-risk securities with shadow banks in the repo
market. This is the system that crashed after Lehman Brothers collapsed in
September 2008. The Fed and Treasury have committed trillions in public funds to
stitch this wobbly, crisis-prone system back together to preserve the profit-
centers of their primary constituents--the big banks and Wall Street. The system
itself is a scam designed to shift wealth from the middle class to under-capitalized
financial raptors.
Is it any wonder that confidence is at an all-time low?
Mike Whitney lives in Washington state. He can be reached at fergiewhgitney@msn.
net
Kathleen Reardon
Professor, USC Marshall School, and author of 'The Secret Handshake' and
'Childhood Denied'
Posted: August 27, 2010 11:34 AM
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The Precarious Genius of the Middle Class
What will America become if we have to rely solely on the wealthy to provide
medical, scientific, engineering, manufacturing, art and social inventions?
Genius is not confined to any socio-economic group. It can emerge anywhere. Yet
poverty closes most doors to the development of genius. Shut down the American
middle class and where would genius arise? What route would it take to its
fruition? Genius would need to come largely from the wealthy.
The upshot of a two-tier America - the wealthy and everyone else scraping by -
will be the death of American genius.
If this had been the case during Jonas Salk's childhood, where would we be? The
son of Russian immigrants lacking formal education, he was encouraged to become
the first of his family to attend college? The rest is history and polio became a
disease of the past.
What about Thomas Edison, the seventh child of middle-class parents? His
educator mother saw in him a talent that others considered mere oddity, and she
was able to foster that talent with home schooling. During Edison's life, necessity
became the mother of invention as he in turn sought to support his ailing parents.
His genius, enabled by a middle-class upbringing, combined to change the course of
mankind.
If we had to rely solely on wealthy families for those who have shaped America,
would we not be much less a nation than we are today? Georgia O'Keefe, Leonard
Bernstein, Maya Angelou, President Obama, President Clinton, Secretary of State
Hillary Clinton, Betty Friedan, Bella Abzug, General David Petraeus, Supreme Court
Justice Sonia Sortomayor, Michael J. Fox, Steve Jobs, Ken Burns, Margaret Mead
and so many others would not have influenced art, music, law, society, human
behavior research, and technology to the extent they did were it not for the
ability of those without great wealth to change the world.
It is difficult to precisely define the parameters of the middle class. And certainly
the upper echelons of the American middle class offer a greater boost to the
flowering of genius. But without this range and the dreams it enables, this nation
can only suffer.
Why then would we stand by idly while the very wealthy and their big-business
entities buy off our senators and congressmen, as they manipulate and dumb down
mass media to keep Americans out of touch, and their shills call for "deficit
reduction" efforts to cut Medicare and Social Security while keeping extraordinary
tax breaks and loopholes for the very rich intact?
How do we justify turning a blind eye to how the U.S. economy remains managed
by the very people who brought us the catastrophic and continuing failure of the
financial and mortgage markets? How can we allow the "too-big-to fail" banking-
bailout slights of hand to continue?
Can we afford to passively watch efforts to keep a politics-averse champion like
Elizabeth Warren from actually protecting "consumers"?
Why do we listen to propagandistic pundits warn against redistribution of wealth
when the real redistribution over the last 30 years has been the transfer of
middle-class American dollars into the pockets of the very, very rich?
What benefit is there to remaining quiet while the quality of public education
deteriorates? While alternate forms of energy barely blip the surface of our
energy policies and are actively opposed? While the infrastructure of the U.S. not
only fails to lead the world or even advance competitively, but is overburdened and
crumbling?
As if surreptitious forms of destroying the middle class weren't enough, in Third
World America Arianna Huffington describes another egregious way that the
depletion of wealth for all but the few happens in broad daylight:
The corporate class games the system -- making sure its license to break the rules
is built into the rules themselves. One of the most glaring examples of this
continues to be the ability of corporations to cheat the public out of tens of
billions of dollars a year by suing offshore tax havens. Indeed, it's estimated that
companies and wealthy individuals funneling money through offshore tax havens are
evading around $100 billion a year in taxes -- leaving the rest of us to pick up the
tab.
And yet, government initiatives that benefit people whose lives are shattered or in
danger of being so is labeled "socialism." Apparently it's okay in America today to
make the rich richer, but don't dare give a hand up to hard working people who
are barely getting by.
Unless we heed the signs of increasing greed and inhumanity among the most
powerful entities in America, and fight it at every turn, America is heading toward
a day when it will no longer be the land of opportunity for those with little money,
nor the protector of life, liberty and the pursuit of happiness, nor a place where
dreams can come true for even the poorest of children. Rather it will become the
killing fields of its own native genius, the dismantler of hope and the enemy of its
own promise.
Dr. Reardon also blogs at bardscove.
A Public Plan for Connecticut?
Despite political and financial hurdles, Connecticut is moving forward with its own
state-level public option.
Joanne Kenen | August 2, 2010
Connecticut could become the first state to offer its own public-plan option, even
before most of national health reform unfolds.
After several years of debate about expanding coverage, a couple of gubernatorial
vetoes, and assorted false starts, Connecticut in 2009 created "SustiNet" -- a
framework for what could become a state insurance plan as early as 2012, two
years before the state's insurance exchange is up and running as part of national
reform. Once the exchange is in place, individuals and small businesses will be able
to choose between SustiNet and one of the commercial health plans.
Though approved in concept by the state Legislature, SustiNet at this point is only
a concept. It has a board, a cadre of volunteer analysts, and task forces as well
as support from foundations, advocates, and Democratic legislators. But the
commission must go back to the Legislature next year for final approval -- and
funding -- in an environment that is fiscally challenging and politically uncertain.
The race to succeed Gov. Jodi Rell, a moderate Republican who is not seeking re-
election, is competitive, and the Legislature, which passed the SustiNet bill and
then overrode Rell's veto, could have a different composition post-November. For
political or economic reasons, SustiNet could be delayed or scaled down. But state
Rep. Chris Donovan, the speaker of the Connecticut House, says the idea has
broad public support. The message he has been relaying around the state, he says,
is, "Better plan, costs less. Like that beer commercial: tastes great, less filling."
The vision is of a self -- insured public health -- insurance plan with an affordable
sliding scale of premiums. It would bring in the state's active and retired
employees, Medicaid, the children's health program, municipal workers, nonprofits,
the uninsured, the underinsured, small businesses, and other programs for low-
income adults, Donovan says. (Not all groups would have identical benefits; state
employees, for instance, may have their own plan under the SustiNet umbrella.)
The Legislature must decide whether to open the public plan to all these groups at
once or to phase them in. One possibility is to start with groups already covered in
state plans and wait for the federal subsidies that will become available in 2014
before bringing in other groups.
"We're building a public option, using in part resources we are already expending on
health care," says Kevin Lembo, the Connecticut state health-care advocate and a
co-chair of the SustiNet Health Partnership Board of Directors. But when asked
how many political and economic potholes still lie in SustiNet's path, he replies: "A
million."
Connecticut is a relatively affluent state with fairly generous health programs for
the poor. Its 9.7 percent uninsured rate is below the national 15.4 percent 2008
rate. But unemployment has risen, and the state faces multibillion-dollar budget
gaps. Nonetheless, in June Connecticut expanded its coverage of low-income
childless adults by becoming the first state to tap into federal funds made
available under an optional Medicaid expansion provision of the federal health-
reform law. State officials estimate 45,000 people will gain coverage.
The SustiNet bill was tailored in 2009 with federal legislation in mind. The thinking
was that if national reform collapsed in Washington, Connecticut could move on its
own, like neighboring Massachusetts. If national reform passed, SustiNet could be
tweaked to fit, says Janet Davenport of the Universal Health Care Foundation of
Connecticut, which helped develop SustiNet. Tweaking has commenced, and the
Legislature could take up board recommendations as early as January 2011.
Lembo and other advocates note that SustiNet is not just a coverage mechanism.
It was conceived, too, as a catalyst for delivery-system reform, aiming to improve
quality while restraining costs. Various task forces are working on creating or
expanding medical homes and chronic -- disease management, electronic medical
records, incentives for evidence-based medicine, and public-health initiatives on
obesity and tobacco. Addressing racial and socioeconomic health disparities is also
an explicit goal. Lembo said the public option could end up covering about 1 million
people out of Connecticut's 3.5 million, meaning it could have a big ripple effect on
health-care delivery and public health throughout the state.
Health Reform 2.0
If reform is to succeed, progressives will have to fight for a stronger government
role, including a public option.
Jacob S. Hacker | August 17, 2010
Marchers demand the public option in health-care reform. (Flickr/Steve Rhodes)
Sen. Tom Harkin put the point well when he described the health bill as a "starter
home." What Harkin neglected to mention is that the home isn't built yet, and the
construction zone is in the path of a hurricane -- the fast-approaching storm of
runaway health costs and hard-core conservative opposition.
In the face of these challenges, reformers have three great priorities:
implementing the law, protecting and defending it from the already-mounting
attacks, and renovating and improving Harkin's "starter home" to make it a
sustainable structure. The next health-care battle will require organization,
narrative, and strategy at least as much as the last did. And this time, reformers
will need to call plainly for a greater government role -- armed, if they take their
three big tests seriously, with concrete examples of government getting things
right.
Wilbur Cohen, the architect of the last landmark reform law, liked to say that
policy is "1 percent inspiration and 99 percent implementation." But Cohen's
Medicare was a model of simplicity compared with the current law. To overcome
deep-pocketed interests and reassure a skeptical public, Cohen's heirs largely
eschewed the simple approach to expanding coverage embodied in Medicare: that
is, expanding public insurance. (The big exception, of course, was the public-
insurance option, which didn't make it into the law but remains vital.)
Instead, the law is a series of big patches to our patchwork system, and primary
responsibility for most of them resides with the states. While the state lawsuits
under way are almost certain to crumble, that will not stop states from fumbling
the establishment of the exchanges, the regulation of insurers, or the expansion of
Medicaid. In many states, the wisest course would be to have the feds take on the
difficult task of creating an exchange. But wise advice is not always heeded.
Reformers should be pressing state leaders to enlist the assistance of the federal
government and to craft cross-state solutions in less populated regions.
Rest assured: Insurers and providers will be doing everything they can to shape
what states do. Just because they received major concessions doesn't mean they
won't push for even more. Reformers, backed up by the federal government, will
need to push back.
Reformers also need to recognize that the polarized partisan battle did not end on
the night of March 21. It simply entered a new phase -- from ground warfare to
guerilla battle.
The first rule of guerrilla warfare is to strike where least expected. The big
fights over the individual mandate are mostly a diversion from the fateful struggles
to come. These skirmishes will concern the greatest fault line of contemporary
American politics -- financing.
Financing is the soft underbelly of health reform. The health-care bill relies on a
grab bag of revenue sources. Over the long term, if costs grow more quickly than
these sources, federal deficits and the pressure to cut subsidies for coverage will
grow. Both outcomes would undermine the ability of reform to achieve its promise
and public confidence in the law.
Reformers should not underestimate the power of the GOP anti-tax crusade -- or,
for that matter, the party's anti-regulatory zeal. The tax provisions in the bill will
be an inevitable target, and if Democrats lose the White House, a vulnerable one.
Also in the crosshairs will be the interlocking requirements on employers and
insurers designed to ensure that public financing is backed up with employer
contributions and insurance-company restraint. We can also count on Republicans to
continue to oppose changes in Medicare designed to build on its past success in
restraining costs (though, fortunately, most of these changes are out of Congress'
hands).
The sad truth is that conservatives need to win only one critical guerilla battle to
undermine the law. Reformers need to win every one.
***
If reformers play just defense, however, they will be stuck protecting a law that
has two serious problems: It is not designed to ensure that everyone is covered,
and it is not capable of seriously reining in medical inflation.
Moving toward seamless coverage is the easiest fix, at least in policy terms. In
our predominantly employment-based system, there are only two routes to broad
guaranteed coverage -- requiring that employers provide coverage or contribute
toward its costs, on the one hand, or severing the financial link between
employment and health insurance by raising the funds for subsidized coverage
through alternative means, on the other.
The current law is an uneasy hybrid of these two approaches: (weak) requirements
on the largest employers but none on those with fewer than 50 workers and no
guarantee that those not covered through employment will receive insurance through
Medicaid or the exchanges. From a policy standpoint, the creation of a new funding
stream outside of employment -- say, a value-added tax -- has a lot going for it.
Politically, however, the most promising route may be to build on the existing law
to fill in its gaps. And the key to doing so is to make it easier and more attractive
for employers, particularly small employers, to buy coverage through the
exchanges. After all, the exchanges will provide a much broader choice of plans,
at better rates, than small employers can gain on their own.
None of this will matter much, however, if costs aren't contained. And here we
reach the weakest foundation of Harkin's starter home. All the reform ideas that
would have provided big direct savings -- from serious administrative streamlining
to explicit review of private premiums to the public insurance option that I have
long championed -- were either sidelined or neutered as they ran the gauntlet of
affected interests. Indeed, the public-option debate was a case study in why cost
control is so hard: Conservative Democrats first effectively stripped out the tools
of cost control that would have allowed the public option to compete aggressively
with private insurers. Then, they complained that the public option wouldn't control
costs!
No one who has studied the medical market in recent years can fail to recognize
the unhealthy consolidation that has taken place. An ironic coda to the public
option's demise was the release this February of the American Medical
Association's latest report on insurance competition. Its verdict? A "near total
collapse of competitive and dynamic health insurance markets," with more than half
of metropolitan areas dominated by a single insurer enjoying at least half the
market (up from 40 percent of areas in 2008). Of course, what the AMA neglected
to mention is that massive consolidation has also taken place on the provider side,
with most metropolitan areas dominated by a single hospital or flagship system.
Comparative-effectiveness research, changes in Medicare payments, encouraging
greater competition through exchanges, even taxing high-cost health plans -- none
of this will seriously restrain costs without the creation of countervailing power to
pressure consolidated insurers and provider systems to change their prices and
practices. And the only place where this power can ultimately come from is the
public sector. For better or worse, the ultimate fate of reform hinges on
progressives' efforts to rehabilitate American government.
***
Reformers won the war in 2010, but they lost the battle for public opinion:
Americans were convinced that reform was needed but not that government could
do it. Reformers cannot afford to lose the second battle for public opinion.
Winning will require organization and narrative. It will also require that reformers
coalesce around a broad strategy, as they did in the pivotal years leading up to
March 2010. That strategy should have two prongs: the case against insurers, and
the case for government.
Private insurers are partners in the new law, but their cooperation will not be
automatic, and a tough approach to insurers is the single most important
precondition for long-term success. The largest private insurance companies are a
gift to populist critics that just keeps on giving. To put the law in place, federal
and state officials need to keep putting insurers in their place -- prominently and
without apology.
But making a case against insurers is not enough to justify positive government
action. And continuing government action is essential if reform is to succeed.
Reformers surely need to make the case that the law passed was in Americans'
interest. But they should not be afraid to also point out where the law needs to be
strengthened, especially when that also means pointing out where private insurers
continue to fall short. Just as Medicare's early inability to control costs colored
perceptions of the program for decades, public and elite views of the current law's
effects are likely to gel before the coverage provisions of the law take full effect
in 2014.
In the process, reformers should revive the public option. A simple Medicare-like
public plan could build on the provisions of the law that create at least one national
nonprofit plan. Regardless of the near-term political prospects, the public option is
a clear and simple goal that links concerns about health security, the affordability
of coverage, and the nation's larger fiscal challenge. It is popular. It will save
serious money. And it can function as a sword of Damocles: If insurers fail to live
up to the obligations of the law and tackle rising costs, they will face the only
form of accountability that really matters in the private market -- losing
customers.
The passion that pushed health-care reform to the top of the political agenda
should not be sidelined by technocratic concerns or triumphant complacency. In
politics, sometimes the best defense is a good offense.
Jacob S. Hacker is Stanley Resor Professor of Political Science at Yale University,
is the author, with Paul Pierson, of Winner-Take-All Politics: How Washington
Made the Rich Richer -- and Turned Its Back on the Middle Class (2010).
Obama’s Delusions
________________________________________
The Economy and Iraq
By Shamus Cooke
Monday, August 23, 2010
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If you’ve listened to recent speeches the President has given about the economy
and the Iraq war, you’d think that two of the biggest social issues facing working
Americans are improving. But facts are stubborn things.
Take for example the numbers of jobs lost in the last two months: 221,000 in
June, 131,000 in July.
Instead of taking the drastic measures needed to stop the continued hemorrhaging,
the President had this to say on August 5th:
“Even though it's going to take years to repair all the damage caused by this
recession, I am absolutely convinced that this nation is finally headed in the right
direction. Our economy is growing again. We are adding jobs again [!]. America is
moving forward again…”
Since Obama has access to the above job numbers, we must assume that he is
either delusional or lying. We also cannot attribute this comment to a one-time slip
of the tongue, because Obama has essentially made the same speech several times
while promoting Democratic candidates nationwide.
Contrary to his recent statements, Obama has not improved the economy. He has
overseen a catastrophic destruction of jobs on a state-by-state basis, in part due
to state budget crises and the pathetic lack of response on the national level:
Obama’s first stimulus was under-funded and misdirected (too much emphasis on
tax cuts for businesses, etc.), while Obama’s recent “stimulus”— only $26 billion —
is simply farce.
The state budget crises are not over; many states are projecting long-term
deficits in the billions of dollars that, if left untouched, will contribute further to
the massive unemployment that continues to drive down wages for the employed
workers.
In fact, the U.S. economy is in such sad shape, it was recently announced, that
call center workers in India now make a similar wage to their U.S. counterparts,
while autoworkers are being pressured to make 50 percent wage concessions.
When it comes to the Iraq war, Obama is equally off kilter. He recently announced
the end of “combat operations” in Iraq, which we are meant to interpret as
“mission accomplished.”
Meanwhile, we are told, 50,000 troops will stay in Iraq — along with unknown
thousands of “private contractors”(mercenaries) — capable of conducting “counter-
terrorism operations.” But the war has been advertised as one giant counter-
terrorism operation for years, meaning, that very little has changed.
Obama’s Bush-style war propaganda will do nothing to impress the Iraqis, who still
live in a war-torn hell-hole, with over a million dead, millions of refugees having
fled the country, while the remaining inhabitants are left to rot in a destroyed
economy lacking widespread access to jobs, water, sanitation, electricity, etc, etc.
Of course, the troops leaving Iraq will simply be shifted to Afghanistan, while the
troops staying in Iraq will be there to prop up a government that functions in
limbo, lacking all authority outside the violence it learns from the remaining U.S.
“trainers and advisors.” Middle East Journalist Robert Fisk adds:
“[The U.S.] injected Iraq with corruption on a grand scale. They stamped the seal
of torture on Abu Ghraib — a worthy successor to the same prison under
Saddam's vile rule… They sectarianised a country that, for all its Saddamite
brutality and corruption, had hitherto held its Sunnis and Shias together.”
In short, the U.S. invasion of Iraq has made things worse for Iraqis, and Obama
is selling the war as a victory as he recklessly dashes over to Afghanistan to
repeat the atrocity.
The hundreds of billions of dollars that Obama will use to wage war in Iraq and
Afghanistan could just as easily go to create jobs in the United States: public
works could be financed by the government, as they were during the last
Depression, that directly create jobs. The war money could also go to states
suffering massive cutbacks in social services and public education. If working
Americans sit idle, nothing will change, since power concedes nothing without a
demand.
On October 2nd workers will directly confront the Obama administration over the
above policies. Hopefully, these nationwide demonstrations, organized by the One
Nation coalition, will begin a movement that challenges the corporate agenda we’ve
suffered under for decades. Some in the coalition will attempt to channel the
momentum to elect Democrats in November; the majority will demonstrate to
challenge the policies of both the Democrats and Republicans. For more info: www.
onenationworkingtogether.org
Shamus Cooke is a social service worker, trade unionist, and writer for Workers
Action (www.workerscompass.org). He can be reached at shamuscook@gmail.com
Paul Davidson
Making dollars and sense of the U.S.
government debt
Abstract: This paper explain why, given Keynes’s General Theory, worries over
the size of the government’s national debt per se is foolish. It is more important
to educate politicians and the public that government fiscal policy should be designed
to make sure that aggregate market demand will produce sufficient profits
so that entrepreneurs will hire all domestic workers willing and able to work.
Empirical evidence is provided to demonstrate the correctness of this concept
of fiscal policy of the balancing wheel for full employment effective demand.
Key words: deficits, national debt.
No economic topic encourages more political demagoguery than the
“unsustainable” national deficits that face the Obama administration as
it tries to extricate the economy from this Great Recession that began
in 2007. Even President Obama has appointed a commission to develop
a plan to assure a reduction in future deficits by lowering government
expenditures or raising taxes.
A sage once said, “Those who cannot remember the past are condemned
to repeat its errors.” So let us review the past history of the national debt
to make sure we avoid its errors and repeat its successes.
Is the national debt too large? In 1790, the newly founded U.S. government
assumed the debts that had been incurred during the Revolutionary
War. Thus, from the very beginning, the U.S. national debt was
approximately $75 million. In 1835, President Jackson reduced the debt
to close to a zero balance. By 1837, however, the economy went into a
steep recession that lasted approximately six years and the national debt
increased dramatically. Since then, the U.S. government has always had
a significant outstanding debt.
Paul Davidson is editor of the Journal of Post Keynesian Economics and author of
The
Keynes Solution: The Path to Global Economic Prosperity.
10 editors corner.indd 663 4/25/2010 2:51:16 AM
664 JOURNAL OF POST KEYNESIAN ECONOMICS
During World War I, the national debt increased substantially from approximately
$6 billion in 1916 to over $27 billion in 1919. The prosperous
decade of the “roaring twenties” saw a decline in the national debt
as tax receipts exceeded government spending. By 1929, the total debt
had been reduced to $16.9 billion. This 1920s experience indicates that
when the private sector is spending sufficiently to buy all the products
that industry can produce in a fully employed economy, then there is no
need for the government to deficit spend merely to maintain a prosperous
economy. The 1920s prosperity, however, was partly the result of
significant bubbles in the stock market and in real estate. (Shades of the
dot.com bubble of the 1990s and the housing bubble of early 2000s.)
In 1929, private spending suddenly slowed causing a devastating drop
in business profits. Unemployment rose rapidly as the United States
entered the Great Depression. Tax revenues fell from $4 billion in 1930
to less than $2 billion in 1932. When Roosevelt took office in 1933, the
national debt was almost $20 billion; a sum equal to 20 percent of the
U.S. gross domestic product (GDP).
During its first term, the Roosevelt administration ran large annual
deficits between 2 and 5 percent of GDP. By 1936, the national debt had
increased to $33.7 billion or approximately 40 percent of GDP. Many
“experts” of that era said disaster awaited the nation if the government
continued to deficit spend and thereby burden future generations with this
huge debt. Accordingly, as a part of his reelection campaign, Roosevelt’s
fiscal year 1937 budget submitted to Congress in 1936 cut government
spending dramatically. As a result, in 1937, the economy fell into a steep
recession. Tax revenues declined and the national debt increased to $37
billion. The government resumed significant deficit spending in 1938
and the economy quickly recovered. By 1940, the economy had grown
substantially while the national debt rose to $43 billion.
When the United States entered the war in 1941, the fear of deficits and
the size of the national debt were forgotten. The important thing was to
defeat the enemy. In the war years from 1941 to 1945, the GDP doubled
while the national debt increased by more than 500 percent as Roosevelt
financed much of the war expenditures by government borrowing. By the
end of the war in 1945, the national debt had increased to $258 billion
and was equal to approximately 120 percent of GDP.
Rather than bankrupting the nation, this large growth in the national
debt promoted a prosperous economy. By 1946, the average American
household was living much better economically than in the prewar
days. Moreover, the children of that Depression–World War II generation
were not burdened by having to pay off what then was considered
10 editors corner.indd 664 4/25/2010 2:51:16 AM
Making Dollars and Sense of the U.S. Government Debt 665
a huge national debt. Instead, for the next quarter century, the economy
continued on a path of unprecedented economic growth and prosperity
with the Eisenhower administration launching the biggest public works
project—the interstate highway system—and the Kennedy–Johnson
administration spending large sums on sending a man to the moon and
the escalating Vietnam War. At the same time, the inequality in the distribution
of income was significantly narrowed. It was the golden age
of economic development for the United States as the rich grew richer
while the poor gained even more in a rapidly rising level of income that
created a large American middle class.
As a child of the Depression and a young teenager during the World
War II, I have never felt burdened by the huge government deficits that
accrued due to government spending during the Great Depression and
the war that followed. The legacy that the Great Generation who were
adults during the depression and the war left to their children was an
economy of abundance and prosperity. I inherited an economy that made
finding a good job easy for me and all of my cohorts and provided excellent
opportunities to improve our living standards. If this is burdening
children and grandchildren, I hope the current generation can create such
a “burden” for their progeny.
The moral of this history of the national debt and the economy during
the Great Depression and World War II is that we have nothing to fear
about running big government deficits when, during a recession with
significant unemployment, the federal government is the only spender
that can take the responsibility to sufficiently increase the market demand
for the products of our industries and thereby maintain a profitable entrepreneurial
system. For government to spend less in the hopes of keeping
down the size of the national debt will cause market demand to remain
slack, thereby impoverishing both our business firms and our workers.
The idea that capitalism works best when spenders cause healthy growth
in market demands and thereby generate profits and jobs for the community
was the basic message of Keynes theory.
This was clearly demonstrated when government spending increased
during the years 1933–36 and 1938–45. When Roosevelt cut spending
in 1937, the sharp recession showed that at that stage of recovery, no
other spenders were willing or able to take over from government the
role of generator of market demand and profits for American businesses.
Had Roosevelt, in 1938, continued on the path of keeping government
spending in check in order not to increase the total national debt, the
result would have been to propagate the poorly performing economy
of 1937. When the war broke out and no further thought was given to
10 editors corner.indd 665 4/25/2010 2:51:16 AM
666 JOURNAL OF POST KEYNESIAN ECONOMICS
the size of the national debt, government spending quickly pushed the
economy to a profitable full employment status. Keynes’s ideas that the
role of government fiscal policy was to make sure that the total demand
for goods and services provided profit opportunities to encourage business
firms to hire all workers who wanted a job was validated by this
historical record.
Business firms will hire more workers only when they expect the market
demand for their products is increasing. Today, who are these buyers who
will be willing to buy significantly more products from factories located
in the United States in order to end this Great Recession? Clearly households
suffering from high unemployment, decreasing market values for
their homes, large credit card debt, and shrinking pension funds are not
likely to rush to buy significant more goods and services. Entrepreneurs
with existing excess facilities and facing declining or at most not rapidly
rising market demands are unlikely to invest significantly in new plant and
equipment. Moreover, foreigners such as China with its large savings of
U.S. dollar earnings appears unlikely to spend more dollars to buy more
U.S.‑produced goods. With falling property and sales tax revenues, local
and state governments such as California are cutting spending on public
services and reducing purchases from domestically located firms. Only
the Federal government can afford to buy significant additional products
to stimulate market demand for American products.
Just as we expect the Federal government to spend whatever is necessary
to protect us from foreign enemies during a war, we should also
expect the government to spend whatever is necessary to protect us
from the economic terrorism of a great recession. The public must be
educated to understand that a civilized society is one that assures both
domestic workers and enterprises prosper and that the intelligent use of
government fiscal policy can assure that total market demand is always
sufficient to generate domestic profits large enough to create a fully
employed economy.
Some argue that tax revenues must finance all government spending
so that the federal budget is always balanced without deficits, or at least
annual deficits do not increase the debt-to-GDP ratio. As history shows,
however, even during World War II when America was attacked by foreign
nations (remember Pearl Harbor?) the U.S. government did not finance
the entire defense of this nation by raising taxes. Instead, during the war
years, deficits expanded dramatically while no one worried (correctly)
about burdening future generations with debt.
If wars are not sufficient (or necessary) reasons to raise taxes or cut
government spending sufficiently to balance the budget while protecting
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Making Dollars and Sense of the U.S. Government Debt 667
the nation, then why should defending the nation against serious economic
threats require a balanced budget or a lower deficit? Our politicians and
the public must be educated to understand that when total demand for
domestically produced goods is low so that recession and depression
threaten, then government must deficit spend as much as necessary to
encourage domestic entrepreneurs to hire all American workers who
are willing and able to work. If, on the other hand, market demand for
domestically produced goods and services exceed America’s full employment
productive capacity, then government must increase taxes and
reduce spending in order to reduce aggregate demand to a level that can
be met by a fully employed labor force.
When the public and politicians recognize that a primary function of
government fiscal policy is to act as a balancing wheel for aggregate
demand to be sufficient to encourage America’s entrepreneurs to create
jobs for all our workers, we will have developed the political will to
develop a perpetual prosperous American civilized society.
At that point of time, our next task will be to develop an international
financial and payments system that will provide for global full employment
and prosperity.
Housing Crisis, System Failure
________________________________________
By Rick Wolff
Source: MRZine
Monday, August 23, 2010
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This capitalist crisis resembles a certain kind of serious disease. Different
symptoms keep flaring up at different locations. It began with sub-prime
mortgages in residential housing. Then, sequential flare-ups hit the private banking
system, forced millions out of their jobs and homes, drastically cut world trade,
and undermined the public services and national debts of several European
countries. Meanwhile, another symptom festered in the credit freeze crippling so
much private borrowing. Now, yet another symptom matures as government
subsidies and supports to our crisis-ridden private housing industry add rising
billions to the deficit.
The unspoken ideological taboo in most public discussion of the economic crisis
prohibits seeing or treating the problem as systemic, as a problem of capitalism as
a system. Instead, our political, journalistic, and academic leaders mostly see only
symptoms and "develop policies" only for those symptoms. Alarms about one
symptom -- and contested efforts to address it -- soon shift to another symptom
and "policy responses" for it. Often such policies for one symptom actually worsen
another symptom. For example, when stock markets collapsed early in 2000
(symptom), the Federal Reserve drastically cut interest rates (policy response);
that move facilitated the excess lending that collapsed the entire economy in 2007.
Today's alarms focus on housing and huge government subsidies there. To see the
systemic problems of the US housing industry, consider its basic economics. The
"American dream" of owning one's home was never affordable to the vast majority
of US families because the wages or salaries paid by their employers were never
enough. To realize the dream therefore required borrowing. However, because
working families had insufficient wages and salaries and no accumulated wealth --
their situation inside US capitalism -- private banks rarely lent to them. The vast
majority of them, not merely the poorest among them, were too risky as
borrowers.
A "solution" was found withinUS capitalism. The government would subsidize and
guarantee private banks' loans to millions of homebuyers. This solution boosted
profits in private banks' mortgage loan business. It indirectly subsidized all the
industries producing for private homes. Yet it did not raise wages and salaries
(something capitalists opposed). Many US workers became homeowners with large,
long-term mortgages, making them more dependent on keeping jobs, not offending
employers, etc. That experience also prepared workers to accept credit card,
student loan, and other consumer debts. Expanding debt became the way most
Americans bridged the gap between their incomes and the "good life" relentlessly
advertised by capitalists needing buyers.
Government subsidies for housing took off in the last great collapse of US
capitalism. The Federal Housing Administration (FHA) was created in 1934 and the
Federal National Mortgage Association (FNMA or "Fannie Mae") in 1938 (the latter
was split to form GNMA or "Ginnie Mae" in 1968). The Federal Home Loan
Mortgage Corporation ("Freddie Mac") came in 1970. The goal in the 1930s was
recovery of the depressed housing industry. Housing -- and the larger US
economy dependent on it -- have both been increasingly dependent on government
guarantees and subsidies ever since.
The 2007 crisis plunged the housing market into serious decline. Poor, middle, and
richer homeowners defaulted on their mortgage debts. Banks turned for relief to
the government guarantees and subsidies. Providing them has cost the US
government outlays now estimated at $150 billion with possibly hundreds of billions
more in this crisis. Defaults and falling home prices made banks refuse to provide
mortgage loans to almost anyone without government guarantees and subsidies
(thus, in 2010, the US government has guaranteed or bought 98 per cent of new
private mortgage loans). Without government support, there would be virtually no
market in US housing. Even the richest get subsidized: "The Federal Housing
Administration agreed in March to insure mortgages for apartments at the 98-unit
[New York City] Gramercy Park development, known as Tempo. That enables
buyers to make a down payment of as little as 3.5 percent in a building where
apartments are listed at $820,000 to $3 million."
Despite routinely endorsing government housing supports for years, Republicans
have suddenly found it politically expedient to attack Democrats for those
supports' impact on the US deficit (ignoring that Bush nationalized Fannie and
Ginny Mae and their debts in 2008). Democrats know they cannot cut government
supports without producing a deeper housing and general recession which the
Republicans would then blame on them. Thus, Treasury Secretary Geithner
promises little change in the basic housing subsidy and guarantee system: doing
away with it, he says, risks even worse future recessions. For Geithner, no
systemic issue exists; for him it's just a question of how much government support
the housing industry needs.
The US housing industry's basic problem is the system in which it is embedded.
The larger capitalist economy shapes the gap between the costs of privately
produced homes and American workers' earnings. Over the last 75 years, US
capitalism has bridged that gap by means of private credit guaranteed and/or
subsidized by the government. This system provides incentives as well as
opportunities for excessive home prices, diminished wages and salaries, and
excessive quantities, risks, and costs of housing credit. The last 30 years have
seen all three phenomena converge into a systemic crisis.
A systemic solution would include rethinking housing fundamentally. Consider, for
example, a national program of building low-cost public housing (in various styles
and configurations) owned and operated by local communities. Besides the job-
creating virtues of such a program, it could yield high-quality, low-cost
alternatives to and long overdue competition for private housing and its prices.
Working people could then choose between them. A systemic solution could also
raise wages and salaries relative to profits and thereby rebuild the finances of
those who buy homes. These two steps would together reduce or remove the
dependence on credit that has repeatedly and dangerously spun out of control
among lenders and borrowers.
Republicans and Democrats will likely not mention, let alone debate, the systemic
causes or solutions to the housing crisis and the mounting losses at the FHA,
Fannie, Ginnie, and Freddie. They obey and enforce the ideological taboos of our
time; they do not challenge them. Their minor "fixes" for the housing crisis, likely
promoted as great reforms, may well worsen the crisis by provoking another
symptom somewhere else. To address this society's systemic problems with
systemic solutions will require new political formations without ideological taboos
about questioning or changing the system.
________________________________________
Rick Wolff is a Professor Emeritus at the University of Massachusetts in Amherst
and also a Visiting Professor at the Graduate Program in International Affairs of
the New School University in New York. He is the author of New Departures in
Marxian Theory (Routledge, 2006) among many other publications. Check out Rick
Wolff’s documentary film on the current economic crisis, Capitalism Hits the Fan,
at www.capitalismhitsthefan.com. Visit Wolff's Web site at www.rdwolff.com,
and order a copy of his new book Capitalism Hits the Fan: The Global Economic
Meltdown and What to Do about It.
Published on Tuesday, August 24, 2010 by The Guardian/UK
Fannie Mae and Freddie Mac's Future
If the US government continues to underwrite the mortgage market, then the one
thing it should not do is pad banks' profits
by Dean Baker
The administration took its first step toward resolving the final status of Fannie
Mae and Freddie Mac with a big conference at the White House last week. In
keeping with its housing policy to date, it seems intent on taking the worst possible
course.
These mortgage giants have played an important role in making housing more
affordable in the United States. Fannie Mae created the secondary market in
mortgages when it was established as a government-owned company during the New
Deal. Its willingness to buy mortgages from banks essentially created the basis for
the 30-year fixed rate mortgage that is the standard today.
The virtue of the original Fannie Mae was that it was simple and cheap. It bought
and held 30-year mortgages. It did not securitise them. This avoided the costs
and risks associated with securitisation. At every step in the securitisation
process, the financial industry expects to make money, and often lots of it, since
salaries are so bloated. In addition to saving these costs, a public Fannie also had
no incentive to engage in risky gambles to inflate profits. Its senior management
was paid civil servant wages, not the tens of millions that go each year to top Wall
Street executives.
Holding the mortgage on its books meant that Fannie Mae, and therefore the
government, was bearing the interest rate risk associated with the mortgage, in
addition to the risk that the mortgage would go bad. Interest rate risk is the risk
that interest rates will rise. If the standard interest rate for a 30-year mortgage
rises from 5.0% to 6.0%, then a newly issued 30-year mortgage will lose more
than 12% of its value. Sharper rises in interest rates, as we saw in the inflation-
wracked 1970s, led to large losses on mortgages for Fannie and Freddie, as well as
banks and savings and loans institutions that held 30-year mortgages.
While this risk is raised as a danger if these government-owned mortgage giants
are allowed to hold their mortgages, it really does not pose a problem for the
government. The government is a massive issuer of long-term debt. In the event
that the government-owned Fannie and Freddie are taking a big hit due to a rise in
inflation rates, then the government is simultaneously getting a bonanza from the
reduction in the real value of the debt it owes.
In other words, insofar as a sudden burst of inflation erodes the value of the
mortgages held by Fannie and Freddie, it will likely be offset by the reduction in
the value of the debt the government owes the public. In short, we are hedged
against this risk.
If we are interested in a cheap and efficient way to sustain the secondary
mortgage market, it would be hard to beat the old government-owned Fannie
model. It may make sense to keep Freddie as a source of competition and to
ensure some dynamism, but if efficiency is the goal, then the keeping Fannie and
Freddie as government-owned companies would be the way to go.
But this approach seems to be off the agenda – since it makes too much sense.
Instead, the consensus seems to be to design some hybrid model in which private
profit-making banks will decide which mortgages will get a government guarantee.
We are assured by the housing finance wizards that the government regulators will
effectively police the private banks. The basic issue is the problem of moral
hazard: private banks have an incentive to issue the guarantee to the worst junk
around, since they will make money on the process and the risk goes to the
government. It is difficult to believe that anyone who has lived through the crisis
of the last three years would want to re-establish this sort of situation.
The third alternative to the hybrid or the government-owned Fannie/Freddie route
is simply to let them die over a period of 5-10 years and leave mortgages to the
private sector. We know that the private sector can and does issue mortgages
without government support. This is demonstrated by the existence of the jumbo
mortgage market. Jumbo mortgages exceed the size limits set for a loan to be
purchased by Fannie and Freddie. Even in the current environment, the spread is
only 90 basis points (9/10ths of a percentage point) compared with the
Fannie/Freddie-backed conformable mortgages, and it is typically much less.
If ideological and political considerations prevent us from establishing the most
efficient mortgage system, relying on a purely private model is almost certainly
better than trying to construct a convoluted hybrid. The potential benefits from
this mixed system are fairly modest – a slight reduction in mortgage interest
rates. While the risks from not doing it right are large.
If we want to have the government subsidise the mortgages of moderate- and
middle- income homeowners, it can be easily done through the tax code or other
mechanisms. There is no reason to set up a whole new system of finance to
accomplish this purpose.
Unfortunately, the smart money is on the convoluted route because the big money
stands to gain this way. The waste in such a system is income for folks like
Citigroup and Bank of America. And we all know that the most dangerous place to
stand in modern America is between the financial industry and a policy that will
enhance its profits. So, look for more bad housing policy coming out of Washington.
© Guardian News and Media Limited 2010
Republic or empire:
A National Intelligence Estimate on the United States
By Chalmers A. Johnson
A National Intelligence Estimate on the United States 11. The CIA's website
defines a National Intelligence Estimate as “the most authoritative written
judgment concerning a national security issue prepared by the Director of Central
Intelligence.” These forecasts of “future developments” and “their implications for
the United States” seldom are made public, but there are exceptions. One was the
NIE of September 2002, “Iraq's Continuing Programs for Weapons of Mass
Destruction,” which became notorious because virtually every word in it was false.
Another, an April 2006 NIE entitled “Trends in Global Terrorism: Implications for
the United States,” was partly declassified by President Bush because its main
conclusion—that “activists identifying themselves as jihadists” are “increasing in
both number and geographic dispersion”—had already been leaked to the press.
By Chalmers Johnson 22. The CIA is prohibited from writing an NIE on the United
States, and so I have here attempted to do so myself, using the standard format
for such estimates. I have some personal knowledge of NIEs because from 1967 to
1973 I served as an outside consultant to the CIA's Office of National Estimates.
I was one of about a dozen so-called experts invited to read draft NIEs in order
to provide quality control and prevent bureaucratic logrolling.
KEY JUDGMENTS
The United States remains, for the moment, the most powerful nation in history,
but it faces a violent contradiction between its long republican tradition and its
more recent imperial ambitions.
The fate of previous democratic empires suggests that such a conflict is
unsustainable and will be resolved in one of two ways. Rome attempted to keep its
empire and lost its democracy. Britain chose to remain democratic and in the
process let go its empire. Intentionally or not, the people of the United States
already are well embarked upon the course of non-democratic empire.
Several factors, however, indicate that this course will be a brief one, which most
likely will end in economic and political collapse.
Military Keynesianism: The imperial project is expensive. The flow of the nation's
wealth—from taxpayers and (increasingly) foreign lenders through the government
to military contractors and (decreasingly) back to the taxpayers—has created a
form of “military Keynesianism,” in which the domestic economy requires sustained
military ambition in order to avoid recession or collapse.
The Unitary Presidency: Sustained military ambition is inherently anti-republican, in
that it tends to concentrate power in the executive branch. In the United States,
President George W. Bush subscribes to an esoteric interpretation of the
Constitution called the theory of the unitary executive, which holds, in effect, that
the president has the authority to ignore the separation of powers written into the
Constitution, creating a feedback loop in which permanent war and the unitary
presidency are mutually reinforcing.
Failed Checks on Executive Ambition: The U.S. legislature and judiciary appear to
be incapable of restraining the president and therefore restraining imperial
ambition. Direct opposition from the people, in the form of democratic action or
violent uprising, is unlikely because the television and print media have by and large
found it unprofitable to inform the public about the actions of the country's
leaders. Nor is it likely that the military will attempt to take over the executive
branch by way of a coup.
Bankruptcy and Collapse: Confronted by the limits of its own vast but nonetheless
finite financial resources and lacking the political check on spending provided by a
functioning democracy, the United States will within a very short time face
financial or even political collapse at home and a significantly diminished ability to
project force abroad.
DISCUSSION
Military Keynesianism
The ongoing U.S. militarization of its foreign affairs has spiked precipitously in
recent years, with increasingly expensive commitments in Afghanistan and Iraq.
These commitments grew from many specific political factors, including the
ideological predilections of the current regime, the growing need for material
access to the oil-rich regions of the Middle East, and a long-term bipartisan
emphasis on hegemony as a basis for national security. The domestic economic
basis for these commitments, however, is consistently overlooked. Indeed,
America's hegemonic policy is in many ways most accurately understood as the
inevitable result of its decades-long policy of military Keynesianism.
During the Depression that preceded World War II, the English economist John
Maynard Keynes, a liberal capitalist, proposed a form of governance that would
mitigate the boom-and-bust cycles inherent in capitalist economies. To prevent the
economy from contracting, a development typically accompanied by social unrest,
Keynes thought the government should take on debt in order to put people back to
work. Some of these deficit-financed government jobs might be socially useful, but
Keynes was not averse to creating make-work tasks if necessary. During periods of
prosperity, the government would cut spending and rebuild the treasury. Such
countercyclical planning was called “pump-priming.”
Upon taking office in 1933, U.S. President Franklin Roosevelt, with the assistance
of Congress, put several Keynesian measures into effect, including socialized
retirement plans, minimum wages for all workers, and government-financed jobs on
massive projects, including the Triborough Bridge in New York City, the Grand
Coulee Dam in Washington, and the Tennessee Valley Authority, a flood-control and
electric-power-generation complex covering seven states. Conservative capitalists
feared that this degree of government intervention would delegitimate capitalism—
which they understood as an economic system of quasi-natural laws—and shift the
balance of power from the capitalist class to the working class and its unions. For
these reasons, establishment figures tried to hold back countercyclical spending.
The onset of World War II, however, made possible a significantly modified form
of state socialism. The exiled Polish economist Michal Kalecki attributed Germany's
success in overcoming the global Depression to a phenomenon that has come to be
known as “military Keynesianism.” Government spending on arms increased
manufacturing and also had a multiplier effect on general consumer spending by
raising worker incomes. Both of these points are in accordance with general
Keynesian doctrine. In addition, the enlargement of standing armies absorbed many
workers, often young males with few skills and less education. The military thus
becomes an employer of last resort, like Roosevelt's Civilian Conservation Corps,
but on a much larger scale.
Rather than make bridges and dams, however, workers would make bullets, tanks,
and fighter planes. This made all the difference. Although Adolf Hitler did not
undertake rearmament for purely economic reasons, the fact that he advocated
governmental support for arms production made him acceptable not only to the
German industrialists, who might otherwise have opposed his destabilizing
expansionist policies, but also to many around the world who celebrated his
achievement of a “German economic miracle.”
In the United States, Keynesian policies continued to benefit workers, but, as in
Germany, they also increasingly benefited wealthy manufacturers and other
capitalists. By the end of the war, the United States had seen a massive shift.
Dwight Eisenhower, who helped win that war and later became president, described
this shift in his 1961 presidential farewell address:
Our military organization today bears little relation to that known by any of my
predecessors in peacetime, or indeed by the fighting men of World War II or
Korea.
Until the latest of our world conflicts, the United States had no armaments
industry. American makers of plowshares could, with time and as required, make
swords as well. But we can no longer risk emergency improvisation of national
defense; we have been compelled to create a permanent armaments industry of vast
proportions. Added to this, three and a half million men and women are directly
engaged in the defense establishment. We annually spend on military security alone
more than the net income of all United States corporations.
This conjunction of an immense military establishment and a large arms industry is
new in the American experience. The total influence—economic, political, even
spiritual—is felt in every city, every statehouse, every office of the federal
government. We recognize the imperative need for this development. Yet we must
not fail to comprehend its grave implications. Our toil, resources and livelihood are
all involved; so is the very structure of our society.
Eisenhower went on to suggest that such an arrangement, which he called the
“military-industrial complex,” could be perilous to American ideals. The short-term
economic benefits were clear, but the very nature of those benefits—which were all
too carefully distributed among workers and owners in “every city, every
statehouse, every office of the federal government”—tended to short-circuit
Keynes's insistence that government spending be cut back in good times. The
prosperity of the United States came increasingly to depend upon the construction
and continual maintenance of a vast war machine, and so military supremacy and
economic security became increasingly intertwined in the minds of voters. No one
wanted to turn off the pump.
Between 1940 and 1996, for instance, the United States spent nearly $4.5 trillion
on the development, testing, and construction of nuclear weapons alone. By 1967,
the peak year of its nuclear stockpile, the United States possessed some 32,000
deliverable bombs. None of them was ever used, which illustrates perfectly
Keynes's observation that, in order to create jobs, the government might as well
decide to bury money in old mines and “leave them to private enterprise on the well-
tried principles of laissez faire to dig them up again.” Nuclear bombs were not just
America's secret weapon; they were also a secret economic weapon.
Such spending helped create economic growth that lasted until the 1973 oil crisis.
In the 1980s, President Ronald Reagan once again brought the tools of military
Keynesianism to bear, with a policy of significant tax cuts and massive deficit
spending on military projects, allegedly to combat a new threat from Communism.
Reagan's military expenditures accounted for 5.9 percent of the gross domestic
product in 1984, which in turn fueled a 7 percent growth rate for the economy as
a whole and helped reelect Reagan by a landslide.
During the Clinton years military spending fell to about 3 percent of GDP, but the
economy rallied strongly in Clinton's second term due to the boom in information
technologies, weakness in the previously competitive Japanese economy, and—
paradoxically—serious efforts to reduce the national debt.33. Military
Keynesianism, it turns out, is not the only way to boost an economy. With the
coming to power of George W. Bush, however, military Keynesianism returned once
again. Indeed, after he began his war with Iraq, the once-erratic relationship
between defense spending and economic growth became nearly parallel. A spike in
defense spending in one quarter would see a spike in GDP, and a drop in defense
spending would likewise see a drop in GDP.
To understand the real weight of military Keynesianism in the American economy
today, however, one must approach official defense statistics with great care. The
“defense” budget of the United States—that is, the reported budget of the
Department of Defense—does not include: the Department of Energy's spending on
nuclear weapons ($16.4 billion slated for fiscal 2006), the Department of Homeland
Security's outlays for the actual “defense” of the United States ($41 billion), or
the Department of Veterans Affairs' responsibilities for the lifetime care of the
seriously wounded ($68 billion). Nor does it include the billions of dollars the
Department of State spends each year to finance foreign arms sales and militarily
related development or the Treasury Department's payments of pensions to military
retirees and widows and their families (an amount not fully disclosed by official
statistics). Still to be added are interest payments by the Treasury to cover past
debt-financed defense outlays. The economist Robert Higgs estimates that in 2002
such interest payments amounted to $138.7 billion.
Even when all these things are included, Enron-style accounting makes it hard to
obtain an accurate understanding of U.S. dependency on military spending. In
2005, the Government Accountability Office reported to Congress that “neither
DOD nor Congress can reliably know how much the war is costing” or “details on
how the appropriated funds are being spent.” Indeed, the GAO found that, lacking
a reliable method for tracking military costs, the Army had taken to simply
inserting into its accounts figures that matched the available budget. Such actions
seem absurd in terms of military logic. But they are perfectly logical responses to
the requirements of military Keynesianism, which places its emphasis not on the
demand for defense but rather on the available supply of money.
The Unitary Presidency
Military Keynesianism may be economic development by other means, but it does
very often lead to real war, or, if not real war, then a significantly warlike
political environment. This creates a feedback loop: American presidents know that
military Keynesianism tends to concentrate power in the executive branch, and so
presidents who seek greater power have a natural inducement to encourage further
growth of the military-industrial complex. As the phenomena feed on each other,
the usual outcome is a real war, based not on the needs of national defense but
rather on the domestic political logic of military Keynesianism. As U.S. Senator
Robert La Follette Sr. observed, “In times of peace, the war party insists on
making preparation for war. As soon as prepared for war, it insists on making
war.”
George W. Bush has taken this natural political phenomenon to an extreme never
before experienced by the American electorate. Every president has sought
greater authority, but Bush—whose father lost his position as forty-first president
in a fair and open election—appears to believe that increasing presidential authority
is both a birthright and a central component of his historical legacy. He is
supported in this belief by his vice president and chief adviser, Dick Cheney.
In pursuit of more power, Bush and Cheney have unilaterally authorized preventive
war against nations they designate as needing “regime change,” directed American
soldiers to torture persons they have seized and imprisoned in various countries,
ordered the National Security Agency to carry out illegal “data mining” surveillance
of the American people, and done everything they could to prevent Congress from
outlawing “cruel, inhumane, or degrading” treatment of people detained by the
United States. Each of these actions has been undertaken for specific ideological,
tactical, or practical rea-sons, but also as part of a general campaign of power
concentration.
Cheney complained in 2002 that, since he had served as Gerald Ford's chief of
staff, he had seen a significant erosion in executive power as post-Watergate
presidents were forced to “cough up and compromise on important principles.” He
was referring to such reforms as the War Powers Act of 1973, which requires
that the president obtain congressional approval within ninety days of ordering
troops into combat; the Budget and Impoundment Control Act of 1974, which was
designed to stop Nixon from impounding funds for programs he did not like; the
Freedom of Information Act of 1966, which Congress strengthened in 1974;
President Ford's Executive Order 11905 of 1976, which outlawed political
assassination; and the Intelligence Oversight Act of 1980, which gave more power
to the House and Senate select committees on intelligence. Cheney said that these
reforms were “unwise” because they “weaken the presidency and the vice
presidency,” and added that he and the president felt an obligation “to pass on our
offices in better shape than we found them.”
No president, however, has ever acknowledged the legitimacy of the War Powers
Act, and most of these so-called limitations on presidential power had been gutted,
ignored, or violated long before Cheney became vice president. Republican Senator
John Sununu of New Hampshire said, “The vice president may be the only person I
know of that believes the executive has somehow lost power over the last thirty
years.”
Bush and Cheney have made it a primary goal of their terms in office, nonetheless,
to carve executive power into the law, and the war has been the primary vehicle
for such actions. John Yoo, Bush's deputy assistant attorney general from 2001 to
2003, writes in his book War By Other Means, “We are used to a peacetime
system in which Congress enacts laws, the President enforces them, and the courts
interpret them. In wartime, the gravity shifts to the executive branch.” Bush has
claimed that he is “the commander” and “the decider” and that therefore he does
not “owe anybody an explanation” for anything.44. In a January 2006 debate, Yoo
was asked if any law could stop the president, if he “deems that he's got to
torture somebody,” from, say, “crushing the testicles of the person's child.” Yoo's
response: “I think it depends on why the president thinks he needs to do that.”
Similarly, in a September 2006 press conference, White House spokesman Tony
Snow engaged in this dialogue:
Q: Isn't it the Supreme Court that's supposed to decide whether laws are
unconstitutional or not?
A: No, as a matter of fact the president has an obligation to preserve, protect,
and defend the Constitution of the United States. That is an obligation that
presidents have enacted through signing statements going back to Jefferson. So,
while the Supreme Court can be an arbiter of the Constitution, the fact is the
president is the one, the only person who, by the Constitution, is given the
responsibility to preserve, protect, and defend that document, so it is perfectly
consistent with presidential authority under the Constitution itself.
Snow was referring to the president's habit of signing bills into law accompanied by
“statements” that, according to the American Bar Association, “assert President
Bush's authority to disregard or decline to enforce laws adopted by Congress.” All
forty-two previous U.S. presidents combined have signed statements exempting
themselves from the provisions of 568 new laws, whereas Bush has, to date,
exempted himself from more than 1,000.
Failed Checks on Executive Ambition
The current administration's perspective on political power is far from unique. Few,
if any, presidents have refused the increased executive authority that is the
natural byproduct of military Keynesianism. Moreover, the division of power
between the president, the Congress, and the judiciary—often described as the
bedrock of American democracy—has eroded significantly in recent years. The
people, the press, and the military, too, seem anxious to cede power to a
“wartime” president, leaving Bush, or those who follow him, almost entirely
unobstructed in pursuing the imperial project.
Congress: Corrupt and indifferent, Congress, which the Founders believed would be
the leading branch of government, has already entirely forfeited the power to
declare war. More recently, it gave the president the legal right to detain anyone,
even American citizens, without warrant, and to detain non-citizens without
recourse to habeas corpus, as well as to use a variety of interrogation methods
that he could define, at his sole discretion, to be or not be torture.
The Courts: The judicial branch is hardly more effective in restraining presidential
ambition. The Supreme Court was active in the installation of the current
president, and the lower courts increasingly are packed with judges who believe
they should defer to his wishes. In 2006, for instance, U.S. District Judge David
Trager dismissed a suit by a thirty-five-year-old Canadian citizen, Maher Arar,
who in 2002 was seized by U.S. government agents at John F. Kennedy Airport
and delivered to Syria, where he was tortured for ten months before being
released. No charges were filed against Arar, and his torturers eventually
admitted he had no links to any crime. In explaining his dismissal, Trager noted
with approval an earlier Supreme Court finding that such judgment would “threaten
‘our customary policy of deference to the President in matters of foreign affairs.’”
The Military: It is possible that the U.S. military could take over the government
and declare a dictatorship.55. Though they undoubtedly would find a more user-
friendly name for it. That is how the Roman republic ended. For the military
voluntarily to move toward direct rule, however, its leaders would have to ignore
their ties to civilian society, where the symbolic importance of constitutional
legitimacy remains potent. Rebellious officers may well worry about how the
American people would react to such a move. Moreover, prosecutions of low-level
military torturers from Abu Ghraib prison and killers of civilians in Iraq have
demonstrated to enlisted ranks that obedience to illegal orders can result in their
being punished, whereas officers go free. No one knows whether ordinary
American soldiers would obey clearly illegal orders to oust an elected government or
whether the officer corps has sufficient confidence to issue such orders. In
addition, the present system already offers the military high command so much—in
funds, prestige, and future employment via the military-industrial revolving door—
that a perilous transition to anything resembling direct military rule would make
little sense under reasonably normal conditions.
The People: Could the people themselves restore constitutional government? A
grassroots movement to break the hold of the military-industrial complex and
establish public financing of elections is conceivable. But, given the conglomerate
control of the mass media and the difficulties of mobilizing the United States'
large and diffuse population, it is unlikely. Moreover, the people themselves have
enjoyed the Keynesian benefits of the U.S. imperial project and—in all but a few
cases—have not yet suffered any of its consequences.66. In 2003, when the Iraq
war began, the citizens of the United States could at least claim that it was the
work of an administration that had lost the popular vote. But in 2004, Bush won
that vote by more than 3 million ballots, making his war ours.
Bankruptcy and Collapse
The more likely check on presidential power, and on U.S. military ambition, will be
the economic failure that is the inevitable consequence of military Keynesianism.
Traditional Keynesianism is a stable two-part system composed of deficit spending
in bad times and debt payment in good times. Military Keynesianism is an unstable
one-part system. With no political check, debt accrues until it reaches a crisis
point.
In the fiscal 2006 budget, the Congressional Research Service estimates that
Pentagon spending on Operation Enduring Freedom and Operation Iraqi Freedom will
be about $10 billion per month, or an extra $120.3 billion for the year. As of mid-
2006, the overall cost of the wars in Iraq and Afghanistan since their inception
stood at more than $400 billion. Joseph Stiglitz, the Nobel Prize‒winning
economist, and his colleague, Linda Bilmes, have tried to put together an estimate
of the real costs of the Iraq war. They calculate that it will cost about $2 trillion
by 2015. The conservative American Enterprise Institute suggests a figure at the
opposite end of the spectrum—$1 trillion. Both figures are an order of magnitude
larger than what the Bush Administration publicly acknowledges.
At the same time, the U.S. trade deficit, the largest component of the current
account deficit, soared to an all-time high in 2005 of $782.7 billion, the fourth
consecutive year that America's trade debts set records. The trade deficit with
China alone rose to $201.5 billion, the highest imbalance ever recorded with any
country. Meanwhile, since mid-2000, the country has lost nearly 3 million
manufacturing jobs. To try to cope with these imbalances, on March 16, 2006,
Congress raised the national debt limit from $8.2 trillion to $9 trillion. This was
the fourth time since George W. Bush took office that the limit had to be raised.
Had Congress not raised it, the U.S. government would not have been able to
borrow more money and would have had to default on its massive debts.
Among the creditors that finance this unprecedented sum, two of the largest are
the central banks of China ($854 billion in reserves of dollars and other foreign
currencies) and Japan ($850 billion), both of which are the managers of the huge
trade surpluses these countries enjoy with the United States. This helps explain
why the United States' debt burden has not yet triggered what standard economic
theory would predict, which is a steep decline in the value of the U.S. dollar
followed by a severe contraction of the American economy—the Chinese and
Japanese governments continue to be willing to be paid in dollars in order to sustain
American demand for their exports. For the sake of domestic employment, both
countries lend huge amounts to the American treasury, but there is no guarantee
how long they will want or be able to do so.
CONFIDENCE IN KEY JUDGMENTS
It is difficult to predict the course of a democracy, and perhaps even more so
when that democracy is as corrupt as that of the United States. With a new
opposition party in the majority in the House, the country could begin a difficult
withdrawal from military Keynesianism. Like the British after World War II, the
United States could choose to keep its democracy by giving up its empire. The
British did not do a particularly brilliant job of liquidating their empire, and there
were several clear cases in which British imperialists defied their nation's
commitment to democracy in order to keep their foreign privileges—Kenya in the
1950s is a particularly savage example—but the people of the British Isles did
choose democracy over imperialism, and that nation continues to thrive as a nation,
if not as an empire.
It appears for the moment, however, that the people of the United States prefer
the Roman approach and so will abet their government in maintaining a facade of
constitutional democracy until the nation drifts into bankruptcy.
Of course, bankruptcy will not mean the literal end of the United States any more
than it did for Germany in 1923, China in 1948, or Argentina in 2001. It might, in
fact, open the way for an unexpected restoration of the American system, or for
military rule, revolution, or simply some new development we cannot yet imagine.
Certainly, such a bankruptcy would mean a drastic lowering of the current American
standard of living, a loss of control over international affairs, a process of
adjusting to the rise of other powers, including China and India, and a further
discrediting of the notion that the United States is somehow exceptional compared
with other nations. The American people will be forced to learn what it means to
be a far poorer nation and the attitudes and manners that go with it.77. National
Intelligence Estimates seldom contain startling new data. To me they always read
like magazine articles or well-researched and footnoted graduate seminar papers.
When my wife once asked me what was so secret about them, I answered that
perhaps it was the fact that this was the best we could do.
Robert Reich
Former Secretary of Labor, Professor at Berkeley
Posted: August 11, 2010 09:33 PM
America's Biggest Jobs Program -- the U.S. Military
America's biggest -- and only major -- jobs program is the U.S. military.
Over 1,400,000 Americans are now on active duty; another 833,000 are in the
reserves, many full time. Another 1,600,000 Americans work in companies that
supply the military with everything from weapons to utensils. (I'm not even
including all the foreign contractors employing non-US citizens.)
If we didn't have this giant military jobs program, the U.S. unemployment rate
would be over 11.5 percent today instead of 9.5 percent.
And without our military jobs program personal incomes would be dropping faster.
The Commerce Department reported Monday the only major metro areas where
both net earnings and personal incomes rose last year were San Antonio, Texas,
Virginia Beach, Virginia, and Washington, D.C. -- because all three have high
concentrations of military and federal jobs.
This isn't an argument for more military spending. Just the opposite. Having a
giant undercover military jobs program is an insane way to keep Americans
employed. It creates jobs we don't need but we keep anyway because there's no
honest alternative. We don't have an overt jobs program based on what's really
needed.
For example, when Defense Secretary Robert Gates announced Monday his plan to
cut spending on military contractors by more than a quarter over three years,
congressional leaders balked. Military contractors are major sources of jobs back
in members' states and districts. California's Howard P. "Buck" McKeon, the top
Republican on the House Armed Services Committee, demanded that the move "not
weaken the nation's defense." That's congress-speak for "over my dead body."
Gates simultaneously announced closing the Joint Force Command in Norfolk,
Virginia, that employees 6,324 people and relies on 3,300 private contractors. This
prompted Virginia Democratic Senator Jim Webb, a member of the Senate Armed
Services Committee, to warn that the closure "would be a step backward."
Translated: "No chance in hell."
Gates can't even end useless weapons programs. That's because they're covert
jobs programs that employ thousands.
He wants to stop production of the C-17 cargo jet he says is no longer needed.
But it keeps 4,000 people working at Boeing's Long Beach assembly plant and
30,000 others at Boeing suppliers strategically located in 40 states. So despite
Gates's protests the Senate has approved ten new orders.
That's still not enough to keep all those C-17 workers employed, so the Pentagon
and Boeing have been hunting for foreign purchasers. The Indian Air Force is now
negotiating to buy ten, and talks are underway with several other nations, including
Oman and Saudi Arabia.
Ever wonder why military equipment is one of America's biggest exports? It's our
giant military jobs program in action.
Gates has also been trying to stop production of a duplicate engine for the F-25
joint Strike Fighter jet. He says it isn't needed and doesn't justify the $2.9
billion slated merely to develop it.
But the unnecessary duplicate engine would bring thousands of jobs to Indiana and
Ohio. Cunningly, its potential manufacturers Rolls-Royce and General Electric
created a media blitz (mostly aimed at Washington, D.C. where lawmakers wold see
it) featuring an engine worker wearing a "Support Our Troops" T-shirt and arguing
the duplicate engine will create 4,000 American jobs. Presto. Despite a veto threat
from the White House, a House panel has just approved funding the duplicate.
By the way, Gates isn't trying to cut the overall Pentagon budget. He just wants to
trim certain programs to make room for more military spending with a higher
priority.
The Pentagon's budget -- and its giant undercover jobs program -- keeps
expanding. The President has asked Congress to hike total defense spending next
year 2.2 percent, to $708 billion. That's 6.1 percent higher than peak defense
spending during the Bush administration.
This sum doesn't even include Homeland Security, Veterans Affairs, nuclear
weapons management, and intelligence. Add these, and next year's national security
budget totals about $950 billion.
That's a major chunk of the entire federal budget. But most deficit hawks don't
dare cut it. National security is sacrosanct.
Yet what's really sacrosanct is the giant jobs program that's justified by national
security. National security is a cover for job security.
This is nuts.
Wouldn't it be better to have a jobs program that created things we really need
-- like light-rail trains, better school facilities, public parks, water and sewer
systems, and non-carbon energy sources -- than things we don't, like obsolete
weapons systems?
Historically some of America's biggest jobs programs that were critical to the
nation's future have been justified by national defense, although they've borne
almost no relation to it. The National Defense Education Act of the late 1950s
trained a generation of math and science teachers. The National Defense Highway
Act created millions of construction jobs turning the nation's two-lane highways
into four- and six-lane Interstates.
Maybe this is the way to convince Republicans and blue-dog Democrats to spend
more federal dollars putting Americans back, and working on things we genuinely
need: Call it the National Defense Full Employment Act.
Robert Reich
Former Secretary of Labor, Professor at Berkeley
Posted: August 24, 2010 04:15 PM
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Tax Jujitsu: Why Democrats Should Propose a "People's Tax Cut"
Republicans are calling the Democrat's proposal to end the Bush tax cuts on the
richest 3 percent a "tax increase," and demagoging that it will hurt the economy
and small business. This is baloney, to put it politely. Let me count the ways:
• Bush's ten-year tax cut was designed to end this year, so it's not a tax
increase.
• Ending it for the rich simply returns them to the Clinton tax rate, which
was hardly confiscatory (reminder: the Clinton years were damn good for business).
• Small businesses would barely be affected. Only 3 percent of small
business owners earn over250,000. And because it's a "marginal" tax, the Clinton
rate would apply only to the portion of their incomes over250,000.
• Yet extending the Bush tax cut to the richest Americans would give them
a36 billion bonus next year. (31 billion of this would go to billionaire households.)
And that36 billion would be added to the budget deficit.
• And it wouldn't even stimulate demand and jobs, because the very rich
save (rather than spend) more of their disposable income than the rest of us.
• Finally, ending the Bush tax cut for the top is fair. Income inequality has
become so grotesque that the top 3 percent of households rake in almost a third
of total income (the highest portion since 1928).
But by the time Democrats explain all this, it's too late. The Republican furor over
a "tax increase" has framed the debate.
Republicans understand the art of tax demagoguery: Put the other side on the
defensive by forcing them to explain why a "tax increase" is warranted and they
lose regardless.
So instead of playing defense, Democrats should go on the attack.
Accuse Republicans of being shills for the rich.
And don't stop there. Do tax jujitsu. In addition to ending the Bush tax cut for
the rich, put forward another proposal for growing the economy that cuts taxes on
lower-income Americans.
Democrats should propose eliminating payroll taxes on the first $20,000 of income,
and making up the revenue loss by applying payroll taxes to incomes above
$250,000.
This would give the economy an immediate boost by adding to the paychecks of
just about every working American. 80 percent of Americans pay more in payroll
taxes than they do in income taxes. And because lower-income people would get
most of the benefit, it's likely to be spent.
It would also give employers an extra incentive to hire because they'd save on
their share of the payroll tax. And most of the incentive would be directed toward
hiring lower-income workers -- who have taken the biggest hit on jobs and pay
during the recession.
It wouldn't add to the deficit. Lost revenues would be made up by applying payroll
taxes to income exceeding $250,000. This is certainly fair. As it is now, the
Social Security payroll tax doesn't apply to any income over $106,000. Having the
tax kick in again at $250,000 would draw on the top 3 percent of earners, who (as
noted) now rake in a larger portion of total income than they have in more than 80
years.
Call it the People's Tax Cut, and let Republicans explain why they're against it.
This post originally appeared at RobertReich.org.
The Corpo-Obama-Geithner-Petraeus State
Barbara Ehrenreich
August 12, 2010 | This article appeared in the August 30/September 6, 2010
edition of The Nation.
So a black man finally wins the presidency, only to discover that it's about as
useful as a 32 cent stamp. According to Eric Alterman, the federal government,
avatar of liberal hope for at least a century, has become hopelessly undemocratic,
poisoned by corruption and structurally snarled by partisan divisions. Poor Barack
Obama, who steps up to the plate and gets handed a foam bat!
Barbara Ehrenreich is the author, most recently, of Bright-sided: How the
Relentless Promotion of Positive Thinking Has...
The government, as Alterman convincingly describes it, is not only expensive,
"bloated" and all the rest. It has become a handmaid to corporate power—a hiring
hall from which compliant officials are selected for vastly more lucrative private-
sector jobs, as well as an emergency cash reserve for companies that fall on hard
times. No wonder so many Americans unthinkingly conflate "big government" and
"big corporations." This is not the kind of government that hires unemployed people
to paint murals on post office walls. And, as everyone knows, when the bank
decides to repossess your home, it's a public employee who will kick in the door.
All that should be enough to sour liberals' trust in government as a tool for
progressive social change. But the situation is much worse than Alterman
acknowledges. In the years since government—state and local as well as federal—
has shed its role as a kindly change agent, it has assumed a new one as über-cop:
building more penitentiaries, snapping up stoners, harassing blacks and Latino-
looking people on the streets. Nonviolent protests have dwindled, not only because
of activists' lingering deference toward Obama but because the police response to
any outdoor gathering so resembles the assault on Falluja.
Even the more helpful government programs have become agents of an increasingly
repressive state. Food stamp offices, public housing complexes and homeless
shelters are the sites of "warrant searches" used to gather up people who might
have missed a court date concerning an unpaid debt. Public housing residents are
subjected to drug tests; in many states, the process of applying for what remains
of welfare (Temporary Assistance to Needy Families) parallels that of being booked
by the police, complete with mug shots and fingerprints. Although you won't find
them out campaigning against ICE raids and urban stop-and-frisk programs, some
of the Tea Partyers seem to dimly understand this, with one handmade poster at
last year's 9/12 demonstration in Washington saying, for example, GOVERNMENT
HEALTH CARE = PEE IN A CUP.
And what is a liberal to make of the city of Maywood, California, which more or
less disbanded itself in June, outsourcing all municipal functions—sounds like a
liberal nightmare, right? Until you read that the now-defunct police department
was found by the state in 2009 to be "permeated with sexual innuendo,
harassment, vulgarity...and a lack of cultural, racial and ethnic sensitivity and
respect.''
Alterman acknowledges the problem only tentatively, observing that "one might
argue that this [Democratic] faith in government's ability to improve people's lives
is misplaced." You betcha. The role of the left should not be to uphold or defend
the government, meaning, for now, the corpo-Obama-Geithner-Petraeus state, but
to change it, drastically and from the ground up. That may sound overly radical to
Alterman, who seems to want "progressives who think of themselves as left of
liberal" to abandon even that tiny distinction. But as the Tea Partyers keep
reminding us in their nasty and demented ways, these are revolutionary times.
Barbara Ehrenreich
The Cost of Doing Nothing on Health Care
Forget what reform will cost -- we have to understand the price of a broken
system.
Joanne Kenen and Sarah Axeen | December 12, 2008 | web only
President-elect Barack Obama and his new health-reform chief, Tom Daschle,
made clear on Thursday that even amid tremendous economic crisis, their new New
Deal would take on that persistent piece of unfinished business from the old New
Deal -- health care.
"Some may ask how at this moment of economic challenge we can afford to invest
in reforming our health-care system," Obama said. "And I ask a different
question. I ask how can we afford not to."
A recent report by the New America Foundation's health-policy program estimates
that the cost of doing nothing about health care, including poor health and shorter
lifespan of the uninsured, is well above $200 billion a year and rising. That's
enough to cover the uninsured and still have some left over for other public-health
needs.
Health-insurance inflation will continue to outpace wages; the average cost of an
employer-sponsored insurance plan for a family would reach $24,000 in 2016, an
84 percent increase from today. At least half of U.S households would need to
spend more than 45 percent of their income to pay for insurance -- while the
coverage itself would be sparser. Health costs would further undermine the ability
of U.S. manufacturers to compete internationally, threaten the stability of U.S.
jobs, and deepen the burden on local, state, and federal budgets
Activists and advocates might focus on access, outcomes, and equity. But "what's
really moved health care to the forefront is costs," said Drew E. Altman,
president and CEO of the Henry J. Kaiser Foundation, summing up months of Kaiser
public-opinion research. "It's an economic issue. The combination of health-care
costs on working people with other economic burdens -- mortgage, rent, fuel --
are just devastating."
"There's a growing sense of crisis that health care will be unaffordable ... and
that the little insurance we have will be increasingly worthless," said Dr. Elliott
Fisher, one of the main forces behind the Dartmouth Atlas, the bible of U.S.
health-care irrationality. "And there's a sense of crisis about public health, about
the need to refocus the system on prevention, on health promotion, on the growing
burden of chronic disease."
Yet for all the positive signs coming from Obama, from Senate Democrats, even
from some segments of the health industry itself, there is still a strain of
conventional wisdom, in the media, in parts of Wall Street, and even in the policy
blogosphere, that says health reform is just too risky and too costly. We don't
have the consensus and we don't have the cash. Democrats can pass a bigger and
better State Children's Health Insurance Program (S-CHIP), a little of this, and a
little of that and call it a day.
Obama knows the history. "Year after year, " he said. "Our leaders offer up
detailed health-care plans with great fanfare and promise only to see them fail,
derailed by Washington politics and influence peddling. This simply cannot continue."
In 1993-1994 we had "fanfare and promise." But proponents of health reform
massively bungled the politics, the process, and the policy. Foes of reform,
expensively and expansively, exploited their errors. The upshot was that we, as a
nation, rejected comprehensive health reform. We didn't understand it. We didn't
like it. We certainly didn't want to pay for it. We decided that the status quo,
however flawed, was better than change.
What we didn't recognize in the 1990s was that the status quo was an illusion.
Imperceptibly to most of us, dramatic changes were underway in how we pay for
care, how we access care, and in the quality of our care. For the most part, they
were not changes for the better.
The number of uninsured spiked in the late 1980s, and when Bill Clinton was elected
in 1992, there were 38.6 million uninsured. By the time his health plan died in
1994, another 1.1 million had lost coverage. Now, we're at 46 million, and it's
likely soaring as jobs vanish and businesses cut benefits in a sinking economy.
Health-care spending in 1992 was $849 billion. Now it's $2.2 trillion -- slightly
less, actually, than pessimists had forecast back in the 1990s, because of the cost-
savings blip brought to us during the short-lived era of HMO ascendency. But
premiums in the early 1990s ate up 7 percent of family income. Today, it's 17
percent and growing, a trend that is aggravated by rising deductibles and co-pays.
Employers' burden has also grown. The average employer paid about $3,700
toward a family plan in 1996; it's approaching $10,000 today. That's for those
who are lucky enough to still have health benefits on the job. Had we passed the
Clinton health-care plan, with all its flaws, the Congressional Budget Office had
projected that overall health-care spending would have slowed down (after an initial
uptick) by about 7 percent by 2004, a $150 billion annual savings. And everyone
would have been covered.
The costs aren't measured only in dollars. Ample research by the Commonwealth
Fund and others has shown that for the uninsured and underinsured, health care is
often too little, too late. A recent Commonwealth study found that chronically ill
adults in the U.S. were far more likely than their counterparts in other developed
countries to face cost barriers to getting care. They were also more likely to have
experienced poor care coordination and/or a medical error.
Our health system today -- and it's become a cliché to wonder whether we should
even call it a "system" -- is different and more challenging than it was in 1992.
Then we had a coverage crisis. Now we have a coverage, cost, and quality crisis.
We have an aging population with multiple chronic illnesses being treated
inefficiently by numerous doctors who are paid to pile on tests and procedures but
who have no incentive to coordinate care. Research by the Rand Corporation has
found that when we do see a doctor, we only have a 50-50 chance of getting the
right care. Assuming we can find a doctor in a world where specialties like
dermatology and radiology bring more cash and cachet than primary care. We may
not get our diabetes controlled, but if we've got the money, we can have our body
parts scanned and erase our wrinkles.
Back in 1992, we had doctors, not primary-care providers. We were patients, not
"health-care consumers." About half of us were still in traditional fee-for-service
medicine (which is not necessarily the model that will serve us best in the future as
we reinvigorate primary care and tackle chronic disease). Then, managed care
extended its reach. But to borrow a phrase from Dr. Donald M. Berwick,
president and CEO of the Institute for Healthcare Improvement, instead of
managing our care, HMOs managed their cash.
"There were those that thought that managed care would save us. So we had the
'halcyon days' of managed care, only to see the managed-care revolution fail in a
public revolt," recalled Kaiser's Altman. The next solution, he noted, was "cost-
shifting to working people as the answer to our problems." That's still where we
are. Workers' share of employer-sponsored family policies rose by more than 160
percent from 1996 to 2008, far outpacing the growth in median household income.
Deductibles of $1,000 for an individual are the norm.
The link between quality gaps and the failure to cover everyone in 1994 is neither
as direct nor as easy to measure as the economic fallout. But it's not irrelevant.
An inefficient system, marked by cost-shifting, perverse incentives, fragmentation,
overcrowding, and frayed safety nets does not a quality nirvana make. After a pair
of Institute of Medicine reports documented that up to 98,000 people die in
hospitals each year through medical errors, an inpatient-focused quality movement
has made strides. "I'm moderately optimistic that over a period of years ahead
we'll have care that is safer and more evidence-based in hospitals," IHI's Berwick
said. But you can only go so far in repairing quality in a broken system. "It's like
fixing a carburetor but having the wrong car," he added.
Barack Obama's election has created a second chance. The moral case for reform
is beyond question. The uninsured live sicker and die sooner. No other country
comes anywhere near our record of spending so much and leaving so many
uncovered.
"The dynamics of this recession are worse than in 1992," said Paul Ginsberg,
president of the Center for Studying Health System Change. "What people today
see is that they are a job loss away from being uncovered. Or, if they work for a
small employer, from paying a lot more for coverage. If they have it. If their
employer continues providing it."
Throw in the quality challenges, the errors and infections, the lack of care
coordination, the vast and unjustifiable variations in how medicine is practiced from
one place to another, an emergency system so strained that an ambulance is
diverted from an overcrowded emergency room at least once every minute. It's
bleak.
So bleak that it might change the conventional wisdom. In short, we need to
understand that just like in 1992, we're on a trajectory. And the status quo is not
an option.
The Economy Is Getting Worse and Worse -- And No One's Doing a Thing About It
The economy is already down, and it can go lower. And no one seems willing to fix
it.
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We know we live in hard times that are on the verge of getting harder, with
500,000 new claims for unemployment last week, a recent record.
The stock market may be over for now as fear and panic drives small investors
out. Big corporations hoard stashes of cash rather then hire workers. The D word
(depression) is back in play.
Foreclosures are up, and the administration’s programs to stop them are down, well
below their stated goals, only helping a sixth of those promised assistance.
And here’s a statistic for you: 300,000. That’s the number of foreclosure filings
every month for the past 17 months. This year, 1.9 million homes will be lost,
down from 2 million last year. Is that progress? In July alone, 92,858 homes were
repossessed.
At the same time, the number of canceled mortgage modifications exceeded the
number of successful ones. According to Ml-implode.com, last month, “the number
of trial modification cancellations surged to 616,839, greatly outnumbering the
421,804 active permanent modifications."
And don’t think this problem only affects those homeowners about to go homeless.
According to the New York Times, Michael Feder, the chief executive of the real
estate data firm Radar Logic, says we are all at risk.
“My concern is that if we have another protracted housing dip, it’s going to bring
the economy down,” Mr. Feder said. “If consumers don’t think their houses are
worth what they were six months ago, they’re not going to go out and spend
money. I’m concerned this problem isn’t being addressed.”
The larger point is that even if you believe the economy is already down, it can go
lower. No one knows how to “fix" it either, just as BP couldn’t plug the “leak”
that, truth be told, is still oozing oil.
So what are we doing about it? Are we demanding debt relief or a moratorium on
foreclosures? Are we shutting down the foreclosure factories? Nope.
Progressives are spending time and wasting passion this August debating the
construction of an Islamic Cultural Center near Ground Zero, invariably responding
to the provocations and agenda of adversaries. They are always on the defense,
never taking the offense.
Who is beating the drum for job creation and a new economic policy? Maybe the
unions, but their voices are muted and ignored in the electronic noise machine.
Marches are planned for August 28 in Detroit and October 2 in Washington. But
the expected war of words between Rev. Al Sharpton and Glenn Beck over the
legacy of the March on Washington is expected to generate more heat.
Meanwhile, even as the administration seems to be finding signs of a “recovery,” a
parade of failures march on from the discovery that there is an oil slick the size
of Manhattan in the Gulf to the persistence of frauds in finance from state pension
funds in New Jersey to the case against the head of the Bank of America. Even
worse, ShoreBank, one of the banks that community activists considered a national
model of social responsibility has gone down in Chicago, the 104th bank to fail this
year, with 15 branches including some in Detroit and Cleveland. It was also active
in 40 countries. In June, it reported over $2 billion in deposits. By August, it was
gone.
In all, 349 U.S. banks have disappeared since 2007.
ShoreBank promoted itself as a community development and environmental bank.
Based in Michelle Obama’s old neighborhood, it boasted the slogan “Let's Change
the World.” Now the world of Wall Street has changed the bank with a
partnership of investors, including American Express, Bank of America and Goldman
Sachs, taking over under the name United Partnership.
Hundreds of other banks are on the FDIC hit parade and may be next.
There were many worse casualties in banking in the past according to Barry James
Dyke’s informative book, Pirates of Manhattan. He notes that 10,000 banks failed
during the Depression and 2,900 bit the dust in the S&L crisis. The current
number might have been higher had Congress not bailed out the Banksters who
used some of our money to play PacMan, gobbling up smaller institutions.
AP reported, “ShoreBank lost $39.5 million in the second quarter amid soured real
estate loans. The bank had been under a so-called cease and desist order from the
FDIC for more than a year, requiring it to boost its capital reserves. ShoreBank
was able to raise more than $146 million in capital this spring from several big
Wall Street institutions. It was unable, however, to secure federal bailout funds it
sought from the Treasury Department's Troubled Asset Relief Program.”
Republicans are “investigating” alleged administration support for the Bank, AP
explained:
Rep. Darrell Issa of California, the senior Republican on the House Oversight and
Government Reform Committee, sent a letter to a White House legal adviser asking
specific questions on possible contacts between administration officials and
executives of ShoreBank or potential investors. The White House has said no
administration officials met with ShoreBank concerning its rescue or requested help
from financial institutions on its behalf.
Questions raised by Republicans, of course, seek to politicize the issue when it is
the FDIC ‘s deal with the big banks that needs to be probed, as Zero Hedge
explains:
As it stands, Goldman and 11 other banks are receiving a multimillion-dollar gift to
conduct a portfolio liquidation run-off of ShoreBank's assets, while merely making
sure existing deposits are serviced.
(Note: the FDIC is led by a Republican. Hmm.)
Blogger Mike Shedlock concludes: “The FDIC's handling of Shore Bank smells as
bad as a pile of dead alewives on a Chicago beach in mid-July."
My question is: Why didn’t the administration help shore up ShoreBank (if it could
be shored up) as it did so many of the "too big to fail" banks? Its hands-off
attitude, perhaps in fear of criticism, helped doom the bank and, by extension,
the idea that we could have socially responsible lending institutions.
So much for the priorities and power of Obama’s “Chicago Mafia.”
If they don’t have the guts to save a bank in their own hometown, a bank they
know has meant so much to so many, is it any wonder they won’t take on the
crimes of Wall Street?
Last week, Treasury Secretary Tim Geithner complained he is being falsely
identified as a “Goldman guy,” and insisted that he never worked for the financial
institution that was recently branded a “giant squid on the face of humanity.”
Geithner doesn’t seem to realize that the speculation is not based on the details of
his resume but on an assessment of his track record as a toady for the pals he
worked with when he ran the Federal Reserve Bank in New York.
And by the way, Tim, why the holdup on the appointment of Elizabeth Warren to
run the new Consumer Financial Protection Bureau in your old institution? Is she too
smart and popular for you?
Why the fiddling while our modern Rome burns?
Danny Schechter writes the News Dissector blog for MediaChannel.org. His latest
book is PLUNDER: Investigating Our Economic Calamity (Cosimo Books).
The Economy is in Big Trouble
By MIKE WHITNEY
Imagine the reaction at the White House when the Department of Labor released
its weekly unemployment figures on Thursday. Jobless claims rose by 12,000 to
500,000 in the second week of August. There's been no improvement in the jobs
market in 9 months and now unemployment is edging upwards again. This wasn't
supposed to happen. The Obama administration had bet everything that the
economy had turned the corner and would gradually get better. Many economists
saw less than a 10 per cent chance that the economy would tip back into
recession. After all, double dip recessions are "extremely rare". Now more people
are losing their jobs and Team Obama is caught in the headlights. There is no
back-up plan, no Plan B. The Democrats will face the midterms with no stimulus to
create new jobs and with an economy that is steadily deteriorating. It's going to
be a massacre and they know it.
Obama and his lieutenants have stopped talking about austerity measures. The plan
to dismantle Social Security has been put on hold,( though the Commission headed
by the appalling former Senator Alan Simpson grinds on with its mission of
destruction.) No one wants to hear about belt tightening when the future is
uncertain and they're worried about losing their jobs. Obama will have to shift-
gears again; switch from promoting the elitist "privatize everything" agenda to his
"I feel your pain" routine. He might want to dig up some archived video of B.
Clinton chewing his lip and blinking back the tears.
All of the economic data is being revised downwards. The economy is in big trouble
and the politicians are just starting to catch on. Stocks fell sharply on Thursday
(Dow down 144 points) on news that manufacturing (Philly Fed Index) shrank in
August beyond analysts expectations. Nearly every category fell including shipments
and new orders. The Dow Jones is off 10 per cent since April 23, more than a
1,000 point loss in the last 4 months. Also, Moody's reported that commercial real
estate prices slipped another 4 per cent in June. According to Calculated risk
website, "Commercial real estate values are now down 41.3 per cent from the peak
in late 2007." It's a bloodbath.
Bond yields on US Treasuries continue to tumble as investor pessimism grows and
increasingly bleak news feeds the fears of another slump. The two-year note has
been setting records nearly every day. The benchmark 10-year which peaked at
3.99 per cent in April has since descended into Bernanke's inferno. It was last
seen parachuting to terra firma at 2.61 per cent. If it continues to plunge at this
rate, it will be below 2 per cent by year-end. Welcome to Japan.
Try to grasp the significance of bond yields. The business media spins the news
and tries to dress up the data with all kinds of happy talk. Bond yields reflect cold
hard reality. Investors only plunk their money into low-yielding liquid assets when
they're sure things are going to get worse. Much worse. The rumors of a "bond
bubble" is all nonsense. These aren't leveraged assets; there's no risk. People
accept modest returns because they're afraid to put their money anywhere else.
It's a referendum on failed monetary policy.
30-year mortgage rates are pinned to the 10-year which is why rates are lower
now than any time in history. Still, housing inventory continues to build. Realtors
are finding that they can't giveaway homes at any price. So much for the
American dream.
Policymakers at the Fed, the Treasury, the White House and the Congress now
look on as the foundations of the so-called recovery crack before their very eyes.
Many of their careers will undoubtedly follow the economy down the drain. As the
stimulus runs out, unemployment will rise, deleveraging and debt liquidation will gain
momentum, and the economy will succumb to a second vicious contraction. Digging
out will not be easy.
Mike Whitney lives in Washington state and can be reached at fergiewhitney@msn.
com.
The Iranian Threat
By Noam Chomsky
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July 2010
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The dire threat of Iran is widely recognized to be the most serious foreign policy
crisis facing the Obama administration. General Petraeus informed the Senate
Committee on Armed Services in March 2010 that "the Iranian regime is the
primary state-level threat to stability" in the U.S. Central Command area of
responsibility, the Middle East and Central Asia, the primary region of U.S. global
concerns. The term "stability" here has its usual technical meaning: firmly under U.
S. control. In June 2010 Congress strengthened the sanctions against Iran, with
even more severe penalties against foreign companies. The Obama administration
has been rapidly expanding U.S. offensive capacity in the African island of Diego
Garcia, claimed by Britain, which had expelled the population so that the U.S.
could build the massive base it uses for attacks in the Central Command area. The
Navy reports sending a submarine tender to the island to service nuclear-powered
guided-missile submarines with Tomahawk missiles, which can carry nuclear
warheads. Each submarine is reported to have the striking power of a typical
carrier battle group. According to a U.S. Navy cargo manifest obtained by the
Sunday Herald (Glasgow), the substantial military equipment Obama has dispatched
includes 387 "bunker busters" used for blasting hardened underground structures.
Planning for these "massive ordnance penetrators," the most powerful bombs in the
arsenal short of nuclear weapons, was initiated in the Bush administration, but
languished. On taking office, Obama immediately accelerated the plans and they
are to be deployed several years ahead of schedule, aiming specifically at Iran.
"They are gearing up totally for the destruction of Iran," according to Dan Plesch,
director of the Centre for International Studies and Diplomacy at the University of
London. "US bombers and long range missiles are ready today to destroy 10,000
targets in Iran in a few hours," he said. "The firepower of US forces has
quadrupled since 2003," accelerating under Obama.
The Arab press reports that an American fleet (with an Israeli vessel) passed
through the Suez Canal on the way to the Persian Gulf, where its task is "to
implement the sanctions against Iran and supervise the ships going to and from
Iran." British and Israeli media report that Saudi Arabia is providing a corridor
for Israeli bombing of Iran (denied by Saudi Arabia). On his return from
Afghanistan to reassure NATO allies that the U.S. will stay the course after the
replacement of General McChrystal by his superior, General Petraeus, Chair of the
Joint Chiefs of Staff Admiral Michael Mullen visited Israel to meet IDF Chief of
Staff Gabi Ashkenazi and senior military staff, along with intelligence and planning
units, continuing the annual strategic dialogue between Israel and the U.S. The
meeting focused "on the preparation by both Israel and the U.S. for the
possibility of a nuclear capable Iran," according to Haaretz, which reports further
that Mullen emphasized that, "I always try to see challenges from Israeli
perspective." Mullen and Ashkenazi are in regular contact on a secure line.
The increasing threats of military action against Iran are, of course, in violation of
the UN Charter and in specific violation of Security Council resolution 1887 of
September 2009 which reaffirmed the call to all states to resolve disputes related
to nuclear issues peacefully, in accordance with the Charter, which bans the use or
threat of force.
Some analysts, who seem to be taken seriously, describe the Iranian threat in
apocalyptic terms. Amitai Etzioni warns that, "The U.S. will have to confront Iran
or give up the Middle East," no less. If Iran's nuclear program proceeds, he
asserts, Turkey, Saudi Arabia, and other states will "move toward" the new
Iranian "superpower." To rephrase in less fevered rhetoric, a regional alliance
might take shape independent of the U.S. In the U.S. army journal Military
Review, Etzioni urges a U.S. attack that targets not only Iran's nuclear facilities,
but also its non-nuclear military assets, including infrastructure—meaning, the
civilian society. This kind of military action is akin to sanctions—causing 'pain' in
order to change behaviour, albeit by much more powerful means."
What is the Threat, Exactly?
Such inflammatory pronouncements aside, what exactly is the Iranian threat? An
authoritative answer is provided by military and intelligence reports to Congress in
April 2010 [Lieutenant General Ronald L. Burgess, Director, Defense Intelligence
Agency, Statement before the Committee on Armed Services, U.S. Senate, 14
April 2010; Unclassified Report on Military Power of Iran, April 2010; John J.
Kruzel, American Forces Press Service, "Report to Congress Outlines Iranian
Threats," April 2010 (www.defense.gov). The brutal clerical regime is doubtless a
threat to its own people, though it does not rank particularly high in that respect
in comparison to U.S. allies in the region. But that is not what concerns the
military and intelligence assessments. Rather, they are concerned with the threat
Iran poses to the region and the world.
The reports make it clear that the Iranian threat is not military. Iran's military
spending is "relatively low compared to the rest of the region," and minuscule as
compared to the U.S. Iranian military doctrine is strictly "defensive…designed to
slow an invasion and force a diplomatic solution to hostilities." Iran has only "a
limited capability to project force beyond its borders." With regard to the nuclear
option, "Iran's nuclear program and its willingness to keep open the possibility of
developing nuclear weapons is a central part of its deterrent strategy."
Though the Iranian threat is not military aggression, that does not mean that it
might be tolerable to Washington. Iranian deterrent capacity is considered an
illegitimate exercise of sovereignty that interferes with U.S. global designs.
Specifically, it threatens U.S. control of Middle East energy resources, a high
priority of planners since World War II. As one influential figure advised,
expressing a common understanding, control of these resources yields "substantial
control of the world" (A. A. Berle).
But Iran's threat goes beyond deterrence. It is also seeking to expand its
influence. Iran's "current five-year plan seeks to expand bilateral, regional, and
international relations, strengthen Iran's ties with friendly states, and enhance its
defense and deterrent capabilities. Commensurate with that plan, Iran is seeking to
increase its stature by countering U.S. influence and expanding ties with regional
actors while advocating Islamic solidarity." In short, Iran is seeking to
"destabilize" the region, in the technical sense of the term used by General
Petraeus. U.S. invasion and military occupation of Iran's neighbors is
"stabilization." Iran's efforts to extend its influence in neighboring countries is
"destabilization," hence plainly illegitimate. It should be noted that such revealing
usage is routine. Thus, the prominent foreign policy analyst James Chace, former
editor of the main establishment journal Foreign Affairs, was properly using the
term "stability" in its technical sense when he explained that in order to achieve
"stability" in Chile it was necessary to "destabilize" the country (by overthrowing
the elected Allende government and installing the Pinochet dictatorship).
Beyond these crimes, Iran is also carrying out and supporting terrorism, the
reports continue. Its Revolutionary Guards "are behind some of the deadliest
terrorist attacks of the past three decades,"including attacks on U.S. military
facilities in the region and "many of the insurgent attacks on Coalition and Iraqi
Security Forces in Iraq since 2003." Furthermore, Iran backs Hezbollah and
Hamas, the major political forces in Lebanon and in Palestine—if elections matter.
The Hezbollah-based coalition handily won the popular vote in Lebanon's latest
(2009) election. Hamas won the 2006 Palestinian election, compelling the U.S. and
Israel to institute the harsh and brutal siege of Gaza to punish the miscreants for
voting the wrong way in a free election. These have been the only relatively free
elections in the Arab world. It is normal for elite opinion to fear the threat of
democracy and to act to deter it, but this is a rather striking case, particularly
alongside of strong U.S. support for the regional dictatorships, emphasized by
Obama with his strong praise for the brutal Egyptian dictator Mubarak on the way
to his famous address to the Muslim world in Cairo.
Israel/Palestine
The terrorist acts attributed to Hamas and Hezbollah pale in comparison to U.S.-
Israeli terrorism in the same region, but they are worth a look nevertheless. On
May 25 Lebanon celebrated its national holiday Liberation Day, commemorating
Israel's withdrawal from southern Lebanon after 22 years, as a result of
Hezbollah resistance—described by Israeli authorities as "Iranian aggression"
against Israel in Israeli-occupied Lebanon (Ephraim Sneh). That, too, is normal
imperial usage. Thus. President John F. Kennedy condemned the "the assault from
the inside" in South Vietnam, "which is manipulated from the North." This
"assault" by the South Vietnamese resistance against Kennedy's bombers, chemical
warfare, programs to drive peasants to virtual concentration camps, and other such
benign measures was denounced as "internal aggression" by Kennedy's UN
Ambassador, liberal hero Adlai Stevenson. North Vietnamese support for their
countrymen in the U.S.-occupied South is aggression, intolerable interference with
Washington's righteous mission. Kennedy advisors Arthur Schlesinger and Theodore
Sorenson, considered doves, also praised Washington's intervention to reverse
"aggression" in South Vietnam—by the indigenous resistance, as they knew, at least
if they read U.S. intelligence reports. In 1955, the U.S. Joint Chiefs of Staff
had defined several types of "aggression," including "Aggression other than armed,
i.e., political warfare or subversion." For example, an internal uprising against a U.
S.-imposed police state, or elections that come out the wrong way. The usage is
also common in scholarship and political commentary, and makes sense on the
prevailing assumption that We Own the World.
Hamas resists Israel's military occupation and its illegal and violent actions in the
occupied territories. It is accused of refusing to recognize Israel (political parties
do not recognize states). In contrast, the U.S. and Israel not only do not
recognize Palestine, but have been acting relentlessly and decisively for decades to
ensure that it can never come into existence in any meaningful form. The governing
party in Israel, in its 1999 campaign platform, bars the existence of any
Palestinian state—a step towards accommodation beyond the official positions of
the U.S. and Israel a decade earlier, which held that there cannot be "an
additional Palestinian state" between Israel and Jordan, the latter a "Palestinian
state" by U.S.-Israeli fiat whatever its benighted inhabitants and government
might believe.
Hamas is charged with rocketing Israeli settlements on the border, criminal acts no
doubt, though a fraction of Israel's violence in Gaza, let alone elsewhere. It is
important to bear in mind, in this connection, that the U.S. and Israel know
exactly how to terminate the terror that they deplore with such passion. Israel
officially concedes that there were no Hamas rockets as long as Israel partially
observed a truce with Hamas in 2008. Israel rejected Hamas's offer to renew the
truce, preferring to launch the murderous and destructive Operation Cast Lead
against Gaza in December 2008, with full U.S. backing, an exploit of murderous
aggression without the slightest credible pretext on either legal or moral grounds.
Turkey, a Model for Democracy
The model for democracy in the Muslim world, despite serious flaws, is Turkey,
which has relatively free elections, and has also been subject to harsh criticism in
the U.S. The most extreme case was when the government followed the position of
95 percent of the population and refused to join in the invasion of Iraq, eliciting
harsh condemnation from Washington for its failure to comprehend how a
democratic government should behave: under our concept of democracy, the voice
of the Master determines policy, not the near-unanimous voice of the population.
The Obama administration was once again incensed when Turkey joined with Brazil
Same is true with politicians out of Texas, New Orleans, Illinois, Indiana, Massachusetts, Oregon,
Nebraska Florida, Ohio, Alaska and Arizona. The fact that a politician from Wyoming has expressed a
desire simply means as usual the mobsters want to cut social security.
Some very smart people don't like these banks that are too big to fail. To name a few, Joseph
Stiglitz, and Jefffery Sacks, Russ Feingold and Paul Volker. But on the other hand Germany and
Japan were built with banks that were too big to fail and China's t tremendous growth was bankrolled
by state owned banks that poured purchasing power into the economy with some good and some bad
loans. Feingold has fought bank consolidation his whole career and voted against financial reform that
didn't address too big to fail. I guess the reform bill contained a loop hole that will allow the
mobsters to start new shadow banks to the banking system. GE Capital is like a giant shadow bank and
has started lending before the big banks. I havn't followed this issue.
The Jews like to control and exploit everything. They control the US government and through the
government and Jews like Henry Kissinger got the US involved in Vietnam and bombed cambodia into
oblivion in order to control it. Then the Jewish Neocons got us into Iraq. But maybe Saddam was a nut
case. The mobsters but him in power when kennedy was president. Chomsky follows all the crazy
exploits of the Jew neocons and mobsters in US wars of aggression. That is why the only way to get
a Palestinian agreement is to bomb the Jew sleeze-balls into submission. As an example I cite quotes
from Obama psycho Jew former Israeli military chief of Staff: The White House chief of staff was
known for being proud about his elegant office, bragging "that his first-floor office was eight square
feet larger than the Vice President's, and closer to the Oval." Rattner relates that Emanuel ruled
"by a mixture of respect and fear." Emanuel could also be spectacularly blunt, once telling Rattner
during a meeting about GM and Chrysler's massive problems and potential bankruptcies: "Why even
save GM?" When Rattner adviser Ron Bloom noted that tens of thousands of autoworker jobs were
at stake, Emanuel huffed, "Fuck the UAW," referring to the United Auto Workers union."
It would be easier than the US invasion of Iraq to round up all the Jews and deport them to Israel.
You need to keep all the Jew parasite sadists in one place.
First the mobsters find this idiot Bush and make him president. Then they find an idiot like Palin. When
will they ever learn?
If conservatives take over congress in November chances are the government will never fix the
economy and it will slowly sink into depression.
All three of these democrats are mobsters. Bayh, Ben Nelson of Nebraska and Kent Conrad of North
Dakota — have signaled that they won't back a permanent repeal of the tax cuts for the wealthy.
Evan Bayh from Indiana where mob controlled Wellpoint is based and John Dillinger was sprung from
jail. i once met a gangster who visited lincoln nebraska where Ben Nelson resides and fucks up the
country. The mobsters make nothing but shit in Hollywood. They fuck up just about everything. They
are probably sad they have no one in Iraq to torture. August 31, 2010, 9:50 am
The Unbearable Pettiness Of Being Rich
Andrew Ross Sorkin’s column today makes Wall Street honchos sound like spoiled kids; they went for
Obama because he seemed like their kind of guy, then turned on him with a vengeance because they
think he’s looking at them funny.
Based on what I know, that’s about right.
I talked to some financial-industry backers of Obama back during primary season; they really didn’t
know or care much about policy issues, but were in love with Obama over his style — and also over the
prospect of being in his inner circle, something they knew wouldn’t happen with Hillary. Now they’re
mad because they don’t feel that they’re getting enough stroking.
And you have to bear in mind that this comes after Obama has made immense efforts to placate the
financial industry. There were no bank nationalizations; there were hardly any strings attached to
bailouts; the financial reform bill was by no means draconian given the scale of the disaster. But Wall
Street is furious that Obama might even hint that they caused the crisis — which he does, now and
then, because, well, they did.
And as far as I can tell, hardly any of the new anti-Obamanites is thinking at all about what will really
happen once John Boehner is speaker.
You know, one might have thought that having all the money in the world would make people less petty,
less concerned about whether they feel that they’re in the in-group. But nooooo [/Belushi]
The Billionaires Bankrolling the Tea Party
By FRANK RICH
Published: August 28, 2010
ANOTHER weekend, another grass-roots demonstration starring Real Americans who are mad as hell
and want to take back their country from you-know-who. Last Sunday the site was Lower Manhattan,
where they jeered the “ground zero mosque.” This weekend, the scene shifted to Washington, where
the avatars of oppressed white Tea Party America, Glenn Beck and Sarah Palin, were slated to
“reclaim the civil rights movement” (Beck’s words) on the same spot where the Rev. Martin Luther
King Jr. had his dream exactly 47 years earlier.
Fred R. Conrad/The New York Times
Frank Rich
Vive la révolution!
There’s just one element missing from these snapshots of America’s ostensibly spontaneous and
leaderless populist uprising: the sugar daddies who are bankrolling it, and have been doing so since
well before the “death panel” warm-up acts of last summer. Three heavy hitters rule. You’ve heard of
one of them, Rupert Murdoch. The other two, the brothers David and Charles Koch, are even richer,
with a combined wealth exceeded only by that of Bill Gates and Warren Buffett among Americans.
But even those carrying the Kochs’ banner may not know who these brothers are.
Their self-interested and at times radical agendas, like Murdoch’s, go well beyond, and sometimes
counter to, the interests of those who serve as spear carriers in the political pageants hawked on Fox
News. The country will be in for quite a ride should these potentates gain power, and given the
recession-battered electorate’s unchecked anger and the Obama White House’s unfocused political
strategy, they might.
All three tycoons are the latest incarnation of what the historian Kim Phillips-Fein labeled “Invisible
Hands” in her prescient 2009 book of that title: those corporate players who have financed the far
right ever since the du Pont brothers spawned the American Liberty League in 1934 to bring down F.
D.R. You can draw a straight line from the Liberty League’s crusade against the New Deal “socialism”
of Social Security, the Securities and Exchange Commission and child labor laws to the John Birch
Society-Barry Goldwater assault on J.F.K. and Medicare to the Koch-Murdoch-backed juggernaut
against our “socialist” president.
Only the fat cats change — not their methods and not their pet bugaboos (taxes, corporate
regulation, organized labor, and government “handouts” to the poor, unemployed, ill and elderly). Even
the sources of their fortunes remain fairly constant. Koch Industries began with oil in the 1930s and
now also spews an array of industrial products, from Dixie cups to Lycra, not unlike DuPont’s portfolio
of paint and plastics. Sometimes the biological DNA persists as well. The Koch brothers’ father, Fred,
was among the select group chosen to serve on the Birch Society’s top governing body. In a recorded
1963 speech that survives in a University of Michigan archive, he can be heard warning of “a takeover”
of America in which Communists would “infiltrate the highest offices of government in the U.S. until
the president is a Communist, unknown to the rest of us.” That rant could be delivered as is at any
Tea Party rally today.
Last week the Kochs were shoved unwillingly into the spotlight by the most comprehensive journalistic
portrait of them yet, written by Jane Mayer of The New Yorker. Her article caused a stir among
those in Manhattan’s liberal elite who didn’t know that David Koch, widely celebrated for his cultural
philanthropy, is not merely another rich conservative Republican but the founder of the Americans for
Prosperity Foundation, which, as Mayer writes with some understatement, “has worked closely with
the Tea Party since the movement’s inception.” To New Yorkers who associate the David H. Koch
Theater at Lincoln Center with the New York City Ballet, it’s startling to learn that the Texas branch
of that foundation’s political arm, known simply as Americans for Prosperity, gave its Blogger of the
Year Award to an activist who had called President Obama “cokehead in chief.”
The other major sponsor of the Tea Party movement is Dick Armey’s FreedomWorks, which, like
Americans for Prosperity, is promoting events in Washington this weekend. Under its original name,
Citizens for a Sound Economy, FreedomWorks received $12 million of its own from Koch family
foundations. Using tax records, Mayer found that Koch-controlled foundations gave out $196 million
from 1998 to 2008, much of it to conservative causes and institutions. That figure doesn’t include
$50 million in Koch Industries lobbying and $4.8 million in campaign contributions by its political action
committee, putting it first among energy company peers like Exxon Mobil and Chevron. Since tax law
permits anonymous personal donations to nonprofit political groups, these figures may understate the
case. The Kochs surely match the in-kind donations the Tea Party receives in free promotion 24/7
from Murdoch’s Fox News, where both Beck and Palin are on the payroll.
The New Yorker article stirred up the right, too. Some of Mayer’s blogging detractors unwittingly
upheld the premise of her article (titled “Covert Operations”) by conceding that they have been Koch
grantees. None of them found any factual errors in her 10,000 words. Many of them tried to change
the subject to George Soros, the billionaire backer of liberal causes. But Soros is a publicity hound
who is transparent about where he shovels his money. And like many liberals — selflessly or foolishly,
depending on your point of view — he supports causes that are unrelated to his business interests and
that, if anything, raise his taxes.
This is hardly true of the Kochs. When David Koch ran to the right of Reagan as vice president on the
1980 Libertarian ticket (it polled 1 percent), his campaign called for the abolition not just of Social
Security, federal regulatory agencies and welfare but also of the F.B.I., the C.I.A., and public schools
— in other words, any government enterprise that would either inhibit his business profits or increase
his taxes. He hasn’t changed. As Mayer details, Koch-supported lobbyists, foundations and political
operatives are at the center of climate-science denial — a cause that forestalls threats to Koch
Industries’ vast fossil fuel business. While Koch foundations donate to cancer hospitals like Memorial
Sloan-Kettering in New York, Koch Industries has been lobbying to stop the Environmental Protection
Agency from classifying another product important to its bottom line, formaldehyde, as a “known
carcinogen” in humans (which it is).
Tea Partiers may share the Kochs’ detestation of taxes, big government and Obama. But there’s a
difference between mainstream conservatism and a fringe agenda that tilts completely toward big
business, whether on Wall Street or in the Gulf of Mexico, while dismantling fundamental government
safety nets designed to protect the unemployed, public health, workplace safety and the subsistence
of the elderly.
Yet inexorably the Koch agenda is morphing into the G.O.P. agenda, as articulated by current
Republican members of Congress, including the putative next speaker of the House, John Boehner,
and Tea Party Senate candidates like Rand Paul, Sharron Angle, and the new kid on the block, Alaska’s
anti-Medicaid, anti-unemployment insurance Palin protégé, Joe Miller. Their program opposes a
federal deficit, but has no objection to running up trillions in red ink in tax cuts to corporations and
the superrich; apologizes to corporate malefactors like BP and derides money put in escrow for oil
spill victims as a “slush fund”; opposes the extension of unemployment benefits; and calls for a freeze
on federal regulations in an era when abuses in the oil, financial, mining, pharmaceutical and even egg
industries (among others) have been outrageous.
The Koch brothers must be laughing all the way to the bank knowing that working Americans are
aiding and abetting their selfish interests. And surely Murdoch is snickering at those protesting the
“ground zero mosque.” Last week on “Fox and Friends,” the Bush administration flacks Dan Senor and
Dana Perino attacked a supposedly terrorism-tainted Saudi prince whose foundation might contribute
to the Islamic center. But as “The Daily Show” keeps pointing out, these Fox bloviators never
acknowledge that the evil prince they’re bashing, Walid bin Talal, is not only the biggest non-Murdoch
shareholder in Fox News’s parent company (he owns 7 percent of News Corporation) and the
recipient of Murdoch mammoth investments in Saudi Arabia but also the subject of lionization
elsewhere on Fox.
No less a Murdoch factotum than Neil Cavuto slobbered over bin Talal in a Fox Business Channel
interview as recently as January, with nary a question about his supposed terrorist ties. Instead, bin
Talal praised Obama’s stance on terrorism and even endorsed the Democrats’ goal of universal health
insurance. Do any of the Fox-watching protestors at the “ground zero mosque” know that Fox’s
profits are flowing to a Obama-sympathizing Saudi billionaire in bed with Murdoch? As Jon Stewart
summed it up, the protestors who want “to cut off funding to the ‘terror mosque’ ” are aiding that
funding by watching Fox and enhancing bin Talal’s News Corp. holdings.
When wolves of Murdoch’s ingenuity and the Kochs’ stealth have been at the door of our democracy in
the past, Democrats have fought back fiercely. Franklin Roosevelt’s triumphant 1936 re-election
campaign pummeled the Liberty League as a Republican ally eager to “squeeze the worker dry in his
old age and cast him like an orange rind into the refuse pail.” When John Kennedy’s patriotism was
assailed by Birchers calling for impeachment, he gave a major speech denouncing their “crusades of
suspicion.”
And Obama? So far, sadly, this question answers itself.
James Galbraith says, "On the contrary: If unemployment can be cured, the
deficits we presently face will necessarily shrink. This is the universal experience
of rapid economic growth: tax revenues rise, public welfare spending falls, and the
budget moves toward balance. There is indeed no other experience in modern
peacetime American history, most recently in the late 1990s when the budget went
into surplus as full employment was reached." Now how do you argue with this
fact. It implies all the experts are parroting propaganda. There are plenty of
things the government could be spending money on. I'd like to see a per capita
arts budget equivalent to Vienna Austria and public transit like Germany.
This is what Jeffery Sack's says about Obama's economic policies. He's the guy
who fucked up the economies of Eastern Europe with the demise of the Soviet
Union. Passing Health care was more important to any other issue. There is plenty
of money to stimulate the economy. The US simply needs a wealth tax and to
spend it on the things Sacks recommends.
Posted: August 30, 2010 09:13 AM
Moving Beyond Washington's Stale Economic Debate
Last week's announcement of the slowdown in US economic growth underscores the
failure of the Obama Administration's economic strategy. The economy will not
grow fast enough to produce jobs and there is little recovery in sight. Moreover,
the budget deficit is likely to remain above $1 trillion for years to come, putting
America into a deeper and deeper fiscal crisis. Neither the Obama Administration
nor the Republican opposition has put forward a realistic response to the deepening
crisis.
It's easy to understand why the Administration's policies are failing. The
Administration believed that with a temporary stimulus the economy would revert
naturally to the situation before the financial crisis. The Administration counted on
personal saving rates reverting to the low levels of the pre-2008 period, at 3
percent of disposable income or less, and new home building to recover to more
than 1 million units per year. In this approach, the stimulus would boost the
economy during the short period needed to stabilize financial markets, after which
household spending on housing and personal consumption goods and services would
restore growth. Instead, the personal saving rate now tops 6 percent as debt-
strapped households continue to restrain their spending, and housing starts remain
below 600,000 units per year, and far below the rates of 2009, much less the
rates before the 2008 crisis.
The Obama strategy reflected a misjudgment about the macroeconomic situation.
The crisis of 2008 marked a watershed. The debt-driven consumer-led framework
of economic growth had hit the wall by 2008. Households were deep in debt after
years of over-spending, while critical investment needs (such as in infrastructure,
energy, and education) required our increased attention. The US economy was
losing long-term competitiveness. US consumer spending was creating jobs in China,
not in the US.
The US economy therefore needed structural change, not just a temporary boost
of deficit spending. The time had come to shift from consumption-led growth to
investment-led and export-led growth. The 2009 stimulus idea therefore failed on
three counts.
First, it distracted the government and country from the real task of building a
new framework for long-term growth. It squandered Obama's political capital in a
Hail Mary pass without a receiver downfield. Last year should have been the year
for carefully designing long-term investments in energy, transport, water and
sanitation, higher education and job skills. Instead, we got a hodgepodge of tax
cuts and scattered spending that is now running out. Second, it focused on "shovel-
ready" investments when few of those really exist, and what we needed was a
decade-long investment strategy based on well-designed policies. Third, Obama
took on the full political onus of the budget crisis by willfully boosting Bush's
roughly trillion-dollar deficit into a $1.5 trillion dollar deficit.
Readers of the economic news last week would have come across a report by the
Congressional Budget Office supposedly attributing between 2.0 million and 4.8
million jobs to the stimulus legislation compared with what would otherwise have
occurred. This report was used by the Administration to declare the stimulus a
great success, even in the same week that made clear that the economy is slowing.
Careful readers of the CBO Report, however, could quickly understand the paradox
of the supposed good news and poor economic outcomes.
The CBO didn't actually measure any actual effects of the stimulus, or suggest a
"counterfactual" economic scenario of what might have happened had the
Administration chosen a different strategy, such as one based on investment-led
recovery. All the CBO did was to apply assumed fiscal multipliers to the stimulus
policies, multipliers not based on observed outcomes but rather on economic
models. In other words, the CBO numbers are purely theoretical estimates, not in
any way tested or verified by actual outcomes. The CBO could have prepared its
report in January 2009 and come to the very same numbers it presented last week
since they were not based on actual outcomes during the past one-and-a-half years.
The debate over the stimulus is confused right across the political spectrum. On
the Administration's side and some on the left, the stimulus is defended on crude
Keynesian grounds (as in the CBO report) without recognizing that there are much
more promising alternatives that would address the economy's structural needs,
instead of a failed attempt to restore the pre-2008 consumption bubble. On the
Republican side, there is a far more reckless clamoring for further tax cuts on the
vague notion that tax cuts would spur growth and that spending cuts would follow on
to offset the tax cuts.
The Republican tax-cut approach lacks an iota of realism. The only major spending
cuts feasible are ending the two absurd and tragic wars and cutting back on
expensive and wasteful weapons systems. Yet the Republicans ardently support the
wars, the weapons systems, and the Pentagon budget. And even if we accomplished
all of the merited Pentagon cuts, that might reach around $300 billion of the more
than $1 trillion deficit.
While the Obama strategy offers us continued stagnation and chronic budget
deficits, the Republican strategy, if it can be dignified by that word, offers us a
complete collapse of the federal government (and state governments supported by
federal taxes) and of course even more explosive deficits. Neither side offers us a
realistic pathway to a healthy, growing, and job-creating economy, one based on
forward thinking with a time horizon of five to ten years.
Progressives have come to berate deficit hawks as if concern about the budget
deficit is somehow intrinsically reactionary. I view deficit reduction as progressive,
because it reflects a concern to protect our future wellbeing, and especially that of
our children. What counts is not deficit reduction per se, but how it's done. If it
comes as the Republicans propose, by slashing government programs for health,
education, retirement, and infrastructure, it would indeed be a disaster. If it
comes instead by taxing the banks, higher incomes, and fossil-fuel pollution
(initially at a low, but then rising rate), while simultaneously investing more in clean
energy, modern infrastructure, education and jobs skills, then deficit reduction is
prudent, progressive, and wholly supportive of sustainable prosperity.
The stimulus versus no-stimulus debate is passé. So too is the debate concerning
deficit increases versus deficit cuts. A new approach needs to be based on spurring
long-term investments -- in energy, infrastructure, environment, and people --
combined with a serious plan to restore fiscal integrity and the quality and honesty
of public-sector management. A serious plan should also cut outrageous CEO and
senior management salaries down to size, and use the saved enterprise income to
promote more job-sharing, skill training, improved pay, guaranteed leave and
vacation time, and improved work quality for the labor force. The poor and middle-
class need not suffer more in the process. They've been bamboozled for long
enough by the super-wealthy bankers and CEOs who took over both political parties
thirty years ago and have since manipulated Washington to ruin, for their own
personal benefit.
Why We Need a Second Stimulus
By LAURA TYSON
Published: August 28, 2010
Related
• Times Topic: Economic Stimulus (Jobs Bills)
OUR national debate about fiscal policy has become skewed, with far too much
focus on the deficit and far too little on unemployment. There is too much worry
about the size of government, and too little appreciation for how stimulus spending
has helped stabilize the economy and how more of the right kind of government
spending could boost job creation and economic growth. By focusing on the wrong
things, we are in serious danger of failing to do the right things to help the
economy recover from its worst labor market crisis since the Great Depression.
The primary cause of the labor market crisis is a collapse in private demand — the
same problem that bedeviled the economy in the 1930s. In the wake of the
financial shocks at the end of 2008, spending by American households and
businesses plummeted, and companies responded by curbing production and shedding
workers. By late 2009, in response to unprecedented fiscal and monetary stimulus,
household and business spending began to recover. But by the second quarter of
this year, economic growth had slowed to 1.6 percent, according to a government
estimate issued Friday. Clearly, the pace of recovery is far slower than what is
needed to restore the millions of jobs that have been lost.
Households and businesses are on a saving spree to rebuild their balance sheets.
Their spending relative to income has fallen more than at any time since the end of
World War II. So there is now a substantial gap between the supply of goods and
services the economy is capable of producing and the demand for them. This gap is
starkly reflected by the 23 million Americans who are looking for full-time jobs
and the millions more who have left the labor force because they could not find one.
The situation would be even worse without the $787 billion fiscal stimulus package
passed in 2009. The conventional wisdom about the stimulus package is wrong: it
has not failed. It is working as intended. Its spending increases and tax cuts have
boosted demand and added about three million more jobs than the economy
otherwise would have. Without it, the unemployment rate would be about 11.5
percent. Because about 36 percent of the money remains to be spent, more jobs
will be created — about 500,000 by the end of the year.
But by next year, the stimulus will end, and the flip from fiscal support to fiscal
contraction could shave one to two percentage points off the growth rate at a time
when the unemployment rate is still well above 9 percent. Under these
circumstances, the economic case for additional government spending and tax relief
is compelling. Sadly, polls indicate that the political case is not.
Two forms of spending with the biggest and quickest bang for the buck are
unemployment benefits and aid to state governments. The federal government
should pledge generous financing increases for both programs through 2011.
Federal aid to the states is especially important because they finance education.
Although the jobs crisis is primarily a crisis of demand, it also reflects a mismatch
between the education of the work force and the education required for jobs in
today’s economy. Consider how the unemployment rate varies by education level: it’s
more than 14 percent for those without a high school degree, under 10 percent
for those with one, only about 5 percent for those with a college degree and even
lower for those with advanced degrees. The supply of college graduates is not
keeping pace with demand. Therefore, more investment in education could reduce
both the cyclical unemployment rate, as more Americans stay in school, and the
structural unemployment rate, as they graduate into the job market.
An increase in government investment in roads, airports and other kinds of public
infrastructure would be cost-effective, too, as measured by the number of jobs
created per dollar of spending. And it would help reduce the road congestion,
airport delays and freight bottlenecks that reduce productivity and make the
United States a less attractive place to do business. The American Society of
Engineers has identified more than $2.2 trillion in public infrastructure needs
nationwide, and a 2008 study by the Congressional Budget Office found that, on
strict cost-benefit grounds, it would make sense to increase annual spending on
transportation projects alone by 74 percent.
Over the next five years, the federal government should work with state and local
governments and the private sector to finance $1 trillion worth of additional
investment in infrastructure. It should extend the Build America Bonds stimulus
program, which in the past year has helped states finance $120 billion in
infrastructure improvement.
The federal government should also create and capitalize a National Infrastructure
Bank that would provide greater certainty about the level of infrastructure
financing over several years, select projects based on rigorous cost-benefit
analysis, invest in things like interstate high-speed rail that require coordination
among states and attract private co-investors in projects like toll roads and
airports that generate dedicated future revenue streams.
But can the government afford this additional spending? The answer is yes. Despite
the large federal deficit, global savers, including savings-hungry American
households, are snapping up United States government securities at very low
interest rates. And they will continue to do so as long as there is ample slack in
the economy and inflation remains subdued. Over the next few years, there is little
risk that federal deficits will crowd out private investment or precipitate a crisis
of confidence in the American government, a spike in American interest rates or a
sudden drop in the dollar.
On the other hand, as long as private demand remains weak, the risk is
uncomfortably high that trying to reduce the deficit — by cutting spending or
increasing taxes — will tip the economy back into recession or condemn it to years
of faltering growth and debilitating unemployment. In fact, either outcome would
depress tax revenue and could mean larger deficits.
Faced with these risks, as long as the economy is operating far below potential,
policy makers should do two seemingly contradictory things. First, they should
provide additional fiscal support for job creation and growth. And, second, they
should enact a credible multiyear plan now to stabilize the ratio of federal debt to
gross domestic product gradually as the economy recovers.
By easing capital market concerns about the government’s future borrowing needs,
such a plan would permit larger deficits and slower debt reduction while
unemployment is still high. The long-run debt problem — the result of imprudent
fiscal decisions before the recession, escalating health care costs and an aging
population — must be addressed once the economy has recovered. But for now the
priorities of fiscal policy should be jobs and investment.
Laura Tyson, a professor at the Haas School of Business at the University of
California, Berkeley, was chairwoman of the Council of Economic Advisers and the
National Economic Council in the Clinton administration. She is a member of
President Obama’s Economic Recovery Advisory Board.
Taming Finance in an Age of Austerity
Joseph E. Stiglitz
NEW YORK – It was not long ago that we could say, “We are all Keynesians now.”
The financial sector and its free-market ideology had brought the world to the
brink of ruin. Markets clearly were not self-correcting. Deregulation had proven to
be a dismal failure.
The “innovations” unleashed by modern finance did not lead to higher long-term
efficiency, faster growth, or more prosperity for all. Instead, they were designed
to circumvent accounting standards and to evade and avoid taxes that are required
to finance the public investments in infrastructure and technology – like the
Internet – that underlie real growth, not the phantom growth promoted by the
financial sector.
The financial sector pontificated not only about how to create a dynamic economy,
but also about what to do in the event of a recession (which, according to their
ideology, could be caused only by a failure of government, not of markets).
Whenever an economy enters recession, revenues fall, and expenditures – say, for
unemployment benefits – increase. So deficits grow.
Financial-sector deficit hawks said that governments should focus on eliminating
deficits, preferably by cutting back on expenditures. The reduced deficits would
restore confidence, which would restore investment – and thus growth. But, as
plausible as this line of reasoning may sound, the historical evidence repeatedly
refutes it.
When US President Herbert Hoover tried that recipe, it helped transform the
1929 stock-market crash into the Great Depression. When the International
Monetary Fund tried the same formula in East Asia in 1997, downturns became
recessions, and recessions became depressions.
The reasoning behind such episodes is based on a flawed analogy. A household that
owes more money than it can easily repay needs to cut back on spending. But when
a government does that, output and incomes decline, unemployment increases, and
the ability to repay may actually decrease. What is true for a family is not true
for a country.
More sophisticated advocates warn that government spending will drive up interest
rates, thus “crowding out” private investment. When the economy is at full
employment, this is a legitimate concern. But not now: given extraordinarily low
long-term interest rates, no serious economist raises the “crowding out” issue
nowadays.
In Europe, especially Germany, and in some quarters in the US, as government
deficits and debt grow, so, too, do calls for increased austerity. If heeded, as
appears to be the case in many countries, the results will be disastrous, especially
given the fragility of the recovery. Growth will slow, with Europe and/or America
possibly even slipping back into recession.
Stimulus spending, the deficit hawks’ favorite bogeyman, did not cause most of the
increased deficits and debt, which are the result of “automatic stabilizers” – the
tax cuts and spending increases that automatically accompany economic fluctuations.
So, as austerity undermines growth, debt reduction will be marginal at best.
Keynesian economics worked: if not for stimulus measures and automatic
stabilizers, the recession would have been far deeper and longer, and unemployment
much higher. This does not mean that we should ignore the level of debt. But what
matters is long-term debt.
There is a simple Keynesian recipe: First, shift spending away from unproductive
uses – such as wars in Afghanistan and Iraq, or unconditional bank bailouts that do
not revive lending – toward high-return investments. Second, encourage spending
and promote equity and efficiency by raising taxes on corporations that don’t
reinvest, for example, and lowering them on those that do, or by raising taxes on
speculative capital gains (say, in real estate) and on carbon- and pollution-intensive
energy, while cutting taxes for lower-income payers.
There are other measures that might help. For example, governments should help
banks that lend to small- and medium-size enterprises, which are the main source
of job creation – or establish new financial institutions that would do so – rather
than supporting big banks that make their money from derivatives and abusive
credit card practices.
Financial markets have worked hard to create a system that enforces their views:
with free and open capital markets, a small country can be flooded with funds one
moment, only to be charged high interest rates – or cut off completely – soon
thereafter. In such circumstances, small countries seemingly have no choice:
financial markets’ diktat on austerity, lest they be punished by withdrawal of
financing.
But financial markets are a harsh and fickle taskmaster. The day after Spain
announced its austerity package, its bonds were downgraded. The problem was not
a lack of confidence that the Spanish government would fulfill its promises, but too
much confidence that it would, and that this would reduce growth and increase
unemployment from its already intolerable level of 20%. In short, having gotten the
world into its current economic mess, financial markets are now saying to countries
like Greece and Spain: damned if you don’t cut back on spending, but damned if you
do as well.
Finance is a means to an end, not an end in itself. It is supposed to serve the
interests of the rest of society, not the other way around. Taming financial
markets will not be easy, but it can and must be done, through a combination of
taxation and regulation – and, if necessary, government stepping in to fill some of
the breaches (as it already does in the case of lending to small- and medium-size
enterprises.)
Unsurprisingly, financial markets do not want to be tamed. They like the way
things have been working, and why shouldn’t they? In countries with corrupt and
imperfect democracies, they have the wherewithal to resist change. Fortunately,
citizens in Europe and America have lost patience. The process of tempering and
taming has begun. But there is far more yet to do.
Joseph E. Stiglitz is University Professor at Columbia University and a Nobel
laureate in Economics. His latest book, Freefall: Free Markets and the Sinking of
the Global Economy, is now available in French, German, Japanese, and Spanish.
Copyright: Project Syndicate, 2010.
www.project-syndicate.org
For a podcast of this commentary in English, please use this link:
http://media.blubrry.com/ps/media.libsyn.com/media/ps/stiglitz127.mp3
Robert Reich: Why Cheaper Money Won't Mean More Jobs
from Politics on HuffingtonPost.com by Robert Reich
Can the Fed rescue the economy by making money even cheaper than it already is?
A debate is being played out in the Fed about whether it should return to so-called
"quantitative easing" -- buying more mortgage-backed securities, Treasury bills,
and other bonds -- in order to lower the cost of capital still further.
The sad reality is that cheaper money won't work. Individuals aren't borrowing
because they're still under a huge debt load. And as their homes drop in value and
their jobs and wages continue to disappear, they're not in a position to borrow.
Small businesses aren't borrowing because they have no reason to expand. Retail
business is down, construction is down, even manufacturing suppliers are losing
ground.
That leaves large corporations. They'll be happy to borrow more at even lower
rates than now -- even though they're already sitting on mountains of money.
But this big-business borrowing won't create new jobs. To the contrary, large
corporations have been investing their cash to pare back their payrolls. They've
been buying new factories and facilities abroad (China, Brazil, India), and new
labor-replacing software at home.
If Bernanke and company make it even cheaper to borrow, they'll be unleashing a
third corporate strategy for creating more profits but fewer jobs -- mergers and
acquisitions.
The M&A wave has already started. Continental and United Airlines just got
approval to merge. Biotech giant Genzyme is on the auction block after Sanofi-
Aventis announced a $18.5 billion bid. On Friday, 3Par, a data storage company,
accepted a $1.8 billion takeover offer from Dell -- one day after Hewlett-Packard
raised its offer. Campbell's Soup is eying parts of United Biscuits, BHP Billiton has
put in a takeover bid for Potash, Oracle or H-P are likely to pay up to $1.5 billion
for security software maker ArcSight. Bain Capital is expected to acquire Air
Medical Group for almost $1 billion. The insurance industry is headed for the
biggest merger boom in recent history.
Who wins from all this? If history is a guide, shareholders of acquired companies
do better than shareholders of companies doing the acquiring. Top executives who
end up running bigger corporations get fatter pay packages. And Wall Street and
big-name corporate law firms who engineer the M&As reap a bundle.
Who loses? Large numbers of ordinary workers will lose their jobs. After all, the
purpose M&As is to create greater economies of scale and more "synergies."
Translated: More pink slips.
Last week in Jackson Hole, Ben Bernanke insisted the Fed will do what's necessary
to increase consumer and business spending in order to keep the economy growing.
But cheaper money won't necessarily create the kind of spending that generates
more jobs. In fact, right now it's having the opposite effect. When consumers and
small businesses can't and won't borrow more, big businesses use cheap money to
bid up the prices of corporate assets and cut payrolls.
What we need now is more jobs, not bigger corporations.
This post originally appeared at RobertReich.org
Feldstein Sees `Significant Risk' of Recession Again
By Vivien Lou Chen and Kathleen Hays - Aug 27, 2010 10:16 AM CT Fri Aug 27 15:
16:28 GMT 2010
Martin Feldstein, professor of economics at Harvard University, poses for a
portrait during the Federal Reserve Bank of Kansas City annual symposium near
Jackson Hole, Wyoming. Photographer: Andrew Harrer/Bloomberg
Play Video
Aug. 27 (Bloomberg) -- Martin Feldstein, an economics professor at Harvard
University, discusses the outlook for the U.S. economy. Feldstein talks with
Bloomberg's Michael McKee and Betty Liu from the Fed's annual symposium in
Jackson Hole, Wyoming. (Source: Bloomberg)
The U.S. economy remains “weak” and “fragile” and has a “significant” chance of
falling back into a recession, Harvard University economics professor Martin
Feldstein said in an interview with Bloomberg Radio.
“I would say there’s still a significant risk, maybe one chance in three, that there
will be a double dip, real GDP falling, before we’re in the clear,” said Feldstein,
member of the committee at the National Bureau of Economic Research that dates
the beginning and end of recessions.
The U.S. economy grew at a 1.6 percent annual rate in the second quarter, less
than previously estimated, based on revised Commerce Department figures released
today. A separate report showed confidence among consumers rose less than
forecast in August from an eight-month low, indicating the biggest part of the
economy will be slow to recover.
“We see a weak economy,” Feldstein said. “We see a fragile economy that is
growing at a slower pace.”
Data released earlier this week show a further slide in home sales and a drop in
business spending on equipment, prompting economists such as Joseph LaVorgna,
managing director of Deutsche Bank Securities Inc., to reduce third-quarter
growth estimates.
1.6 Percent Growth
The 1.6 percent growth rate is still “very weak” and another slump would signal
that the nation remains mired in a recession, Feldstein, 70, said in a separate
interview with Bloomberg Television from Jackson Hole, Wyoming, where the
Federal Reserve is holding its annual symposium.
“If the economy turns down again, we would still be in recession, but that remains
to be seen,” said the New York-born economist, who twice served as president of
the NBER from 1977 to 1982 and from 1984 to 2008.
Today’s GDP estimate is the second for the quarter, with the final figures set for
release on Sept. 30. The economy grew at a 3.7 percent pace in the first quarter.
Feldstein’s remarks contrast with those of Federal Reserve Chairman Ben S.
Bernanke, who told conference attendees that “the preconditions for a pickup in
growth in 2011 appear to remain in place.”
U.S. stocks rose, paring the market’s weekly loss, as Bernanke signaled the central
bank is willing to do more to boost the economy. The Standard & Poor’s 500 Index
gained 0.5 percent to 1,052.38 as of 10:48 a.m. in New York.
To contact the reporter on this story: Vivien Lou Chen in San Francisco at
vchen1@bloomberg.net
Statement on Evans Stimulus Letter from Davidson,
Galbraith, Skidelsky
by James K. Galbraith
| 14 CommentsOn July 19, The Daily Beast published Harold Evans’s letter
“Stimulus Now“, which calls for urgent action on unemployment.
Signatories include Roosevelt Chief Economist and Senior Fellow Joseph Stiglitz as
well as Roosevelt Braintruster Sean Wilentz. While agreeing with the letter’
s central idea, Davidson, Galbraith, and Skidelsky declined to sign due to a
difference of opinion on deficits. Their position is outlined below.We three were
each asked to sign the letter organized by Sir Harold Evans and now co-signed by
many of our friends, including Joseph Stiglitz, Robert Reich, Laura Tyson, Derek
Shearer, Alan Blinder and Richard Parker. We support the central objective of the
letter — a full employment policy now, based on sharply expanded public
effort. Yet we each, separately, declined to sign it.Our reservations centered on
one sentence, namely, “We recognize the necessity of a program to cut the
mid-and long-term federal deficit.. ” Since we do not agree with this
statement, we could not sign the letter.Why do we disagree with this statement?
The answer is that apart from the effects of unemployment itself the United
States does not in fact face a serious deficit problem over the next generation,
and for this reason there is no “necessity [for] a program to cut the mid-
and long-term deficit.”On the contrary: If unemployment can be cured, the
deficits we presently face will necessarily shrink. This is the universal experience
of rapid economic growth: tax revenues rise, public welfare spending falls, and the
budget moves toward balance. There is indeed no other experience in modern
peacetime American history, most recently in the late 1990s when the budget went
into surplus as full employment was reached.We agree that health care costs are
an important issue. But health care is a burden faced by both the public and
private sectors, and cost control is a job for health policy, not budget policy.
Cutting the public element in health care - Medicare, especially - in response to
the health care cost problem is just a way of invidiously targeting the elderly who
are covered by that program. We oppose this.The long-term deficit scare story
plays into the hands of those who will argue, very soon, for cuts in Social Security
as though these were necessary for economic reasons. In fact, Social Security is a
highly successful program which (along with Medicare) maintains our entire elderly
population out of poverty and helps to stabilize the macroeconomy. It is a transfer
program and indefinitely sustainable as it is.We call on fellow economists to
reconsider their casual willingness to concede to an unfounded hysteria over
supposed long-term deficits, and to concentrate instead on solving the vast
problems we presently face. It would be tragic if the Evans letter and similar
efforts - whose basic purpose we strongly support - led to acquiescence in Social
Security and Medicare cuts that impoverish America’s elderly just a few
years from now.Paul Davidson is the Editor of the Journal of Post Keynesian
Economics and author of “The Keynes Solution.”James K. Galbraith
is a Professor at The University of Texas at Austin and author of “The
Predator State.”Lord Robert Skidelsky is the author, most recently, of
“Keynes: The Return of the Master.
”Paul DavidsonMaking dollars and sense of the U.S.government
debtAbstract: This paper explain why, given Keynes’s General Theory,
worries overthe size of the government’s national debt per se is foolish. It
is more importantto educate politicians and the public that government fiscal policy
should be designedto make sure that aggregate market demand will produce
sufficient profitsso that entrepreneurs will hire all domestic workers willing and
able to work.Empirical evidence is provided to demonstrate the correctness of this
conceptof fiscal policy of the balancing wheel for full employment effective demand.
Key words: deficits, national debt.No economic topic encourages more political
demagoguery than the“unsustainable” national deficits that face the
Obama administration asit tries to extricate the economy from this Great
Recession that beganin 2007. Even President Obama has appointed a commission to
developa plan to assure a reduction in future deficits by lowering
governmentexpenditures or raising taxes.A sage once said, “Those who
cannot remember the past are condemnedto repeat its errors.” So let us
review the past history of the national debtto make sure we avoid its errors and
repeat its successes.Is the national debt too large? In 1790, the newly founded U.
S. governmentassumed the debts that had been incurred during the
RevolutionaryWar. Thus, from the very beginning, the U.S. national debt
wasapproximately $75 million. In 1835, President Jackson reduced the debtto close
to a zero balance. By 1837, however, the economy went into asteep recession that
lasted approximately six years and the national debtincreased dramatically. Since
then, the U.S. government has always hada significant outstanding debt.Paul
Davidson is editor of the Journal of Post Keynesian Economics and author of
TheKeynes Solution: The Path to Global Economic Prosperity.10 editors corner.indd
663 4/25/2010 2:51:16 AM664 JOURNAL OF POST KEYNESIAN ECONOMICS
During World War I, the national debt increased substantially from
approximately$6 billion in 1916 to over $27 billion in 1919. The prosperousdecade
of the “roaring twenties” saw a decline in the national debtas tax
receipts exceeded government spending. By 1929, the total debthad been reduced
to $16.9 billion. This 1920s experience indicates thatwhen the private sector is
spending sufficiently to buy all the productsthat industry can produce in a fully
employed economy, then there is noneed for the government to deficit spend
merely to maintain a prosperouseconomy. The 1920s prosperity, however, was
partly the result ofsignificant bubbles in the stock market and in real estate.
(Shades of thedot.com bubble of the 1990s and the housing bubble of early 2000s.)
In 1929, private spending suddenly slowed causing a devastating dropin business
profits. Unemployment rose rapidly as the United Statesentered the Great
Depression. Tax revenues fell from $4 billion in 1930to less than $2 billion in
1932. When Roosevelt took office in 1933, thenational debt was almost $20 billion;
a sum equal to 20 percent of theU.S. gross domestic product (GDP).During its first
term, the Roosevelt administration ran large annualdeficits between 2 and 5 percent
of GDP. By 1936, the national debt hadincreased to $33.7 billion or approximately
40 percent of GDP. Many“experts” of that era said disaster
awaited the nation if the governmentcontinued to deficit spend and thereby burden
future generations with thishuge debt. Accordingly, as a part of his reelection
campaign, Roosevelt’sfiscal year 1937 budget submitted to Congress in
1936 cut governmentspending dramatically. As a result, in 1937, the economy fell
into a steeprecession. Tax revenues declined and the national debt increased to
$37billion. The government resumed significant deficit spending in 1938and the
economy quickly recovered. By 1940, the economy had grownsubstantially while the
national debt rose to $43 billion.When the United States entered the war in 1941,
the fear of deficits andthe size of the national debt were forgotten. The
important thing was todefeat the enemy. In the war years from 1941 to 1945, the
GDP doubledwhile the national debt increased by more than 500 percent as
Rooseveltfinanced much of the war expenditures by government borrowing. By
theend of the war in 1945, the national debt had increased to $258 billionand was
equal to approximately 120 percent of GDP.Rather than bankrupting the nation, this
large growth in the nationaldebt promoted a prosperous economy. By 1946, the
average Americanhousehold was living much better economically than in the
prewardays. Moreover, the children of that Depression–World War II
generationwere not burdened by having to pay off what then was considered10
editors corner.indd 664 4/25/2010 2:51:16 AMMaking Dollars and Sense of the U.
S. Government Debt 665a huge national debt. Instead, for the next
quarter century, the economycontinued on a path of unprecedented economic growth
and prosperitywith the Eisenhower administration launching the biggest public
worksproject—the interstate highway system—and the
Kennedy–Johnsonadministration spending large sums on sending a man to the
moon andthe escalating Vietnam War. At the same time, the inequality in the
distributionof income was significantly narrowed. It was the golden ageof economic
development for the United States as the rich grew richerwhile the poor gained
even more in a rapidly rising level of income thatcreated a large American middle
class.As a child of the Depression and a young teenager during the WorldWar II,
I have never felt burdened by the huge government deficits thataccrued due to
government spending during the Great Depression andthe war that followed. The
legacy that the Great Generation who wereadults during the depression and the war
left to their children was aneconomy of abundance and prosperity. I inherited an
economy that madefinding a good job easy for me and all of my cohorts and
provided excellentopportunities to improve our living standards. If this is
burdeningchildren and grandchildren, I hope the current generation can create
sucha “burden” for their progeny.The moral of this history of the
national debt and the economy duringthe Great Depression and World War II is
that we have nothing to fearabout running big government deficits when, during a
recession withsignificant unemployment, the federal government is the only
spenderthat can take the responsibility to sufficiently increase the market
demandfor the products of our industries and thereby maintain a profitable
entrepreneurialsystem. For government to spend less in the hopes of keepingdown
the size of the national debt will cause market demand to remainslack, thereby
impoverishing both our business firms and our workers.The idea that capitalism
works best when spenders cause healthy growthin market demands and thereby
generate profits and jobs for the communitywas the basic message of Keynes
theory.This was clearly demonstrated when government spending increasedduring
the years 1933–36 and 1938–45. When Roosevelt cut spendingin
1937, the sharp recession showed that at that stage of recovery, noother
spenders were willing or able to take over from government therole of generator of
market demand and profits for American businesses.Had Roosevelt, in 1938,
continued on the path of keeping governmentspending in check in order not to
increase the total national debt, theresult would have been to propagate the poorly
performing economyof 1937. When the war broke out and no further thought was
given to the size of the national debt, government spending quickly pushed
theeconomy to a profitable full employment status. Keynes’s ideas that
therole of government fiscal policy was to make sure that the total demandfor
goods and services provided profit opportunities to encourage businessfirms to hire
all workers who wanted a job was validated by thishistorical record.Business firms
will hire more workers only when they expect the marketdemand for their products
is increasing. Today, who are these buyers whowill be willing to buy significantly
more products from factories locatedin the United States in order to end this
Great Recession? Clearly householdssuffering from high unemployment, decreasing
market values fortheir homes, large credit card debt, and shrinking pension funds
are notlikely to rush to buy significant more goods and services. Entrepreneurswith
existing excess facilities and facing declining or at most not rapidlyrising market
demands are unlikely to invest significantly in new plant andequipment. Moreover,
foreigners such as China with its large savings ofU.S. dollar earnings appears
unlikely to spend more dollars to buy moreU.S.‑produced goods. With
falling property and sales tax revenues, localand state governments such as
California are cutting spending on publicservices and reducing purchases from
domestically located firms. Onlythe Federal government can afford to buy
significant additional productsto stimulate market demand for American products.
Just as we expect the Federal government to spend whatever is necessaryto
protect us from foreign enemies during a war, we should alsoexpect the government
to spend whatever is necessary to protect usfrom the economic terrorism of a
great recession. The public must beeducated to understand that a civilized society
is one that assures bothdomestic workers and enterprises prosper and that the
intelligent use ofgovernment fiscal policy can assure that total market demand is
alwayssufficient to generate domestic profits large enough to create a
fullyemployed economy.Some argue that tax revenues must finance all government
spendingso that the federal budget is always balanced without deficits, or at
leastannual deficits do not increase the debt-to-GDP ratio. As history shows,
however, even during World War II when America was attacked by foreignnations
(remember Pearl Harbor?) the U.S. government did not financethe entire defense
of this nation by raising taxes. Instead, during the waryears, deficits expanded
dramatically while no one worried (correctly)about burdening future generations with
debt.If wars are not sufficient (or necessary) reasons to raise taxes or
cutgovernment spending sufficiently to balance the budget while protecting the
nation, then why should defending the nation against serious economicthreats
require a balanced budget or a lower deficit? Our politicians andthe public must be
educated to understand that when total demand fordomestically produced goods is
low so that recession and depressionthreaten, then government must deficit spend
as much as necessary toencourage domestic entrepreneurs to hire all American
workers whoare willing and able to work. If, on the other hand, market demand
fordomestically produced goods and services exceed America’s full
employmentproductive capacity, then government must increase taxes andreduce
spending in order to reduce aggregate demand to a level that canbe met by a fully
employed labor force.When the public and politicians recognize that a primary
function ofgovernment fiscal policy is to act as a balancing wheel for
aggregatedemand to be sufficient to encourage America’s entrepreneurs to
createjobs for all our workers, we will have developed the political will todevelop a
perpetual prosperous American civilized society.At that point of time, our next
task will be to develop an internationalfinancial and payments system that will
provide for global full employmentand prosperity.Future generations will curse us
for cutting in a slump
Robert Skidelsky and Michael KennedyFinancial Times | Wednesday, July 28, 2010
In 1937 Keynes wrote: “The boom, not the slump, is the right time for
austerity at the Treasury.” Jean-Claude Trichet, president of the European
Central Bank, disagrees. Stripped of its jargon, his argument last Friday in the
Financial Times is that fiscal retrenchment is needed to “consolidate
recovery”. This has become the standard European – though not
American – line. “Failure to address the deficit is the greatest
danger we face,” said UK Treasury minister Lord Sassoon in the House of
Lords on Monday, faithfully echoing the words of his master, chancellor George
Osborne. But beyond vaguely referring to the need to restore “
confidence”, none of the cutters can explain how reducing public spending
when private spending is already depressed will “consolidate
recovery”.By contrast, Keynesian theory can readily explain why it will not.
The government, Keynes argued, is the only agency that can prevent total spending
in the economy from falling below a full or acceptable employment level. If private
spending is depressed, it can restore total spending to a reasonable level by adding
to its own spending or reducing taxes.In doing so it will be adding to a deficit that
is already the result of falling tax revenues and rising benefits due to the
recession. The deficit, though, has the function of sustaining the level of total
spending and output in the economy.Any attempt to reduce it before a strong
momentum to private sector recovery is established will make matters worse. Once
the economy has started to grow, the deficit incurred during the recession will
automatically shrink to a pre-recession level. Deliberate steps to eliminate the
“structural” (ie non-recession induced) deficit should be postponed
until the recovery is firmly entrenched. With the budget balanced, or even in
surplus, at high employment, continued growth will steadily reduce the national debt
as a percentage of gross domestic product. This is what happened after the
second world war.In Keynesian theory, monetary and fiscal policy are parts of a
single process, not alternatives. In the early stages, money may have to be
created to finance the deficit; the spending of this money generates the extra
saving needed to “pay for” the investment; the rise in national
income improves public revenues, thus helping the deficit to fall.Contrary to a
widespread view, the deficit does not impose a burden on future generations.
There is no repayment burden because the government, unlike private individuals,
can and normally does repay its maturing debts by borrowing again. (In the last
resort, it can print money).As for the interest burden that is said to arise when
the interest is paid by taxation rather than by fresh borrowing, it is merely a
transfer payment. Income is transferred from taxpayers to bond-holders. In the
case of the UK, most of these bond-holders are domestic. The transfer is
therefore a redistribution rather than a loss of income.If, however, the public
deficit is cut now, there will undoubtedly be a burden on both present and future
generations. Income and profits will be lowered straight away; profits will fall,
pension funds will be diminished, investment projects cancelled or postponed,
schools not rebuilt – with the result that future generations will be worse
off, having been deprived of assets they might otherwise have had.The Keynesian
theory contradicts the Osborne-Trichet doctrine that private spending is depressed
because of fears about the sustainability or future cost of the deficit. The correct
causal explanation is that private spending is depressed because total demand in the
economy is depressed. The deficit is the consequence, not the cause, of depressed
business expectations. It is “nature’s way” of sustaining
economic activity in the face of a collapse of business confidence.Nevertheless,
confidence is a psychological phenomenon. Irrational though the fear of a recession-
induced deficit may be, it is a fact that governments have to face. So they should
aim to maintain total spending in a way that reinforces rather than diminishes
business confidence.One way would be to cut taxes by the same amount as they cut
their own spending. This would imply a reduction of taxes by about £100bn
over five years. This might appeal to the right, as over a period of years it would
reduce the size of the state. But the effect of tax-cutting on economic activity is
uncertain. A better way would be to offset any market-appeasing cuts in current
spending by an increase in capital spending. A recession is an ideal time to “
bring the country up to date”, since labour and capital will both be cheaper
than in boom times.The £38bn high-speed rail link from London to
Birmingham and beyond, unveiled in March by Lord Adonis, the former transport
secretary, is a perfect example. Like the smaller rail electrification schemes, it is
not “shovel ready”, but a determined government could get it going
long before the planned start in 2017. It would set up an immediate demand on the
construction industries while also offering returns in the long run.Former chancellor
Alistair Darling’s scheme for a Green Investment Bank to invest in
renewable energy and energy efficiency is another example. Industry experts
predict that up to £37.5bn will be needed each year to upgrade or replace
our old power plants over the next decade. Mr Darling’s £2bn plan
was a step in the right direction – a step that was then retracted in Mr
Osborne’s Budget.A government whose animating spirit was Lloyd George
rather than George Osborne would ask the public to subscribe to a National
Recovery Loan of £100bn, to be spent over five years, to equip the UK with
a modern transport system, energy-efficient housing and new power plants, and up-
to-date schools. Austerity in the capital budget is the worst possible remedy for a
slump.Michael Kennedy is a former economic adviser at the Treasury. Lord
Skidelsky is professor emeritus at Warwick UniversityOnce Again We Must Ask:
“Who Governs?”Robert SkidelskyFinancial Times | Wednesday, June
16, 2010
In 1974, Edward Heath asked: “Who governs – government or
trade unions?” Five years later British voters delivered a final verdict by
electing Margaret Thatcher. The equivalent today would be: “Who governs
– government or financial markets?” No clear answer has yet been
given, but the question may well define the political battleground for the next five
years.In one sense, next week’s emergency Budget is simply the logical
working out of an intellectual theorem. The implicit premise of the coming
retrenchment is that market economies are always at, or rapidly return to, full
employment. It follows that a stimulus, whether fiscal or monetary, cannot improve
on the existing situation. All that increased government spending does is to
withdraw money from the private sector; all that printing money does is to cause
inflation.These propositions are a re-run of the famous “Treasury
view” of 1929. By contrast, Keynes argued that demand can fall short of
supply, and that when this happened, government vice turned into virtue. In a
slump, governments should increase, not reduce, their deficits to make up for the
deficit in private spending. Any attempt by government to increase its saving (in
other words, to balance its budget) would only worsen the slump. This was his
“paradox of thrift”. The current stampede to thrift shows that the
re-conversion to Keynes in the wake of the financial collapse of 2008 was only skin-
deep: the first story remains deeply lodged in the minds of economists and
politicians.But this story alone does not explain the conversion to austerity.
Politicians clamouring for cuts in public spending do not cite Chicago University
economists. They talk about the need to restore “confidence in the
markets”. The argument here is that deficits do positive harm by
destroying business confidence. This collapse of confidence may come in several
forms – fear of higher taxes, fear of default, fear of inflation. Deficits
thus delay the natural (and rapid) recovery of the economy. If markets have come
to the view that deficits are harmful, they must be appeased, even if they are
wrong. What market participants believe to be the case becomes the case, not
because their beliefs are true, but because they act on their beliefs, true or false.
The parallel with what happened in 1931 is irresistible. In February of that year,
Philip Snowden, the Labour government’s chancellor of the exchequer, set
up the May Committee to recommend cuts in public spending. The committee
projected a budget deficit of £120m, later raised to £170m, the
latter figure amounting to about 5 per cent of gross domestic product, and
proposed raising taxes and reducing spending to “balance the
budget”. The international financial crisis caused by the collapse of the
Austrian Credit-Anstalt bank in July 1931 brought huge pressure on the government
to act on the May Report. In a notable display of patriotic fervour, the financial
and political establishment united to demand cuts in unemployment benefits to
“save the pound”.Keynes was one of the very few who stood out
against the herd. Of the May Report’s authors, he wrote: “I
suppose that they are such very plain men that the advantages of not spending
money seem obvious to them.” They had ignored the fact that their
proposed cuts would add 250,000-400,000 to the unemployed and diminish tax
receipts. “At the present time,” Keynes continued, “all
governments have large deficits. They are nature’s remedy for preventing
business losses from being ... so great as to bring production altogether to a
standstill.”When the Conservative-Liberal coalition that had succeeded the
Labour government introduced an emergency budget in September 1931, Keynes
again stood out against the chorus of approval. The budget was, he wrote,
“replete with folly and injustice”. He explained to an American
correspondent that “every person in this country of super-asinine
propensities, everyone who hates social progress and loves deflation, feels that his
hour has come and triumphantly announces how, by refraining from every form of
economic activity, we can all become prosperous again.”Conservative
spokesmen often claim that fiscal consolidation causes economies to recover. If so,
the effect of the outbreak of public frugality in 1931 was curiously roundabout.
Cuts in salaries produced a “mutiny” of naval ratings at
Invergordon, suggesting that the empire was crumbling. This was enough to force
Britain off the gold standard. A combination of sterling depreciation and lower
interest rates revived exports and started a housing boom. But there was never a
complete recovery until the war. Such evidence for the success of the cuts is the
stuff of castles in the sky.We are about to embark on a momentous experiment to
discover which of the two stories about the economy is true. If, in fact, fiscal
consolidation proves to be the royal road to recovery and fast growth then we
might as well bury Keynes once and for all. If however, the financial markets and
their political fuglemen turn out to be as “super-asinine” as Keynes
thought they were, then the challenge that financial power poses to good
government has to be squarely faced.
This Onelli who runs Intel is another arrogant egotistical mobster who thinks he
knows it all. For Onelli to call the stimulus package a keynsian experiment means he
got the job as CEO of Intel because he is another ignorant mafia ass-hole. Then
you have another mobster running Loew's Jim Tisch. You got mobsters Mitt
Romney and Onelli parrotting the FOX News mafia ideology. Corporations are
sitting on billions. They become short sighted and only think of their own bottom
line which is what has caused the economic crisis. FDR got the economy out of the
great depression by taking the money the wealthy were sitting on and spending it,
unfortunately on the war. Germany has the world's highest labor costs in
manufacturing and the world's largest manufacturing export surplus relative to
gross domestic product. By lowering the value of the dollar you don't make
american products more competitive in an industry america no longer has. You just
make the german product more expensive. Thats why you need an industrial
strategy to preserve those jobs and protect those industries. Kuttner talks about
it below.During the great depression FDR tried to get the economy going without
increasing the deficit. None of the deficit neutral things he tried were a success.
I wrote a screen play on it somewhere above.
The Milton Friedman ideology that the well being of all is maximized when everyone
pursues their personal selfish interests isn't really true. It's just a self serving
ideology.
Alan Simpson is unfit to lead the Deficit Commission! He lashed out AGAIN at
Social Security defenders!
That is a head line from Moveon.org. I havn't commented on this commission
because i thought it was a joke. The presence of Alan Simpson indicates other
people are telling Obama what to do. There isn't a chance in hell Barack Obama
would pick Allan Simpson to head such a commission.
FOX News expresses a desire to replace Summers and Geithner when these people
where also employed by Bush. It simply means the mobsters told Bush and Obama
to hire all three of these people. It appears that just as the head of the central
bank is chosen by the powers that be so is the economic leadership selected by a
non-democratic process.
The government could create jobs by creating an agency to take the profit out of
health care, reducing medical errors and fraud. Raise taxes on the wealthy and
bring back social welfare that was cut under Clinton.
Playing Ourselves for FoolsThe trading system America sold the world is
killing U.S. industry. Here's a better way.
Robert Kuttner | January 25, 2010Amid a generally poisoned atmosphere of
vicious partisan combat, trade policy is unfortunately the last bastion of
relentless bipartisanship. I say "unfortunately" because there is
a stunning disconnect between America's trade policy and America's
national interest. Since World War II, administrations of both parties have
been promoting a design for global trade that displays a studied
indifference to the fate of U.S. manufacturing.U.S. trade negotiators
strive for an ever purer strain of free trade (combined with protection for
agriculture but not industry). But in the real world of industrial
competition, governments help their industries -- except for the American
government. Dissenters from the prevailing free-trade fantasy are
dismissed as protectionist, a word that ranks in the foreign-policy lexicon
slightly below terrorist.Why would the U.S. government, which has not
been shy about defending the nation's military security, be such a pushover
when it comes to trade? The story begins with the recovery of Europe and
Japan from World War II and with the logic of the Cold War. In that
era, the U.S. was industrially pre-eminent. We were building an alliance
system. One of the perquisites of membership in our system was access to
the huge consumer market of the United States. We were so far ahead
that it didn't matter if military allies like Germany or France, Korea or
Japan, practiced a somewhat different form of capitalism, namely state-led
economic development, or that contrary to the dogmas of laissez-faire,
state-led development actually worked.Moreover, we had our own vast,
unacknowledged system of industrial planning and research and development.
It was called the Pentagon. Even as American diplomats began venturing
cautious criticisms of "Japan, Inc." or "Deutschland, A.G.,
" and of flagrantly state-subsidized ventures such as the Airbus
consortium, U.S. industry was enjoying huge spillovers from technologies
created by military agencies such as the Defense Advanced Research
Project Agency (DARPA) and from the research spending of the National
Science Foundation and the National Institutes of Health that subsidized
our great universities as incubators of industry. We were hypocrites. We
had our own closet industrial policy -- though it was not coherent or
strategic, and it withered over time.Fast forward to the 1980s. By now,
the state-led industrial development of nations such as Japan is more than
a minor pinprick. Europe has recovered, with no small dose of planning
(actually initiated by an American named Marshall.) The Cold War is ending.
China is knocking on the door. Entire domestic industries are being
displaced. The role model for newly emergent nations is not the laissez-
faire model that the United States is promoting to the world but frankly
mercantilist forms of capitalism such as those of Korea and Brazil.So what
did the United States do? It would have made sense for our leaders to
realize that we were no longer in the cozy womb of 1950s industrial
supremacy. We might have initiated a new round of trade talks intended to
clarify which policies of industrial aid, applied research-and-development
assistance, wage subsidies, regional policies, domestic content requirements,
and other forms of mercantilism are legitimate tools of economic
development and which ones are predatory. We might have created robust
tribunals to identify and punish illicit behavior. We might have used our
still-substantial economic leverage to deny market privileges to flagrant and
chronic violators. We might have devised an industrial policy of our own.But
we did none of these. Instead, we doubled down on a fantasy of ever purer
free trade that nobody else really bought. But if we were willing to play by
the rules of an imagined free trade while others practiced state-led
growth, our trading partners were more than happy to indulge our delusion.
Why did America behave this way? The reason for this seemingly irrational
trade diplomacy was one part military goals crowding out industrial ones,
one part ideology, and one part the increasing influence of Wall Street.The
military part of the story is little appreciated. As the leader of an alliance
system, the United States promotes the idea that allied nations should have
common weapons systems, ideally American ones. But other nations have
demanded in return that before they agree to buy very expensive fighter
planes, we must agree that most or all, and in some cases more than 100
percent of the plane, be produced in the purchasing country. This is known
as domestic content. (How can more than 100 percent of a product be
made in the importing country? As part of the deal, the seller agrees to
buy other products from the customer nation. This is called an offset.
Boeing has found itself having to use or unload billions of dollars of gadgets
made in Poland or Korea that were part of offset deals negotiated by the
Pentagon.) Paradoxically, the need to do military deals for U.S.?designed
weapons has actually turned out to be a big export loser for U.S. industry,
for it has accelerated the transfer of production technology and the
offshoring of manufacturing to mercantilist competitor nations. These
military bargains, further, set a bad precedent that the U.S. government
acquiesces to content requirements that have come back to haunt us in
purely commercial deals.Then there is ideology, also known as neoclassical
economics. Within the economics profession, only a very self-confident (and
tenured) economist is willing to challenge the dogmas of free trade, and
when such challenges are ventured they are done with careful disclaimer
and politesse. The young Paul Krugman made his scholarly reputation by
very gently, and with impeccable algebra, questioning some of the
theoretical assumptions of free-trade theory. Laura Tyson, just before her
appointment as President Bill Clinton's chief economic adviser, published a
brave book in 1992, Who's Bashing Whom, cataloging all the ways that
foreign governments advantage their industries. But by the time Tyson took
office, she and such other advocates of more muscular trade diplomacy and
industrial policy as Robert Reich were marginalized by the Wall Street wing
of the Clinton presidency: Robert Rubin, Larry Summers, and their allies at
the office of the U.S. trade representative.Free-trade economists
provided intellectual cover, but the push for ever "freer" trade
mainly came from the U.S. financial industry seeking global reach and from
allied industries eager to produce in the cheapest possible location far from
all forms of domestic regulation. Rather than trying to create a trading
system that offered a level playing field for U.S. industry, the free-trade
establishment launched a broad expansion of its hapless efforts at being
laissez-faire to a skeptical world, in the so-called Uruguay Round of trade
negotiations, launched in 1986 and completed in 1994. Despite some weak
gestures toward greater symmetry, the Round was mainly aimed at global
deregulation.Ostensibly, the Uruguay Round aimed at breaking down "
non-tariff barriers," protecting intellectual property and above all
opening up trade in "services." Some of this sounded good. If
the global trading system came down hard on nations like Japan and Korea
whose manufacturers often pirated and copied American technologies, this
would be a blow against foreign mercantilism. But the new intellectual
property protections had little beneficial effect on U.S. industrial
innovations. With violations rampant, enforcement through the World Trade
Organization process was selective. Mostly, cases had to be tried in the
courts of the offending countries, which almost never ruled against local
manufacturers. But the new WTO rules did forbid preventing the U.S.
from imposing retaliatory sanctions through its unilateral intellectual-
property enforcement mechanisms, which had been permissible before the
Uruguay Round."Services" turned out to mean mainly financial
services -- the global financial bubble that crashed the economy. The real
teeth of the Uruguay Round had to do with promoting financial deregulation
and making it more difficult for nations to control their own financial
systems.The North American Free Trade Agreement of 1993, likewise, was
less about trade and more about making it easier for U.S.?based
multinationals and banks to take over Mexican companies and to set up
branch plants in Mexico for re-export to the U.S. It also had the handy
and deliberate side effect of defining a lot of ordinary health, safety, and
environment legislation as a violation to the free-market precepts of
NAFTA. A plan to extend this principle to all of the Organisation for
Economic Co-operation and Development member nations, the proposed
Multilateral Agreement on Investment, was averted in 1997, when word of
the scheme was prematurely leaked and a storm of protest killed the plan.
In 1999, when China was negotiating its entry into the WTO, it was a lot
weaker economically and financially, and the stench of the Tiananmen
massacre still lingered, the U.S. had far more diplomatic leverage than the
rather pitiful show of humility befitting a debtor nation displayed on
President Barack Obama's recent maiden trip to Beijing. But as the
memoirs of both Robert Rubin and Joseph Stiglitz confirm, that leverage
was used mainly to gain access for U.S. banks and insurance companies to
Chinese markets, not to require China to modify its system of predatory
industrial mercantilism.***Curiously, the high watermark of American
pushback against Asian mercantilism came during the Reagan era. Though
Ronald Reagan was ideologically a free-marketer, he was also a nationalist.
At the time, there was still a large rump group of U.S.?based
manufacturers such as Intel, Motorola, Boeing, Corning, and others, which
functioned as a lobby against foreign mercantilism. The military was also
alarmed that we might be falling behind in technologies critical to the
national defense. Reagan's purely economic advisers were traditional
conservatives, but his trade officials, led by Clyde Prestowitz, mounted an
offensive against foreign, most notably Japanese, mercantilist practices,
and actually made some headway. The pre-WTO 1980s were also the
golden age of DARPA, of the Plaza Accord that enlisted the cooperation of
other nations in reducing an overvalued dollar in a fashion that made U.S.
products more competitive without roiling money markets, and of the Super
301 provision of U.S. trade law, which allowed effective retaliation against
unfair foreign trade practices.But beginning in 1989 with George H.W.
Bush, and continuing under Clinton and George W. Bush, the U.S.
government largely ceased defending U.S. manufacturers against predatory
practices of foreign companies and states. Most American multinational
companies, abandoned by their government, have been left to make a
separate peace with foreign mercantilist practices.That means accepting
deals to shift their research, technology, and production offshore,
sometimes in exchange for explicit subsidies for land, factories, research
and development, and the implicit subsidy of low-wage and powerless
workers and weak environmental or safety requirements. At other times,
the terms of the deal are more stick than carrot: If you want to sell here,
the companies are told, you must manufacture here. Or even worse, you
can manufacture here but only for re-export to your own domestic market
and not for local sale.For the most part, American industry has accurately
concluded that the U.S. government could not care less where it
manufactures. This is true of both traditional low-skill industries, which are
often seen as logical candidates to move offshore, and the most advanced
industries as well. Prestowitz tells the story of an American entrepreneur
named Igor Khandros, a man who epitomizes why the U.S. possesses --
and squanders -- great competitive advantage.Khandros, an engineer, was a
refugee to the U.S. from what was then Soviet Ukraine. He worked at
IBM and eventually invented a brilliant new technology for testing
semiconductor wafers. By 2000, he was president of his own company,
FormFactor, which now has $500 million in sales, employs 1,000 people in
Livermore, California, and exports 80 percent of its products -- an all-
American success story.A Korean firm, Phicom, paid Khandros the ultimate
compliment. It stole his technology. Unable to get redress in the Korean
courts, Khandros enlisted Prestowitz's help and took his case to the U.S.
government, then in the process of negotiating a trade deal with the
Koreans. Our government told Khandros, however, that it had more
important issues with Korea. But a senior Commerce Department official
had a consolation idea -- Khandros could cut costs by moving his own
production to Asia!With government help like this, it's a small wonder that
U.S. firms just make their own deals with predatory states and move
offshore. With the exception of intellectual-property thefts, trade law
stipulates that a manufacturer who is the victim of foreign subsidy, or
dumping, or coercive terms of market access, has no direct legal remedy.
Rather, the plaintiff files a complaint with a body called the U.S.
International Trade Commission. The USITC makes a fact-finding and
recommendation, but then it is up to the president to decide whether to
retaliate. Invariably, the State Department and the Pentagon have other
fish to fry with nations as diplomatically important as China, Japan, Korea,
Brazil, or Germany. Cases in which our government grants a remedy, such
as imposing a tariff, are the exceptions, but such scattershot remedies
against dumping are no substitute for reform of the whole trading system
or for a U.S. decision to adopt an industrial policy of its own.***In this
fashion, we are losing industry after industry. The ranks of the companies
that behave like patriots have dwindled. Most big multinationals are now too
cozy with foreign mercantilists to put up much of a fuss anymore. It has
fallen to smaller companies, trade unions, and a few large firms still
committed to producing domestically, such as Corning and U.S. Steel, to
fight to continue production within the U.S.In the meantime, the promise
of an industrial renaissance spearheaded by the Obama administration's
investment in green energy or mass transit or high-speed rail or a smart
grid is now running up against the hard reality that there are just too many
products that we no longer make and too many foreign links in the
industrial supply chain. It will not do to have made-in-America mean only
the final assembly of rail cars or wind turbines while the engineering and
advanced manufacturing reposes abroad. We need a comprehensive
industrial strategy to reclaim manufacturing, and a companion trade policy
to make sure that foreign producers do not capture advantage by placing
thumbs on the scale.China is surely at one end of the mercantilist
spectrum, with its direct government subsidies of local industry and its
strategic government carrots and sticks for Western multinationals. Its
entire industrial system is a violation of the premise and spirit of open
trade. If the Western democracies had a realistic conception of their long-
term interest, they would add high tariffs to Chinese goods until China
began behaving like a normal commercial nation. The proceeds could be used
to rebuild our own industry.However, there are other nations that practice
what can be called a kind of soft mercantilism. And much of what they do
is less to be deplored than imitated. The chart opposite lists foreign
industrial strategies that are arguably predatory and compares them with
other tactics that could be considered legitimate tools of development.
Some of the practices, such as China's use of artificially cheap capital and
outright subsidies to develop new industries, could be considered legitimate
domestic development tools but predatory in the context of trade. Tariffs
could be fairly imposed to offset the anti-competitive effect on companies
that enjoy no such government aid. That would also push China toward
increasing its domestic consumption and growth, rather than enabling
Beijing to base its development on a beggar-my-neighbor strategy of
chronic trade surpluses.Japan and Korea rank somewhere in the middle of
the list. Both countries industrialized by showing government favoritism to
domestic industrial groups that were almost impossible for foreign
companies to break into. Both showered favored industries with artificially
cheap bank and public capital. Both used a thicket of subtle barriers that
made it hard for exporters to crash their markets, and Korea maintains
selectively high tariffs. Taiwan, generally considered a more market-
oriented country, launched its information-technology industry with a state-
led program, in which the Taiwanese government acquired the necessary
technology through the creation of two government-funded research
institutions and presided over a planning process of nominally private firms.
Today, this small nation is the world's dominant manufacturer of laptops,
motherboards, computer monitors, and a great deal more. According to Dan
Breznitz, author of the definitive English-language book on the Taiwan
miracle, Innovation and the State, "The decision of the state to focus
its attention on building a local supplier network for [multinational
corporations], coupled with the way it constructed its capital markets,
paved a development path for an IT industry."A good example of soft
economic nationalism is the research and development, industry, and labor
subsidies of the European Union and member nations such as Germany and
Denmark. Remarkably enough, Germany has the world's highest labor costs
in manufacturing and the world's largest manufacturing export surplus
relative to gross domestic product. Germany doesn't have a planning czar,
but it has a tacit understanding among government, industry, and labor
that the whole system works to keep high-end manufacturing in Germany.
An elaborate apprenticeship system and a program of wage subsidies helps
assure the high productivity of German workers in return for their high
wages. The German federal government and state governments also have
subsidized the creation of new, green industries and used regulatory policy
to create domestic demand for their products. Some free-trade purists
would argue that subsidizing workers is a covert form of subsidizing
industry, and they would be right. The policy is sensible nonetheless.I
conclude from all of this that trade policy and industrial policy are
inextricably linked; that we need a radically different approach to trade,
so that the global trading system has a single set of rules rather than a
maze of double standards; and that we need standards to differentiate
legitimate development policy from predation, as well as buffers to protect
our legitimate interests when other nations pursue predatory policies. And
just as we need to drop the fantasy that other nations admire our fantasy
of laissez-faire, we need to jettison the delusion that industrial policy
doesn't work. Judging by the success of Japan, Korea, China, Brazil,
Taiwan, and the U.S. at an earlier stage of our history, it works just fine.
All that remains to accomplish this is to wrest control of policy-making
from Wall Street, so that Main Street can have healthy industries once
more.Robert Kuttner is co-founder and co-editor of The American Prospect
magazine, as well as a Distinguished Senior Fellow of the think tank Demos.
He was a longtime columnist for Business Week, and continues to write
columns in the Boston Globe. He is the author of Obama's Challenge and
other books. For more read our "about the editors" page
Navigating the Jobs Crisis: Old Mistakes Die Hard
Monday, 11/23/2009 - 9:18 am by James K. Galbraith | 6 Comments
In the wake of the highest unemployment rate in 25 years, the Roosevelt
Institute asked historians, economists and other public thinkers to reflect
on the lessons of the New Deal and explore new, big ideas for how to get
America back to work. James K. Galbraith warns that without a bold
change in course, the jobs problem won’t go away.
I’m tempted to say that the United States is plainly unable to cope with
the economic crisis in a serious way. The barriers are philosophical,
procedural, and constitutional. So long as economic thinking is mired in a
world that disappeared with the collapse of the Bretton Woods system in
1971, so long as any action requires 60 Senate votes, and so long as
political capital erodes from the start of a fixed four-year presidential
term, we’re stuck.
Technically it would have been fairly easy, 10 months ago, to get this bus
back on the road. There could have been open-ended fiscal assistance to
stop the budget hemorrhage of the states and cities. There could have
been a jobs program and effective foreclosure relief. There could have
been a payroll tax holiday. There could have been a strategy for sustained
massive effort on infrastructure, energy and climate. There could have
been prompt corrective action to resolve, instead of coddle, the worst of
the banks.
I mostly don’t blame President Obama; he and his team went as far as
they felt they could. I blame the head-in-the-sand politicians in Congress,
the over-optimistic forecasters, the half-educated press, and the power of
the financial lobby. I blame the avatars of fiscal virtue, the public debt
scare-mongerers, the astrologers for whom thirteen significant digits (a
trillion) for the stimulus package was just too much. I blame the Senate,
which hands the balance of power to small states at the expense of
disaster areas like California, Florida and New York. I do blame the Bush-
Obama financial policy team, who either believed that “credit would flow
again” if you stuffed the banks with money, or knew that it wouldn’t.
The Bretton Woods point deserves another word. According to the system
established in 1944, the U.S. current account deficit — and by extension
our public budget deficit — was limited by an obligation to exchange foreign-
held dollars for gold. Richard Nixon abolished that arrangement. Since the
early 1980s, the world has held the Treasury bonds that the U.S. chose to
issue. The system is fragile. But so long as it lasts, it doesn’t discipline our
budget (and if it broke, we could replace it). Low interest rates prove this:
despite all the dire predictions, there is no difficulty in placing Treasury
debt. Hence, we are free to pursue high employment, if we choose to do it.
Can anything be done now? Well yes, technically: the same steps that could
have been taken in January 2009 could be taken in January 2010. But they
won’t be, because for the moment we are seeing the inventory bounce, a
productivity surge, real GDP growth, and other “good signs.” So we’ll be
told to wait, to be patient, and to make sure we don’t buy what we can’t
afford. And double-digit joblessness will linger on, breeding frustration and
anger — perhaps all the way through to the mid-term elections. After
which, what will be possible is anyone’s guess.
Sorry to be defeatist - it’s the way I feel. Prove me wrong.
James K. Galbraith is the author of The Predator State: How
Conservatives Abandoned the Free Market and Why Liberals Should.
Jobless Claims Rising, Manfacturing Slowing, GDP Shrinking
Recovery Summer Hits the Rocks
By MIKE WHITNEY
At the time, the idea of a nationwide "Recovery Summer" tour must have
seemed irresistible. After all, the stock market was inching its way higher
every week and there were convincing signs that the economy was on the
rebound. What better time for President Barack Obama to barnstorm his
way across the heartland singing praise for his $787 fiscal stimulus
package?
All of that has now changed.
Jobless claims are rising, manufacturing is slowing, housing sales have fallen
off a cliff, GDP is shrinking. The whole notion of declaring "mission
accomplished" over the recession seems ridiculous, which is why "Recovery
Summer" has turned into a public relations nightmare. The economy hasn't
reached "escape velocity" as economics czar, Lawrence Summers boasted
earlier in the year.
It's is barely limping along and the prospect of another slump looms larger
by the day. Obama's woefully undersized stimulus is quickly evaporating
leaving a gigantic hole in spending that will inevitably lead to another
contraction.
That's what makes the whole "Recovery Summer" pitch so pathetic and
shows just how out-of-touch Obama's economics troupe really is. The
latest downturn was entirely foreseeable. Obama needs to get rid of the
Wall Street suck-ups and build a new team
This is from the New York Times for Monday, August 23:
"Investors withdrew a staggering $33.12 billion from domestic stock market
mutual funds in the first seven months of this year, according to the
Investment Company Institute, the mutual fund industry trade group...If
that pace continues, more money will be pulled out of these mutual funds in
2010 than in any year since the 1980s, with the exception of 2008, when
the global financial crisis peaked....
“On Friday, Fidelity Investments reported that a record number of people
took so-called hardship withdrawals from their retirement accounts in the
second quarter. These are early withdrawals intended to pay for needs like
medical expenses." ("In Striking Shift, Small Investors Flee Stock Market
Graham Bowley, New York Times)
Retail investors are saying "enough" and heading for the exits. The market-
flight has gone on for some time, but it's gained momentum since the May
6, "Flash Crash" when the Dow Jones plunged nearly 1,000 in less than an
hour. That really put the stampede in motion. A late-day rebound did nothing to
allay investor fears or convince traders that the problems had been fixed. The
trust is gone. Investors feel that the new architecture of the markets has
fundamentally changed and that innovations like high-frequency trading, dark pools
and complex derivatives have stacked the odds against them, making it impossible
for them to succeed. That's why they continue to leave in droves. They've lost
confidence in the markets.
Who has confidence in these markets? Who believes that a well-informed investor
that has reasonable expectations of future performance can compete with high-
speed speculators? No one. That's why more money is being stuffed into
mattresses than into stock funds.
Chief enabler of fraud
The Fed's task is to perpetuate the "free market" fraud for as long as possible.
That's why the Fed has pushed for "regulatory forbearance" so that insolvent,
capital-starved banks can conceal their losses from the public. The Fed has
transferred $1.7 trillion in toxic securities and non-performing loans from the
banks to its own balance sheet to preserve the illusion that "all is well" and that
asset prices will eventually return to precrisis levels. It's all smoke and mirrors.
Securitization, derivatives trading, and repo market activity are all based on the
same principle, which is, to give the financial giants the ability to generate windfall
profits on microscopic morsels of capital that have been leveraged into bloated
debt-balloons. The banking system is not funded on loans made from deposits, but
through the exchange of high-risk securities with shadow banks in the repo
market. This is the system that crashed after Lehman Brothers collapsed in
September 2008. The Fed and Treasury have committed trillions in public funds to
stitch this wobbly, crisis-prone system back together to preserve the profit-
centers of their primary constituents--the big banks and Wall Street. The system
itself is a scam designed to shift wealth from the middle class to under-capitalized
financial raptors.
Is it any wonder that confidence is at an all-time low?
Mike Whitney lives in Washington state. He can be reached at fergiewhgitney@msn.
net
Kathleen Reardon
Professor, USC Marshall School, and author of 'The Secret Handshake' and
'Childhood Denied'
Posted: August 27, 2010 11:34 AM
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The Precarious Genius of the Middle Class
What will America become if we have to rely solely on the wealthy to provide
medical, scientific, engineering, manufacturing, art and social inventions?
Genius is not confined to any socio-economic group. It can emerge anywhere. Yet
poverty closes most doors to the development of genius. Shut down the American
middle class and where would genius arise? What route would it take to its
fruition? Genius would need to come largely from the wealthy.
The upshot of a two-tier America - the wealthy and everyone else scraping by -
will be the death of American genius.
If this had been the case during Jonas Salk's childhood, where would we be? The
son of Russian immigrants lacking formal education, he was encouraged to become
the first of his family to attend college? The rest is history and polio became a
disease of the past.
What about Thomas Edison, the seventh child of middle-class parents? His
educator mother saw in him a talent that others considered mere oddity, and she
was able to foster that talent with home schooling. During Edison's life, necessity
became the mother of invention as he in turn sought to support his ailing parents.
His genius, enabled by a middle-class upbringing, combined to change the course of
mankind.
If we had to rely solely on wealthy families for those who have shaped America,
would we not be much less a nation than we are today? Georgia O'Keefe, Leonard
Bernstein, Maya Angelou, President Obama, President Clinton, Secretary of State
Hillary Clinton, Betty Friedan, Bella Abzug, General David Petraeus, Supreme Court
Justice Sonia Sortomayor, Michael J. Fox, Steve Jobs, Ken Burns, Margaret Mead
and so many others would not have influenced art, music, law, society, human
behavior research, and technology to the extent they did were it not for the
ability of those without great wealth to change the world.
It is difficult to precisely define the parameters of the middle class. And certainly
the upper echelons of the American middle class offer a greater boost to the
flowering of genius. But without this range and the dreams it enables, this nation
can only suffer.
Why then would we stand by idly while the very wealthy and their big-business
entities buy off our senators and congressmen, as they manipulate and dumb down
mass media to keep Americans out of touch, and their shills call for "deficit
reduction" efforts to cut Medicare and Social Security while keeping extraordinary
tax breaks and loopholes for the very rich intact?
How do we justify turning a blind eye to how the U.S. economy remains managed
by the very people who brought us the catastrophic and continuing failure of the
financial and mortgage markets? How can we allow the "too-big-to fail" banking-
bailout slights of hand to continue?
Can we afford to passively watch efforts to keep a politics-averse champion like
Elizabeth Warren from actually protecting "consumers"?
Why do we listen to propagandistic pundits warn against redistribution of wealth
when the real redistribution over the last 30 years has been the transfer of
middle-class American dollars into the pockets of the very, very rich?
What benefit is there to remaining quiet while the quality of public education
deteriorates? While alternate forms of energy barely blip the surface of our
energy policies and are actively opposed? While the infrastructure of the U.S. not
only fails to lead the world or even advance competitively, but is overburdened and
crumbling?
As if surreptitious forms of destroying the middle class weren't enough, in Third
World America Arianna Huffington describes another egregious way that the
depletion of wealth for all but the few happens in broad daylight:
The corporate class games the system -- making sure its license to break the rules
is built into the rules themselves. One of the most glaring examples of this
continues to be the ability of corporations to cheat the public out of tens of
billions of dollars a year by suing offshore tax havens. Indeed, it's estimated that
companies and wealthy individuals funneling money through offshore tax havens are
evading around $100 billion a year in taxes -- leaving the rest of us to pick up the
tab.
And yet, government initiatives that benefit people whose lives are shattered or in
danger of being so is labeled "socialism." Apparently it's okay in America today to
make the rich richer, but don't dare give a hand up to hard working people who
are barely getting by.
Unless we heed the signs of increasing greed and inhumanity among the most
powerful entities in America, and fight it at every turn, America is heading toward
a day when it will no longer be the land of opportunity for those with little money,
nor the protector of life, liberty and the pursuit of happiness, nor a place where
dreams can come true for even the poorest of children. Rather it will become the
killing fields of its own native genius, the dismantler of hope and the enemy of its
own promise.
Dr. Reardon also blogs at bardscove.
A Public Plan for Connecticut?
Despite political and financial hurdles, Connecticut is moving forward with its own
state-level public option.
Joanne Kenen | August 2, 2010
Connecticut could become the first state to offer its own public-plan option, even
before most of national health reform unfolds.
After several years of debate about expanding coverage, a couple of gubernatorial
vetoes, and assorted false starts, Connecticut in 2009 created "SustiNet" -- a
framework for what could become a state insurance plan as early as 2012, two
years before the state's insurance exchange is up and running as part of national
reform. Once the exchange is in place, individuals and small businesses will be able
to choose between SustiNet and one of the commercial health plans.
Though approved in concept by the state Legislature, SustiNet at this point is only
a concept. It has a board, a cadre of volunteer analysts, and task forces as well
as support from foundations, advocates, and Democratic legislators. But the
commission must go back to the Legislature next year for final approval -- and
funding -- in an environment that is fiscally challenging and politically uncertain.
The race to succeed Gov. Jodi Rell, a moderate Republican who is not seeking re-
election, is competitive, and the Legislature, which passed the SustiNet bill and
then overrode Rell's veto, could have a different composition post-November. For
political or economic reasons, SustiNet could be delayed or scaled down. But state
Rep. Chris Donovan, the speaker of the Connecticut House, says the idea has
broad public support. The message he has been relaying around the state, he says,
is, "Better plan, costs less. Like that beer commercial: tastes great, less filling."
The vision is of a self -- insured public health -- insurance plan with an affordable
sliding scale of premiums. It would bring in the state's active and retired
employees, Medicaid, the children's health program, municipal workers, nonprofits,
the uninsured, the underinsured, small businesses, and other programs for low-
income adults, Donovan says. (Not all groups would have identical benefits; state
employees, for instance, may have their own plan under the SustiNet umbrella.)
The Legislature must decide whether to open the public plan to all these groups at
once or to phase them in. One possibility is to start with groups already covered in
state plans and wait for the federal subsidies that will become available in 2014
before bringing in other groups.
"We're building a public option, using in part resources we are already expending on
health care," says Kevin Lembo, the Connecticut state health-care advocate and a
co-chair of the SustiNet Health Partnership Board of Directors. But when asked
how many political and economic potholes still lie in SustiNet's path, he replies: "A
million."
Connecticut is a relatively affluent state with fairly generous health programs for
the poor. Its 9.7 percent uninsured rate is below the national 15.4 percent 2008
rate. But unemployment has risen, and the state faces multibillion-dollar budget
gaps. Nonetheless, in June Connecticut expanded its coverage of low-income
childless adults by becoming the first state to tap into federal funds made
available under an optional Medicaid expansion provision of the federal health-
reform law. State officials estimate 45,000 people will gain coverage.
The SustiNet bill was tailored in 2009 with federal legislation in mind. The thinking
was that if national reform collapsed in Washington, Connecticut could move on its
own, like neighboring Massachusetts. If national reform passed, SustiNet could be
tweaked to fit, says Janet Davenport of the Universal Health Care Foundation of
Connecticut, which helped develop SustiNet. Tweaking has commenced, and the
Legislature could take up board recommendations as early as January 2011.
Lembo and other advocates note that SustiNet is not just a coverage mechanism.
It was conceived, too, as a catalyst for delivery-system reform, aiming to improve
quality while restraining costs. Various task forces are working on creating or
expanding medical homes and chronic -- disease management, electronic medical
records, incentives for evidence-based medicine, and public-health initiatives on
obesity and tobacco. Addressing racial and socioeconomic health disparities is also
an explicit goal. Lembo said the public option could end up covering about 1 million
people out of Connecticut's 3.5 million, meaning it could have a big ripple effect on
health-care delivery and public health throughout the state.
Health Reform 2.0
If reform is to succeed, progressives will have to fight for a stronger government
role, including a public option.
Jacob S. Hacker | August 17, 2010
Marchers demand the public option in health-care reform. (Flickr/Steve Rhodes)
Sen. Tom Harkin put the point well when he described the health bill as a "starter
home." What Harkin neglected to mention is that the home isn't built yet, and the
construction zone is in the path of a hurricane -- the fast-approaching storm of
runaway health costs and hard-core conservative opposition.
In the face of these challenges, reformers have three great priorities:
implementing the law, protecting and defending it from the already-mounting
attacks, and renovating and improving Harkin's "starter home" to make it a
sustainable structure. The next health-care battle will require organization,
narrative, and strategy at least as much as the last did. And this time, reformers
will need to call plainly for a greater government role -- armed, if they take their
three big tests seriously, with concrete examples of government getting things
right.
Wilbur Cohen, the architect of the last landmark reform law, liked to say that
policy is "1 percent inspiration and 99 percent implementation." But Cohen's
Medicare was a model of simplicity compared with the current law. To overcome
deep-pocketed interests and reassure a skeptical public, Cohen's heirs largely
eschewed the simple approach to expanding coverage embodied in Medicare: that
is, expanding public insurance. (The big exception, of course, was the public-
insurance option, which didn't make it into the law but remains vital.)
Instead, the law is a series of big patches to our patchwork system, and primary
responsibility for most of them resides with the states. While the state lawsuits
under way are almost certain to crumble, that will not stop states from fumbling
the establishment of the exchanges, the regulation of insurers, or the expansion of
Medicaid. In many states, the wisest course would be to have the feds take on the
difficult task of creating an exchange. But wise advice is not always heeded.
Reformers should be pressing state leaders to enlist the assistance of the federal
government and to craft cross-state solutions in less populated regions.
Rest assured: Insurers and providers will be doing everything they can to shape
what states do. Just because they received major concessions doesn't mean they
won't push for even more. Reformers, backed up by the federal government, will
need to push back.
Reformers also need to recognize that the polarized partisan battle did not end on
the night of March 21. It simply entered a new phase -- from ground warfare to
guerilla battle.
The first rule of guerrilla warfare is to strike where least expected. The big
fights over the individual mandate are mostly a diversion from the fateful struggles
to come. These skirmishes will concern the greatest fault line of contemporary
American politics -- financing.
Financing is the soft underbelly of health reform. The health-care bill relies on a
grab bag of revenue sources. Over the long term, if costs grow more quickly than
these sources, federal deficits and the pressure to cut subsidies for coverage will
grow. Both outcomes would undermine the ability of reform to achieve its promise
and public confidence in the law.
Reformers should not underestimate the power of the GOP anti-tax crusade -- or,
for that matter, the party's anti-regulatory zeal. The tax provisions in the bill will
be an inevitable target, and if Democrats lose the White House, a vulnerable one.
Also in the crosshairs will be the interlocking requirements on employers and
insurers designed to ensure that public financing is backed up with employer
contributions and insurance-company restraint. We can also count on Republicans to
continue to oppose changes in Medicare designed to build on its past success in
restraining costs (though, fortunately, most of these changes are out of Congress'
hands).
The sad truth is that conservatives need to win only one critical guerilla battle to
undermine the law. Reformers need to win every one.
***
If reformers play just defense, however, they will be stuck protecting a law that
has two serious problems: It is not designed to ensure that everyone is covered,
and it is not capable of seriously reining in medical inflation.
Moving toward seamless coverage is the easiest fix, at least in policy terms. In
our predominantly employment-based system, there are only two routes to broad
guaranteed coverage -- requiring that employers provide coverage or contribute
toward its costs, on the one hand, or severing the financial link between
employment and health insurance by raising the funds for subsidized coverage
through alternative means, on the other.
The current law is an uneasy hybrid of these two approaches: (weak) requirements
on the largest employers but none on those with fewer than 50 workers and no
guarantee that those not covered through employment will receive insurance through
Medicaid or the exchanges. From a policy standpoint, the creation of a new funding
stream outside of employment -- say, a value-added tax -- has a lot going for it.
Politically, however, the most promising route may be to build on the existing law
to fill in its gaps. And the key to doing so is to make it easier and more attractive
for employers, particularly small employers, to buy coverage through the
exchanges. After all, the exchanges will provide a much broader choice of plans,
at better rates, than small employers can gain on their own.
None of this will matter much, however, if costs aren't contained. And here we
reach the weakest foundation of Harkin's starter home. All the reform ideas that
would have provided big direct savings -- from serious administrative streamlining
to explicit review of private premiums to the public insurance option that I have
long championed -- were either sidelined or neutered as they ran the gauntlet of
affected interests. Indeed, the public-option debate was a case study in why cost
control is so hard: Conservative Democrats first effectively stripped out the tools
of cost control that would have allowed the public option to compete aggressively
with private insurers. Then, they complained that the public option wouldn't control
costs!
No one who has studied the medical market in recent years can fail to recognize
the unhealthy consolidation that has taken place. An ironic coda to the public
option's demise was the release this February of the American Medical
Association's latest report on insurance competition. Its verdict? A "near total
collapse of competitive and dynamic health insurance markets," with more than half
of metropolitan areas dominated by a single insurer enjoying at least half the
market (up from 40 percent of areas in 2008). Of course, what the AMA neglected
to mention is that massive consolidation has also taken place on the provider side,
with most metropolitan areas dominated by a single hospital or flagship system.
Comparative-effectiveness research, changes in Medicare payments, encouraging
greater competition through exchanges, even taxing high-cost health plans -- none
of this will seriously restrain costs without the creation of countervailing power to
pressure consolidated insurers and provider systems to change their prices and
practices. And the only place where this power can ultimately come from is the
public sector. For better or worse, the ultimate fate of reform hinges on
progressives' efforts to rehabilitate American government.
***
Reformers won the war in 2010, but they lost the battle for public opinion:
Americans were convinced that reform was needed but not that government could
do it. Reformers cannot afford to lose the second battle for public opinion.
Winning will require organization and narrative. It will also require that reformers
coalesce around a broad strategy, as they did in the pivotal years leading up to
March 2010. That strategy should have two prongs: the case against insurers, and
the case for government.
Private insurers are partners in the new law, but their cooperation will not be
automatic, and a tough approach to insurers is the single most important
precondition for long-term success. The largest private insurance companies are a
gift to populist critics that just keeps on giving. To put the law in place, federal
and state officials need to keep putting insurers in their place -- prominently and
without apology.
But making a case against insurers is not enough to justify positive government
action. And continuing government action is essential if reform is to succeed.
Reformers surely need to make the case that the law passed was in Americans'
interest. But they should not be afraid to also point out where the law needs to be
strengthened, especially when that also means pointing out where private insurers
continue to fall short. Just as Medicare's early inability to control costs colored
perceptions of the program for decades, public and elite views of the current law's
effects are likely to gel before the coverage provisions of the law take full effect
in 2014.
In the process, reformers should revive the public option. A simple Medicare-like
public plan could build on the provisions of the law that create at least one national
nonprofit plan. Regardless of the near-term political prospects, the public option is
a clear and simple goal that links concerns about health security, the affordability
of coverage, and the nation's larger fiscal challenge. It is popular. It will save
serious money. And it can function as a sword of Damocles: If insurers fail to live
up to the obligations of the law and tackle rising costs, they will face the only
form of accountability that really matters in the private market -- losing
customers.
The passion that pushed health-care reform to the top of the political agenda
should not be sidelined by technocratic concerns or triumphant complacency. In
politics, sometimes the best defense is a good offense.
Jacob S. Hacker is Stanley Resor Professor of Political Science at Yale University,
is the author, with Paul Pierson, of Winner-Take-All Politics: How Washington
Made the Rich Richer -- and Turned Its Back on the Middle Class (2010).
Obama’s Delusions
________________________________________
The Economy and Iraq
By Shamus Cooke
Monday, August 23, 2010
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If you’ve listened to recent speeches the President has given about the economy
and the Iraq war, you’d think that two of the biggest social issues facing working
Americans are improving. But facts are stubborn things.
Take for example the numbers of jobs lost in the last two months: 221,000 in
June, 131,000 in July.
Instead of taking the drastic measures needed to stop the continued hemorrhaging,
the President had this to say on August 5th:
“Even though it's going to take years to repair all the damage caused by this
recession, I am absolutely convinced that this nation is finally headed in the right
direction. Our economy is growing again. We are adding jobs again [!]. America is
moving forward again…”
Since Obama has access to the above job numbers, we must assume that he is
either delusional or lying. We also cannot attribute this comment to a one-time slip
of the tongue, because Obama has essentially made the same speech several times
while promoting Democratic candidates nationwide.
Contrary to his recent statements, Obama has not improved the economy. He has
overseen a catastrophic destruction of jobs on a state-by-state basis, in part due
to state budget crises and the pathetic lack of response on the national level:
Obama’s first stimulus was under-funded and misdirected (too much emphasis on
tax cuts for businesses, etc.), while Obama’s recent “stimulus”— only $26 billion —
is simply farce.
The state budget crises are not over; many states are projecting long-term
deficits in the billions of dollars that, if left untouched, will contribute further to
the massive unemployment that continues to drive down wages for the employed
workers.
In fact, the U.S. economy is in such sad shape, it was recently announced, that
call center workers in India now make a similar wage to their U.S. counterparts,
while autoworkers are being pressured to make 50 percent wage concessions.
When it comes to the Iraq war, Obama is equally off kilter. He recently announced
the end of “combat operations” in Iraq, which we are meant to interpret as
“mission accomplished.”
Meanwhile, we are told, 50,000 troops will stay in Iraq — along with unknown
thousands of “private contractors”(mercenaries) — capable of conducting “counter-
terrorism operations.” But the war has been advertised as one giant counter-
terrorism operation for years, meaning, that very little has changed.
Obama’s Bush-style war propaganda will do nothing to impress the Iraqis, who still
live in a war-torn hell-hole, with over a million dead, millions of refugees having
fled the country, while the remaining inhabitants are left to rot in a destroyed
economy lacking widespread access to jobs, water, sanitation, electricity, etc, etc.
Of course, the troops leaving Iraq will simply be shifted to Afghanistan, while the
troops staying in Iraq will be there to prop up a government that functions in
limbo, lacking all authority outside the violence it learns from the remaining U.S.
“trainers and advisors.” Middle East Journalist Robert Fisk adds:
“[The U.S.] injected Iraq with corruption on a grand scale. They stamped the seal
of torture on Abu Ghraib — a worthy successor to the same prison under
Saddam's vile rule… They sectarianised a country that, for all its Saddamite
brutality and corruption, had hitherto held its Sunnis and Shias together.”
In short, the U.S. invasion of Iraq has made things worse for Iraqis, and Obama
is selling the war as a victory as he recklessly dashes over to Afghanistan to
repeat the atrocity.
The hundreds of billions of dollars that Obama will use to wage war in Iraq and
Afghanistan could just as easily go to create jobs in the United States: public
works could be financed by the government, as they were during the last
Depression, that directly create jobs. The war money could also go to states
suffering massive cutbacks in social services and public education. If working
Americans sit idle, nothing will change, since power concedes nothing without a
demand.
On October 2nd workers will directly confront the Obama administration over the
above policies. Hopefully, these nationwide demonstrations, organized by the One
Nation coalition, will begin a movement that challenges the corporate agenda we’ve
suffered under for decades. Some in the coalition will attempt to channel the
momentum to elect Democrats in November; the majority will demonstrate to
challenge the policies of both the Democrats and Republicans. For more info: www.
onenationworkingtogether.org
Shamus Cooke is a social service worker, trade unionist, and writer for Workers
Action (www.workerscompass.org). He can be reached at shamuscook@gmail.com
Paul Davidson
Making dollars and sense of the U.S.
government debt
Abstract: This paper explain why, given Keynes’s General Theory, worries over
the size of the government’s national debt per se is foolish. It is more important
to educate politicians and the public that government fiscal policy should be designed
to make sure that aggregate market demand will produce sufficient profits
so that entrepreneurs will hire all domestic workers willing and able to work.
Empirical evidence is provided to demonstrate the correctness of this concept
of fiscal policy of the balancing wheel for full employment effective demand.
Key words: deficits, national debt.
No economic topic encourages more political demagoguery than the
“unsustainable” national deficits that face the Obama administration as
it tries to extricate the economy from this Great Recession that began
in 2007. Even President Obama has appointed a commission to develop
a plan to assure a reduction in future deficits by lowering government
expenditures or raising taxes.
A sage once said, “Those who cannot remember the past are condemned
to repeat its errors.” So let us review the past history of the national debt
to make sure we avoid its errors and repeat its successes.
Is the national debt too large? In 1790, the newly founded U.S. government
assumed the debts that had been incurred during the Revolutionary
War. Thus, from the very beginning, the U.S. national debt was
approximately $75 million. In 1835, President Jackson reduced the debt
to close to a zero balance. By 1837, however, the economy went into a
steep recession that lasted approximately six years and the national debt
increased dramatically. Since then, the U.S. government has always had
a significant outstanding debt.
Paul Davidson is editor of the Journal of Post Keynesian Economics and author of
The
Keynes Solution: The Path to Global Economic Prosperity.
10 editors corner.indd 663 4/25/2010 2:51:16 AM
664 JOURNAL OF POST KEYNESIAN ECONOMICS
During World War I, the national debt increased substantially from approximately
$6 billion in 1916 to over $27 billion in 1919. The prosperous
decade of the “roaring twenties” saw a decline in the national debt
as tax receipts exceeded government spending. By 1929, the total debt
had been reduced to $16.9 billion. This 1920s experience indicates that
when the private sector is spending sufficiently to buy all the products
that industry can produce in a fully employed economy, then there is no
need for the government to deficit spend merely to maintain a prosperous
economy. The 1920s prosperity, however, was partly the result of
significant bubbles in the stock market and in real estate. (Shades of the
dot.com bubble of the 1990s and the housing bubble of early 2000s.)
In 1929, private spending suddenly slowed causing a devastating drop
in business profits. Unemployment rose rapidly as the United States
entered the Great Depression. Tax revenues fell from $4 billion in 1930
to less than $2 billion in 1932. When Roosevelt took office in 1933, the
national debt was almost $20 billion; a sum equal to 20 percent of the
U.S. gross domestic product (GDP).
During its first term, the Roosevelt administration ran large annual
deficits between 2 and 5 percent of GDP. By 1936, the national debt had
increased to $33.7 billion or approximately 40 percent of GDP. Many
“experts” of that era said disaster awaited the nation if the government
continued to deficit spend and thereby burden future generations with this
huge debt. Accordingly, as a part of his reelection campaign, Roosevelt’s
fiscal year 1937 budget submitted to Congress in 1936 cut government
spending dramatically. As a result, in 1937, the economy fell into a steep
recession. Tax revenues declined and the national debt increased to $37
billion. The government resumed significant deficit spending in 1938
and the economy quickly recovered. By 1940, the economy had grown
substantially while the national debt rose to $43 billion.
When the United States entered the war in 1941, the fear of deficits and
the size of the national debt were forgotten. The important thing was to
defeat the enemy. In the war years from 1941 to 1945, the GDP doubled
while the national debt increased by more than 500 percent as Roosevelt
financed much of the war expenditures by government borrowing. By the
end of the war in 1945, the national debt had increased to $258 billion
and was equal to approximately 120 percent of GDP.
Rather than bankrupting the nation, this large growth in the national
debt promoted a prosperous economy. By 1946, the average American
household was living much better economically than in the prewar
days. Moreover, the children of that Depression–World War II generation
were not burdened by having to pay off what then was considered
10 editors corner.indd 664 4/25/2010 2:51:16 AM
Making Dollars and Sense of the U.S. Government Debt 665
a huge national debt. Instead, for the next quarter century, the economy
continued on a path of unprecedented economic growth and prosperity
with the Eisenhower administration launching the biggest public works
project—the interstate highway system—and the Kennedy–Johnson
administration spending large sums on sending a man to the moon and
the escalating Vietnam War. At the same time, the inequality in the distribution
of income was significantly narrowed. It was the golden age
of economic development for the United States as the rich grew richer
while the poor gained even more in a rapidly rising level of income that
created a large American middle class.
As a child of the Depression and a young teenager during the World
War II, I have never felt burdened by the huge government deficits that
accrued due to government spending during the Great Depression and
the war that followed. The legacy that the Great Generation who were
adults during the depression and the war left to their children was an
economy of abundance and prosperity. I inherited an economy that made
finding a good job easy for me and all of my cohorts and provided excellent
opportunities to improve our living standards. If this is burdening
children and grandchildren, I hope the current generation can create such
a “burden” for their progeny.
The moral of this history of the national debt and the economy during
the Great Depression and World War II is that we have nothing to fear
about running big government deficits when, during a recession with
significant unemployment, the federal government is the only spender
that can take the responsibility to sufficiently increase the market demand
for the products of our industries and thereby maintain a profitable entrepreneurial
system. For government to spend less in the hopes of keeping
down the size of the national debt will cause market demand to remain
slack, thereby impoverishing both our business firms and our workers.
The idea that capitalism works best when spenders cause healthy growth
in market demands and thereby generate profits and jobs for the community
was the basic message of Keynes theory.
This was clearly demonstrated when government spending increased
during the years 1933–36 and 1938–45. When Roosevelt cut spending
in 1937, the sharp recession showed that at that stage of recovery, no
other spenders were willing or able to take over from government the
role of generator of market demand and profits for American businesses.
Had Roosevelt, in 1938, continued on the path of keeping government
spending in check in order not to increase the total national debt, the
result would have been to propagate the poorly performing economy
of 1937. When the war broke out and no further thought was given to
10 editors corner.indd 665 4/25/2010 2:51:16 AM
666 JOURNAL OF POST KEYNESIAN ECONOMICS
the size of the national debt, government spending quickly pushed the
economy to a profitable full employment status. Keynes’s ideas that the
role of government fiscal policy was to make sure that the total demand
for goods and services provided profit opportunities to encourage business
firms to hire all workers who wanted a job was validated by this
historical record.
Business firms will hire more workers only when they expect the market
demand for their products is increasing. Today, who are these buyers who
will be willing to buy significantly more products from factories located
in the United States in order to end this Great Recession? Clearly households
suffering from high unemployment, decreasing market values for
their homes, large credit card debt, and shrinking pension funds are not
likely to rush to buy significant more goods and services. Entrepreneurs
with existing excess facilities and facing declining or at most not rapidly
rising market demands are unlikely to invest significantly in new plant and
equipment. Moreover, foreigners such as China with its large savings of
U.S. dollar earnings appears unlikely to spend more dollars to buy more
U.S.‑produced goods. With falling property and sales tax revenues, local
and state governments such as California are cutting spending on public
services and reducing purchases from domestically located firms. Only
the Federal government can afford to buy significant additional products
to stimulate market demand for American products.
Just as we expect the Federal government to spend whatever is necessary
to protect us from foreign enemies during a war, we should also
expect the government to spend whatever is necessary to protect us
from the economic terrorism of a great recession. The public must be
educated to understand that a civilized society is one that assures both
domestic workers and enterprises prosper and that the intelligent use of
government fiscal policy can assure that total market demand is always
sufficient to generate domestic profits large enough to create a fully
employed economy.
Some argue that tax revenues must finance all government spending
so that the federal budget is always balanced without deficits, or at least
annual deficits do not increase the debt-to-GDP ratio. As history shows,
however, even during World War II when America was attacked by foreign
nations (remember Pearl Harbor?) the U.S. government did not finance
the entire defense of this nation by raising taxes. Instead, during the war
years, deficits expanded dramatically while no one worried (correctly)
about burdening future generations with debt.
If wars are not sufficient (or necessary) reasons to raise taxes or cut
government spending sufficiently to balance the budget while protecting
10 editors corner.indd 666 4/25/2010 2:51:16 AM
Making Dollars and Sense of the U.S. Government Debt 667
the nation, then why should defending the nation against serious economic
threats require a balanced budget or a lower deficit? Our politicians and
the public must be educated to understand that when total demand for
domestically produced goods is low so that recession and depression
threaten, then government must deficit spend as much as necessary to
encourage domestic entrepreneurs to hire all American workers who
are willing and able to work. If, on the other hand, market demand for
domestically produced goods and services exceed America’s full employment
productive capacity, then government must increase taxes and
reduce spending in order to reduce aggregate demand to a level that can
be met by a fully employed labor force.
When the public and politicians recognize that a primary function of
government fiscal policy is to act as a balancing wheel for aggregate
demand to be sufficient to encourage America’s entrepreneurs to create
jobs for all our workers, we will have developed the political will to
develop a perpetual prosperous American civilized society.
At that point of time, our next task will be to develop an international
financial and payments system that will provide for global full employment
and prosperity.
Housing Crisis, System Failure
________________________________________
By Rick Wolff
Source: MRZine
Monday, August 23, 2010
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This capitalist crisis resembles a certain kind of serious disease. Different
symptoms keep flaring up at different locations. It began with sub-prime
mortgages in residential housing. Then, sequential flare-ups hit the private banking
system, forced millions out of their jobs and homes, drastically cut world trade,
and undermined the public services and national debts of several European
countries. Meanwhile, another symptom festered in the credit freeze crippling so
much private borrowing. Now, yet another symptom matures as government
subsidies and supports to our crisis-ridden private housing industry add rising
billions to the deficit.
The unspoken ideological taboo in most public discussion of the economic crisis
prohibits seeing or treating the problem as systemic, as a problem of capitalism as
a system. Instead, our political, journalistic, and academic leaders mostly see only
symptoms and "develop policies" only for those symptoms. Alarms about one
symptom -- and contested efforts to address it -- soon shift to another symptom
and "policy responses" for it. Often such policies for one symptom actually worsen
another symptom. For example, when stock markets collapsed early in 2000
(symptom), the Federal Reserve drastically cut interest rates (policy response);
that move facilitated the excess lending that collapsed the entire economy in 2007.
Today's alarms focus on housing and huge government subsidies there. To see the
systemic problems of the US housing industry, consider its basic economics. The
"American dream" of owning one's home was never affordable to the vast majority
of US families because the wages or salaries paid by their employers were never
enough. To realize the dream therefore required borrowing. However, because
working families had insufficient wages and salaries and no accumulated wealth --
their situation inside US capitalism -- private banks rarely lent to them. The vast
majority of them, not merely the poorest among them, were too risky as
borrowers.
A "solution" was found withinUS capitalism. The government would subsidize and
guarantee private banks' loans to millions of homebuyers. This solution boosted
profits in private banks' mortgage loan business. It indirectly subsidized all the
industries producing for private homes. Yet it did not raise wages and salaries
(something capitalists opposed). Many US workers became homeowners with large,
long-term mortgages, making them more dependent on keeping jobs, not offending
employers, etc. That experience also prepared workers to accept credit card,
student loan, and other consumer debts. Expanding debt became the way most
Americans bridged the gap between their incomes and the "good life" relentlessly
advertised by capitalists needing buyers.
Government subsidies for housing took off in the last great collapse of US
capitalism. The Federal Housing Administration (FHA) was created in 1934 and the
Federal National Mortgage Association (FNMA or "Fannie Mae") in 1938 (the latter
was split to form GNMA or "Ginnie Mae" in 1968). The Federal Home Loan
Mortgage Corporation ("Freddie Mac") came in 1970. The goal in the 1930s was
recovery of the depressed housing industry. Housing -- and the larger US
economy dependent on it -- have both been increasingly dependent on government
guarantees and subsidies ever since.
The 2007 crisis plunged the housing market into serious decline. Poor, middle, and
richer homeowners defaulted on their mortgage debts. Banks turned for relief to
the government guarantees and subsidies. Providing them has cost the US
government outlays now estimated at $150 billion with possibly hundreds of billions
more in this crisis. Defaults and falling home prices made banks refuse to provide
mortgage loans to almost anyone without government guarantees and subsidies
(thus, in 2010, the US government has guaranteed or bought 98 per cent of new
private mortgage loans). Without government support, there would be virtually no
market in US housing. Even the richest get subsidized: "The Federal Housing
Administration agreed in March to insure mortgages for apartments at the 98-unit
[New York City] Gramercy Park development, known as Tempo. That enables
buyers to make a down payment of as little as 3.5 percent in a building where
apartments are listed at $820,000 to $3 million."
Despite routinely endorsing government housing supports for years, Republicans
have suddenly found it politically expedient to attack Democrats for those
supports' impact on the US deficit (ignoring that Bush nationalized Fannie and
Ginny Mae and their debts in 2008). Democrats know they cannot cut government
supports without producing a deeper housing and general recession which the
Republicans would then blame on them. Thus, Treasury Secretary Geithner
promises little change in the basic housing subsidy and guarantee system: doing
away with it, he says, risks even worse future recessions. For Geithner, no
systemic issue exists; for him it's just a question of how much government support
the housing industry needs.
The US housing industry's basic problem is the system in which it is embedded.
The larger capitalist economy shapes the gap between the costs of privately
produced homes and American workers' earnings. Over the last 75 years, US
capitalism has bridged that gap by means of private credit guaranteed and/or
subsidized by the government. This system provides incentives as well as
opportunities for excessive home prices, diminished wages and salaries, and
excessive quantities, risks, and costs of housing credit. The last 30 years have
seen all three phenomena converge into a systemic crisis.
A systemic solution would include rethinking housing fundamentally. Consider, for
example, a national program of building low-cost public housing (in various styles
and configurations) owned and operated by local communities. Besides the job-
creating virtues of such a program, it could yield high-quality, low-cost
alternatives to and long overdue competition for private housing and its prices.
Working people could then choose between them. A systemic solution could also
raise wages and salaries relative to profits and thereby rebuild the finances of
those who buy homes. These two steps would together reduce or remove the
dependence on credit that has repeatedly and dangerously spun out of control
among lenders and borrowers.
Republicans and Democrats will likely not mention, let alone debate, the systemic
causes or solutions to the housing crisis and the mounting losses at the FHA,
Fannie, Ginnie, and Freddie. They obey and enforce the ideological taboos of our
time; they do not challenge them. Their minor "fixes" for the housing crisis, likely
promoted as great reforms, may well worsen the crisis by provoking another
symptom somewhere else. To address this society's systemic problems with
systemic solutions will require new political formations without ideological taboos
about questioning or changing the system.
________________________________________
Rick Wolff is a Professor Emeritus at the University of Massachusetts in Amherst
and also a Visiting Professor at the Graduate Program in International Affairs of
the New School University in New York. He is the author of New Departures in
Marxian Theory (Routledge, 2006) among many other publications. Check out Rick
Wolff’s documentary film on the current economic crisis, Capitalism Hits the Fan,
at www.capitalismhitsthefan.com. Visit Wolff's Web site at www.rdwolff.com,
and order a copy of his new book Capitalism Hits the Fan: The Global Economic
Meltdown and What to Do about It.
Published on Tuesday, August 24, 2010 by The Guardian/UK
Fannie Mae and Freddie Mac's Future
If the US government continues to underwrite the mortgage market, then the one
thing it should not do is pad banks' profits
by Dean Baker
The administration took its first step toward resolving the final status of Fannie
Mae and Freddie Mac with a big conference at the White House last week. In
keeping with its housing policy to date, it seems intent on taking the worst possible
course.
These mortgage giants have played an important role in making housing more
affordable in the United States. Fannie Mae created the secondary market in
mortgages when it was established as a government-owned company during the New
Deal. Its willingness to buy mortgages from banks essentially created the basis for
the 30-year fixed rate mortgage that is the standard today.
The virtue of the original Fannie Mae was that it was simple and cheap. It bought
and held 30-year mortgages. It did not securitise them. This avoided the costs
and risks associated with securitisation. At every step in the securitisation
process, the financial industry expects to make money, and often lots of it, since
salaries are so bloated. In addition to saving these costs, a public Fannie also had
no incentive to engage in risky gambles to inflate profits. Its senior management
was paid civil servant wages, not the tens of millions that go each year to top Wall
Street executives.
Holding the mortgage on its books meant that Fannie Mae, and therefore the
government, was bearing the interest rate risk associated with the mortgage, in
addition to the risk that the mortgage would go bad. Interest rate risk is the risk
that interest rates will rise. If the standard interest rate for a 30-year mortgage
rises from 5.0% to 6.0%, then a newly issued 30-year mortgage will lose more
than 12% of its value. Sharper rises in interest rates, as we saw in the inflation-
wracked 1970s, led to large losses on mortgages for Fannie and Freddie, as well as
banks and savings and loans institutions that held 30-year mortgages.
While this risk is raised as a danger if these government-owned mortgage giants
are allowed to hold their mortgages, it really does not pose a problem for the
government. The government is a massive issuer of long-term debt. In the event
that the government-owned Fannie and Freddie are taking a big hit due to a rise in
inflation rates, then the government is simultaneously getting a bonanza from the
reduction in the real value of the debt it owes.
In other words, insofar as a sudden burst of inflation erodes the value of the
mortgages held by Fannie and Freddie, it will likely be offset by the reduction in
the value of the debt the government owes the public. In short, we are hedged
against this risk.
If we are interested in a cheap and efficient way to sustain the secondary
mortgage market, it would be hard to beat the old government-owned Fannie
model. It may make sense to keep Freddie as a source of competition and to
ensure some dynamism, but if efficiency is the goal, then the keeping Fannie and
Freddie as government-owned companies would be the way to go.
But this approach seems to be off the agenda – since it makes too much sense.
Instead, the consensus seems to be to design some hybrid model in which private
profit-making banks will decide which mortgages will get a government guarantee.
We are assured by the housing finance wizards that the government regulators will
effectively police the private banks. The basic issue is the problem of moral
hazard: private banks have an incentive to issue the guarantee to the worst junk
around, since they will make money on the process and the risk goes to the
government. It is difficult to believe that anyone who has lived through the crisis
of the last three years would want to re-establish this sort of situation.
The third alternative to the hybrid or the government-owned Fannie/Freddie route
is simply to let them die over a period of 5-10 years and leave mortgages to the
private sector. We know that the private sector can and does issue mortgages
without government support. This is demonstrated by the existence of the jumbo
mortgage market. Jumbo mortgages exceed the size limits set for a loan to be
purchased by Fannie and Freddie. Even in the current environment, the spread is
only 90 basis points (9/10ths of a percentage point) compared with the
Fannie/Freddie-backed conformable mortgages, and it is typically much less.
If ideological and political considerations prevent us from establishing the most
efficient mortgage system, relying on a purely private model is almost certainly
better than trying to construct a convoluted hybrid. The potential benefits from
this mixed system are fairly modest – a slight reduction in mortgage interest
rates. While the risks from not doing it right are large.
If we want to have the government subsidise the mortgages of moderate- and
middle- income homeowners, it can be easily done through the tax code or other
mechanisms. There is no reason to set up a whole new system of finance to
accomplish this purpose.
Unfortunately, the smart money is on the convoluted route because the big money
stands to gain this way. The waste in such a system is income for folks like
Citigroup and Bank of America. And we all know that the most dangerous place to
stand in modern America is between the financial industry and a policy that will
enhance its profits. So, look for more bad housing policy coming out of Washington.
© Guardian News and Media Limited 2010
Republic or empire:
A National Intelligence Estimate on the United States
By Chalmers A. Johnson
A National Intelligence Estimate on the United States 11. The CIA's website
defines a National Intelligence Estimate as “the most authoritative written
judgment concerning a national security issue prepared by the Director of Central
Intelligence.” These forecasts of “future developments” and “their implications for
the United States” seldom are made public, but there are exceptions. One was the
NIE of September 2002, “Iraq's Continuing Programs for Weapons of Mass
Destruction,” which became notorious because virtually every word in it was false.
Another, an April 2006 NIE entitled “Trends in Global Terrorism: Implications for
the United States,” was partly declassified by President Bush because its main
conclusion—that “activists identifying themselves as jihadists” are “increasing in
both number and geographic dispersion”—had already been leaked to the press.
By Chalmers Johnson 22. The CIA is prohibited from writing an NIE on the United
States, and so I have here attempted to do so myself, using the standard format
for such estimates. I have some personal knowledge of NIEs because from 1967 to
1973 I served as an outside consultant to the CIA's Office of National Estimates.
I was one of about a dozen so-called experts invited to read draft NIEs in order
to provide quality control and prevent bureaucratic logrolling.
KEY JUDGMENTS
The United States remains, for the moment, the most powerful nation in history,
but it faces a violent contradiction between its long republican tradition and its
more recent imperial ambitions.
The fate of previous democratic empires suggests that such a conflict is
unsustainable and will be resolved in one of two ways. Rome attempted to keep its
empire and lost its democracy. Britain chose to remain democratic and in the
process let go its empire. Intentionally or not, the people of the United States
already are well embarked upon the course of non-democratic empire.
Several factors, however, indicate that this course will be a brief one, which most
likely will end in economic and political collapse.
Military Keynesianism: The imperial project is expensive. The flow of the nation's
wealth—from taxpayers and (increasingly) foreign lenders through the government
to military contractors and (decreasingly) back to the taxpayers—has created a
form of “military Keynesianism,” in which the domestic economy requires sustained
military ambition in order to avoid recession or collapse.
The Unitary Presidency: Sustained military ambition is inherently anti-republican, in
that it tends to concentrate power in the executive branch. In the United States,
President George W. Bush subscribes to an esoteric interpretation of the
Constitution called the theory of the unitary executive, which holds, in effect, that
the president has the authority to ignore the separation of powers written into the
Constitution, creating a feedback loop in which permanent war and the unitary
presidency are mutually reinforcing.
Failed Checks on Executive Ambition: The U.S. legislature and judiciary appear to
be incapable of restraining the president and therefore restraining imperial
ambition. Direct opposition from the people, in the form of democratic action or
violent uprising, is unlikely because the television and print media have by and large
found it unprofitable to inform the public about the actions of the country's
leaders. Nor is it likely that the military will attempt to take over the executive
branch by way of a coup.
Bankruptcy and Collapse: Confronted by the limits of its own vast but nonetheless
finite financial resources and lacking the political check on spending provided by a
functioning democracy, the United States will within a very short time face
financial or even political collapse at home and a significantly diminished ability to
project force abroad.
DISCUSSION
Military Keynesianism
The ongoing U.S. militarization of its foreign affairs has spiked precipitously in
recent years, with increasingly expensive commitments in Afghanistan and Iraq.
These commitments grew from many specific political factors, including the
ideological predilections of the current regime, the growing need for material
access to the oil-rich regions of the Middle East, and a long-term bipartisan
emphasis on hegemony as a basis for national security. The domestic economic
basis for these commitments, however, is consistently overlooked. Indeed,
America's hegemonic policy is in many ways most accurately understood as the
inevitable result of its decades-long policy of military Keynesianism.
During the Depression that preceded World War II, the English economist John
Maynard Keynes, a liberal capitalist, proposed a form of governance that would
mitigate the boom-and-bust cycles inherent in capitalist economies. To prevent the
economy from contracting, a development typically accompanied by social unrest,
Keynes thought the government should take on debt in order to put people back to
work. Some of these deficit-financed government jobs might be socially useful, but
Keynes was not averse to creating make-work tasks if necessary. During periods of
prosperity, the government would cut spending and rebuild the treasury. Such
countercyclical planning was called “pump-priming.”
Upon taking office in 1933, U.S. President Franklin Roosevelt, with the assistance
of Congress, put several Keynesian measures into effect, including socialized
retirement plans, minimum wages for all workers, and government-financed jobs on
massive projects, including the Triborough Bridge in New York City, the Grand
Coulee Dam in Washington, and the Tennessee Valley Authority, a flood-control and
electric-power-generation complex covering seven states. Conservative capitalists
feared that this degree of government intervention would delegitimate capitalism—
which they understood as an economic system of quasi-natural laws—and shift the
balance of power from the capitalist class to the working class and its unions. For
these reasons, establishment figures tried to hold back countercyclical spending.
The onset of World War II, however, made possible a significantly modified form
of state socialism. The exiled Polish economist Michal Kalecki attributed Germany's
success in overcoming the global Depression to a phenomenon that has come to be
known as “military Keynesianism.” Government spending on arms increased
manufacturing and also had a multiplier effect on general consumer spending by
raising worker incomes. Both of these points are in accordance with general
Keynesian doctrine. In addition, the enlargement of standing armies absorbed many
workers, often young males with few skills and less education. The military thus
becomes an employer of last resort, like Roosevelt's Civilian Conservation Corps,
but on a much larger scale.
Rather than make bridges and dams, however, workers would make bullets, tanks,
and fighter planes. This made all the difference. Although Adolf Hitler did not
undertake rearmament for purely economic reasons, the fact that he advocated
governmental support for arms production made him acceptable not only to the
German industrialists, who might otherwise have opposed his destabilizing
expansionist policies, but also to many around the world who celebrated his
achievement of a “German economic miracle.”
In the United States, Keynesian policies continued to benefit workers, but, as in
Germany, they also increasingly benefited wealthy manufacturers and other
capitalists. By the end of the war, the United States had seen a massive shift.
Dwight Eisenhower, who helped win that war and later became president, described
this shift in his 1961 presidential farewell address:
Our military organization today bears little relation to that known by any of my
predecessors in peacetime, or indeed by the fighting men of World War II or
Korea.
Until the latest of our world conflicts, the United States had no armaments
industry. American makers of plowshares could, with time and as required, make
swords as well. But we can no longer risk emergency improvisation of national
defense; we have been compelled to create a permanent armaments industry of vast
proportions. Added to this, three and a half million men and women are directly
engaged in the defense establishment. We annually spend on military security alone
more than the net income of all United States corporations.
This conjunction of an immense military establishment and a large arms industry is
new in the American experience. The total influence—economic, political, even
spiritual—is felt in every city, every statehouse, every office of the federal
government. We recognize the imperative need for this development. Yet we must
not fail to comprehend its grave implications. Our toil, resources and livelihood are
all involved; so is the very structure of our society.
Eisenhower went on to suggest that such an arrangement, which he called the
“military-industrial complex,” could be perilous to American ideals. The short-term
economic benefits were clear, but the very nature of those benefits—which were all
too carefully distributed among workers and owners in “every city, every
statehouse, every office of the federal government”—tended to short-circuit
Keynes's insistence that government spending be cut back in good times. The
prosperity of the United States came increasingly to depend upon the construction
and continual maintenance of a vast war machine, and so military supremacy and
economic security became increasingly intertwined in the minds of voters. No one
wanted to turn off the pump.
Between 1940 and 1996, for instance, the United States spent nearly $4.5 trillion
on the development, testing, and construction of nuclear weapons alone. By 1967,
the peak year of its nuclear stockpile, the United States possessed some 32,000
deliverable bombs. None of them was ever used, which illustrates perfectly
Keynes's observation that, in order to create jobs, the government might as well
decide to bury money in old mines and “leave them to private enterprise on the well-
tried principles of laissez faire to dig them up again.” Nuclear bombs were not just
America's secret weapon; they were also a secret economic weapon.
Such spending helped create economic growth that lasted until the 1973 oil crisis.
In the 1980s, President Ronald Reagan once again brought the tools of military
Keynesianism to bear, with a policy of significant tax cuts and massive deficit
spending on military projects, allegedly to combat a new threat from Communism.
Reagan's military expenditures accounted for 5.9 percent of the gross domestic
product in 1984, which in turn fueled a 7 percent growth rate for the economy as
a whole and helped reelect Reagan by a landslide.
During the Clinton years military spending fell to about 3 percent of GDP, but the
economy rallied strongly in Clinton's second term due to the boom in information
technologies, weakness in the previously competitive Japanese economy, and—
paradoxically—serious efforts to reduce the national debt.33. Military
Keynesianism, it turns out, is not the only way to boost an economy. With the
coming to power of George W. Bush, however, military Keynesianism returned once
again. Indeed, after he began his war with Iraq, the once-erratic relationship
between defense spending and economic growth became nearly parallel. A spike in
defense spending in one quarter would see a spike in GDP, and a drop in defense
spending would likewise see a drop in GDP.
To understand the real weight of military Keynesianism in the American economy
today, however, one must approach official defense statistics with great care. The
“defense” budget of the United States—that is, the reported budget of the
Department of Defense—does not include: the Department of Energy's spending on
nuclear weapons ($16.4 billion slated for fiscal 2006), the Department of Homeland
Security's outlays for the actual “defense” of the United States ($41 billion), or
the Department of Veterans Affairs' responsibilities for the lifetime care of the
seriously wounded ($68 billion). Nor does it include the billions of dollars the
Department of State spends each year to finance foreign arms sales and militarily
related development or the Treasury Department's payments of pensions to military
retirees and widows and their families (an amount not fully disclosed by official
statistics). Still to be added are interest payments by the Treasury to cover past
debt-financed defense outlays. The economist Robert Higgs estimates that in 2002
such interest payments amounted to $138.7 billion.
Even when all these things are included, Enron-style accounting makes it hard to
obtain an accurate understanding of U.S. dependency on military spending. In
2005, the Government Accountability Office reported to Congress that “neither
DOD nor Congress can reliably know how much the war is costing” or “details on
how the appropriated funds are being spent.” Indeed, the GAO found that, lacking
a reliable method for tracking military costs, the Army had taken to simply
inserting into its accounts figures that matched the available budget. Such actions
seem absurd in terms of military logic. But they are perfectly logical responses to
the requirements of military Keynesianism, which places its emphasis not on the
demand for defense but rather on the available supply of money.
The Unitary Presidency
Military Keynesianism may be economic development by other means, but it does
very often lead to real war, or, if not real war, then a significantly warlike
political environment. This creates a feedback loop: American presidents know that
military Keynesianism tends to concentrate power in the executive branch, and so
presidents who seek greater power have a natural inducement to encourage further
growth of the military-industrial complex. As the phenomena feed on each other,
the usual outcome is a real war, based not on the needs of national defense but
rather on the domestic political logic of military Keynesianism. As U.S. Senator
Robert La Follette Sr. observed, “In times of peace, the war party insists on
making preparation for war. As soon as prepared for war, it insists on making
war.”
George W. Bush has taken this natural political phenomenon to an extreme never
before experienced by the American electorate. Every president has sought
greater authority, but Bush—whose father lost his position as forty-first president
in a fair and open election—appears to believe that increasing presidential authority
is both a birthright and a central component of his historical legacy. He is
supported in this belief by his vice president and chief adviser, Dick Cheney.
In pursuit of more power, Bush and Cheney have unilaterally authorized preventive
war against nations they designate as needing “regime change,” directed American
soldiers to torture persons they have seized and imprisoned in various countries,
ordered the National Security Agency to carry out illegal “data mining” surveillance
of the American people, and done everything they could to prevent Congress from
outlawing “cruel, inhumane, or degrading” treatment of people detained by the
United States. Each of these actions has been undertaken for specific ideological,
tactical, or practical rea-sons, but also as part of a general campaign of power
concentration.
Cheney complained in 2002 that, since he had served as Gerald Ford's chief of
staff, he had seen a significant erosion in executive power as post-Watergate
presidents were forced to “cough up and compromise on important principles.” He
was referring to such reforms as the War Powers Act of 1973, which requires
that the president obtain congressional approval within ninety days of ordering
troops into combat; the Budget and Impoundment Control Act of 1974, which was
designed to stop Nixon from impounding funds for programs he did not like; the
Freedom of Information Act of 1966, which Congress strengthened in 1974;
President Ford's Executive Order 11905 of 1976, which outlawed political
assassination; and the Intelligence Oversight Act of 1980, which gave more power
to the House and Senate select committees on intelligence. Cheney said that these
reforms were “unwise” because they “weaken the presidency and the vice
presidency,” and added that he and the president felt an obligation “to pass on our
offices in better shape than we found them.”
No president, however, has ever acknowledged the legitimacy of the War Powers
Act, and most of these so-called limitations on presidential power had been gutted,
ignored, or violated long before Cheney became vice president. Republican Senator
John Sununu of New Hampshire said, “The vice president may be the only person I
know of that believes the executive has somehow lost power over the last thirty
years.”
Bush and Cheney have made it a primary goal of their terms in office, nonetheless,
to carve executive power into the law, and the war has been the primary vehicle
for such actions. John Yoo, Bush's deputy assistant attorney general from 2001 to
2003, writes in his book War By Other Means, “We are used to a peacetime
system in which Congress enacts laws, the President enforces them, and the courts
interpret them. In wartime, the gravity shifts to the executive branch.” Bush has
claimed that he is “the commander” and “the decider” and that therefore he does
not “owe anybody an explanation” for anything.44. In a January 2006 debate, Yoo
was asked if any law could stop the president, if he “deems that he's got to
torture somebody,” from, say, “crushing the testicles of the person's child.” Yoo's
response: “I think it depends on why the president thinks he needs to do that.”
Similarly, in a September 2006 press conference, White House spokesman Tony
Snow engaged in this dialogue:
Q: Isn't it the Supreme Court that's supposed to decide whether laws are
unconstitutional or not?
A: No, as a matter of fact the president has an obligation to preserve, protect,
and defend the Constitution of the United States. That is an obligation that
presidents have enacted through signing statements going back to Jefferson. So,
while the Supreme Court can be an arbiter of the Constitution, the fact is the
president is the one, the only person who, by the Constitution, is given the
responsibility to preserve, protect, and defend that document, so it is perfectly
consistent with presidential authority under the Constitution itself.
Snow was referring to the president's habit of signing bills into law accompanied by
“statements” that, according to the American Bar Association, “assert President
Bush's authority to disregard or decline to enforce laws adopted by Congress.” All
forty-two previous U.S. presidents combined have signed statements exempting
themselves from the provisions of 568 new laws, whereas Bush has, to date,
exempted himself from more than 1,000.
Failed Checks on Executive Ambition
The current administration's perspective on political power is far from unique. Few,
if any, presidents have refused the increased executive authority that is the
natural byproduct of military Keynesianism. Moreover, the division of power
between the president, the Congress, and the judiciary—often described as the
bedrock of American democracy—has eroded significantly in recent years. The
people, the press, and the military, too, seem anxious to cede power to a
“wartime” president, leaving Bush, or those who follow him, almost entirely
unobstructed in pursuing the imperial project.
Congress: Corrupt and indifferent, Congress, which the Founders believed would be
the leading branch of government, has already entirely forfeited the power to
declare war. More recently, it gave the president the legal right to detain anyone,
even American citizens, without warrant, and to detain non-citizens without
recourse to habeas corpus, as well as to use a variety of interrogation methods
that he could define, at his sole discretion, to be or not be torture.
The Courts: The judicial branch is hardly more effective in restraining presidential
ambition. The Supreme Court was active in the installation of the current
president, and the lower courts increasingly are packed with judges who believe
they should defer to his wishes. In 2006, for instance, U.S. District Judge David
Trager dismissed a suit by a thirty-five-year-old Canadian citizen, Maher Arar,
who in 2002 was seized by U.S. government agents at John F. Kennedy Airport
and delivered to Syria, where he was tortured for ten months before being
released. No charges were filed against Arar, and his torturers eventually
admitted he had no links to any crime. In explaining his dismissal, Trager noted
with approval an earlier Supreme Court finding that such judgment would “threaten
‘our customary policy of deference to the President in matters of foreign affairs.’”
The Military: It is possible that the U.S. military could take over the government
and declare a dictatorship.55. Though they undoubtedly would find a more user-
friendly name for it. That is how the Roman republic ended. For the military
voluntarily to move toward direct rule, however, its leaders would have to ignore
their ties to civilian society, where the symbolic importance of constitutional
legitimacy remains potent. Rebellious officers may well worry about how the
American people would react to such a move. Moreover, prosecutions of low-level
military torturers from Abu Ghraib prison and killers of civilians in Iraq have
demonstrated to enlisted ranks that obedience to illegal orders can result in their
being punished, whereas officers go free. No one knows whether ordinary
American soldiers would obey clearly illegal orders to oust an elected government or
whether the officer corps has sufficient confidence to issue such orders. In
addition, the present system already offers the military high command so much—in
funds, prestige, and future employment via the military-industrial revolving door—
that a perilous transition to anything resembling direct military rule would make
little sense under reasonably normal conditions.
The People: Could the people themselves restore constitutional government? A
grassroots movement to break the hold of the military-industrial complex and
establish public financing of elections is conceivable. But, given the conglomerate
control of the mass media and the difficulties of mobilizing the United States'
large and diffuse population, it is unlikely. Moreover, the people themselves have
enjoyed the Keynesian benefits of the U.S. imperial project and—in all but a few
cases—have not yet suffered any of its consequences.66. In 2003, when the Iraq
war began, the citizens of the United States could at least claim that it was the
work of an administration that had lost the popular vote. But in 2004, Bush won
that vote by more than 3 million ballots, making his war ours.
Bankruptcy and Collapse
The more likely check on presidential power, and on U.S. military ambition, will be
the economic failure that is the inevitable consequence of military Keynesianism.
Traditional Keynesianism is a stable two-part system composed of deficit spending
in bad times and debt payment in good times. Military Keynesianism is an unstable
one-part system. With no political check, debt accrues until it reaches a crisis
point.
In the fiscal 2006 budget, the Congressional Research Service estimates that
Pentagon spending on Operation Enduring Freedom and Operation Iraqi Freedom will
be about $10 billion per month, or an extra $120.3 billion for the year. As of mid-
2006, the overall cost of the wars in Iraq and Afghanistan since their inception
stood at more than $400 billion. Joseph Stiglitz, the Nobel Prize‒winning
economist, and his colleague, Linda Bilmes, have tried to put together an estimate
of the real costs of the Iraq war. They calculate that it will cost about $2 trillion
by 2015. The conservative American Enterprise Institute suggests a figure at the
opposite end of the spectrum—$1 trillion. Both figures are an order of magnitude
larger than what the Bush Administration publicly acknowledges.
At the same time, the U.S. trade deficit, the largest component of the current
account deficit, soared to an all-time high in 2005 of $782.7 billion, the fourth
consecutive year that America's trade debts set records. The trade deficit with
China alone rose to $201.5 billion, the highest imbalance ever recorded with any
country. Meanwhile, since mid-2000, the country has lost nearly 3 million
manufacturing jobs. To try to cope with these imbalances, on March 16, 2006,
Congress raised the national debt limit from $8.2 trillion to $9 trillion. This was
the fourth time since George W. Bush took office that the limit had to be raised.
Had Congress not raised it, the U.S. government would not have been able to
borrow more money and would have had to default on its massive debts.
Among the creditors that finance this unprecedented sum, two of the largest are
the central banks of China ($854 billion in reserves of dollars and other foreign
currencies) and Japan ($850 billion), both of which are the managers of the huge
trade surpluses these countries enjoy with the United States. This helps explain
why the United States' debt burden has not yet triggered what standard economic
theory would predict, which is a steep decline in the value of the U.S. dollar
followed by a severe contraction of the American economy—the Chinese and
Japanese governments continue to be willing to be paid in dollars in order to sustain
American demand for their exports. For the sake of domestic employment, both
countries lend huge amounts to the American treasury, but there is no guarantee
how long they will want or be able to do so.
CONFIDENCE IN KEY JUDGMENTS
It is difficult to predict the course of a democracy, and perhaps even more so
when that democracy is as corrupt as that of the United States. With a new
opposition party in the majority in the House, the country could begin a difficult
withdrawal from military Keynesianism. Like the British after World War II, the
United States could choose to keep its democracy by giving up its empire. The
British did not do a particularly brilliant job of liquidating their empire, and there
were several clear cases in which British imperialists defied their nation's
commitment to democracy in order to keep their foreign privileges—Kenya in the
1950s is a particularly savage example—but the people of the British Isles did
choose democracy over imperialism, and that nation continues to thrive as a nation,
if not as an empire.
It appears for the moment, however, that the people of the United States prefer
the Roman approach and so will abet their government in maintaining a facade of
constitutional democracy until the nation drifts into bankruptcy.
Of course, bankruptcy will not mean the literal end of the United States any more
than it did for Germany in 1923, China in 1948, or Argentina in 2001. It might, in
fact, open the way for an unexpected restoration of the American system, or for
military rule, revolution, or simply some new development we cannot yet imagine.
Certainly, such a bankruptcy would mean a drastic lowering of the current American
standard of living, a loss of control over international affairs, a process of
adjusting to the rise of other powers, including China and India, and a further
discrediting of the notion that the United States is somehow exceptional compared
with other nations. The American people will be forced to learn what it means to
be a far poorer nation and the attitudes and manners that go with it.77. National
Intelligence Estimates seldom contain startling new data. To me they always read
like magazine articles or well-researched and footnoted graduate seminar papers.
When my wife once asked me what was so secret about them, I answered that
perhaps it was the fact that this was the best we could do.
Robert Reich
Former Secretary of Labor, Professor at Berkeley
Posted: August 11, 2010 09:33 PM
America's Biggest Jobs Program -- the U.S. Military
America's biggest -- and only major -- jobs program is the U.S. military.
Over 1,400,000 Americans are now on active duty; another 833,000 are in the
reserves, many full time. Another 1,600,000 Americans work in companies that
supply the military with everything from weapons to utensils. (I'm not even
including all the foreign contractors employing non-US citizens.)
If we didn't have this giant military jobs program, the U.S. unemployment rate
would be over 11.5 percent today instead of 9.5 percent.
And without our military jobs program personal incomes would be dropping faster.
The Commerce Department reported Monday the only major metro areas where
both net earnings and personal incomes rose last year were San Antonio, Texas,
Virginia Beach, Virginia, and Washington, D.C. -- because all three have high
concentrations of military and federal jobs.
This isn't an argument for more military spending. Just the opposite. Having a
giant undercover military jobs program is an insane way to keep Americans
employed. It creates jobs we don't need but we keep anyway because there's no
honest alternative. We don't have an overt jobs program based on what's really
needed.
For example, when Defense Secretary Robert Gates announced Monday his plan to
cut spending on military contractors by more than a quarter over three years,
congressional leaders balked. Military contractors are major sources of jobs back
in members' states and districts. California's Howard P. "Buck" McKeon, the top
Republican on the House Armed Services Committee, demanded that the move "not
weaken the nation's defense." That's congress-speak for "over my dead body."
Gates simultaneously announced closing the Joint Force Command in Norfolk,
Virginia, that employees 6,324 people and relies on 3,300 private contractors. This
prompted Virginia Democratic Senator Jim Webb, a member of the Senate Armed
Services Committee, to warn that the closure "would be a step backward."
Translated: "No chance in hell."
Gates can't even end useless weapons programs. That's because they're covert
jobs programs that employ thousands.
He wants to stop production of the C-17 cargo jet he says is no longer needed.
But it keeps 4,000 people working at Boeing's Long Beach assembly plant and
30,000 others at Boeing suppliers strategically located in 40 states. So despite
Gates's protests the Senate has approved ten new orders.
That's still not enough to keep all those C-17 workers employed, so the Pentagon
and Boeing have been hunting for foreign purchasers. The Indian Air Force is now
negotiating to buy ten, and talks are underway with several other nations, including
Oman and Saudi Arabia.
Ever wonder why military equipment is one of America's biggest exports? It's our
giant military jobs program in action.
Gates has also been trying to stop production of a duplicate engine for the F-25
joint Strike Fighter jet. He says it isn't needed and doesn't justify the $2.9
billion slated merely to develop it.
But the unnecessary duplicate engine would bring thousands of jobs to Indiana and
Ohio. Cunningly, its potential manufacturers Rolls-Royce and General Electric
created a media blitz (mostly aimed at Washington, D.C. where lawmakers wold see
it) featuring an engine worker wearing a "Support Our Troops" T-shirt and arguing
the duplicate engine will create 4,000 American jobs. Presto. Despite a veto threat
from the White House, a House panel has just approved funding the duplicate.
By the way, Gates isn't trying to cut the overall Pentagon budget. He just wants to
trim certain programs to make room for more military spending with a higher
priority.
The Pentagon's budget -- and its giant undercover jobs program -- keeps
expanding. The President has asked Congress to hike total defense spending next
year 2.2 percent, to $708 billion. That's 6.1 percent higher than peak defense
spending during the Bush administration.
This sum doesn't even include Homeland Security, Veterans Affairs, nuclear
weapons management, and intelligence. Add these, and next year's national security
budget totals about $950 billion.
That's a major chunk of the entire federal budget. But most deficit hawks don't
dare cut it. National security is sacrosanct.
Yet what's really sacrosanct is the giant jobs program that's justified by national
security. National security is a cover for job security.
This is nuts.
Wouldn't it be better to have a jobs program that created things we really need
-- like light-rail trains, better school facilities, public parks, water and sewer
systems, and non-carbon energy sources -- than things we don't, like obsolete
weapons systems?
Historically some of America's biggest jobs programs that were critical to the
nation's future have been justified by national defense, although they've borne
almost no relation to it. The National Defense Education Act of the late 1950s
trained a generation of math and science teachers. The National Defense Highway
Act created millions of construction jobs turning the nation's two-lane highways
into four- and six-lane Interstates.
Maybe this is the way to convince Republicans and blue-dog Democrats to spend
more federal dollars putting Americans back, and working on things we genuinely
need: Call it the National Defense Full Employment Act.
Robert Reich
Former Secretary of Labor, Professor at Berkeley
Posted: August 24, 2010 04:15 PM
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Tax Jujitsu: Why Democrats Should Propose a "People's Tax Cut"
Republicans are calling the Democrat's proposal to end the Bush tax cuts on the
richest 3 percent a "tax increase," and demagoging that it will hurt the economy
and small business. This is baloney, to put it politely. Let me count the ways:
• Bush's ten-year tax cut was designed to end this year, so it's not a tax
increase.
• Ending it for the rich simply returns them to the Clinton tax rate, which
was hardly confiscatory (reminder: the Clinton years were damn good for business).
• Small businesses would barely be affected. Only 3 percent of small
business owners earn over250,000. And because it's a "marginal" tax, the Clinton
rate would apply only to the portion of their incomes over250,000.
• Yet extending the Bush tax cut to the richest Americans would give them
a36 billion bonus next year. (31 billion of this would go to billionaire households.)
And that36 billion would be added to the budget deficit.
• And it wouldn't even stimulate demand and jobs, because the very rich
save (rather than spend) more of their disposable income than the rest of us.
• Finally, ending the Bush tax cut for the top is fair. Income inequality has
become so grotesque that the top 3 percent of households rake in almost a third
of total income (the highest portion since 1928).
But by the time Democrats explain all this, it's too late. The Republican furor over
a "tax increase" has framed the debate.
Republicans understand the art of tax demagoguery: Put the other side on the
defensive by forcing them to explain why a "tax increase" is warranted and they
lose regardless.
So instead of playing defense, Democrats should go on the attack.
Accuse Republicans of being shills for the rich.
And don't stop there. Do tax jujitsu. In addition to ending the Bush tax cut for
the rich, put forward another proposal for growing the economy that cuts taxes on
lower-income Americans.
Democrats should propose eliminating payroll taxes on the first $20,000 of income,
and making up the revenue loss by applying payroll taxes to incomes above
$250,000.
This would give the economy an immediate boost by adding to the paychecks of
just about every working American. 80 percent of Americans pay more in payroll
taxes than they do in income taxes. And because lower-income people would get
most of the benefit, it's likely to be spent.
It would also give employers an extra incentive to hire because they'd save on
their share of the payroll tax. And most of the incentive would be directed toward
hiring lower-income workers -- who have taken the biggest hit on jobs and pay
during the recession.
It wouldn't add to the deficit. Lost revenues would be made up by applying payroll
taxes to income exceeding $250,000. This is certainly fair. As it is now, the
Social Security payroll tax doesn't apply to any income over $106,000. Having the
tax kick in again at $250,000 would draw on the top 3 percent of earners, who (as
noted) now rake in a larger portion of total income than they have in more than 80
years.
Call it the People's Tax Cut, and let Republicans explain why they're against it.
This post originally appeared at RobertReich.org.
The Corpo-Obama-Geithner-Petraeus State
Barbara Ehrenreich
August 12, 2010 | This article appeared in the August 30/September 6, 2010
edition of The Nation.
So a black man finally wins the presidency, only to discover that it's about as
useful as a 32 cent stamp. According to Eric Alterman, the federal government,
avatar of liberal hope for at least a century, has become hopelessly undemocratic,
poisoned by corruption and structurally snarled by partisan divisions. Poor Barack
Obama, who steps up to the plate and gets handed a foam bat!
Barbara Ehrenreich is the author, most recently, of Bright-sided: How the
Relentless Promotion of Positive Thinking Has...
The government, as Alterman convincingly describes it, is not only expensive,
"bloated" and all the rest. It has become a handmaid to corporate power—a hiring
hall from which compliant officials are selected for vastly more lucrative private-
sector jobs, as well as an emergency cash reserve for companies that fall on hard
times. No wonder so many Americans unthinkingly conflate "big government" and
"big corporations." This is not the kind of government that hires unemployed people
to paint murals on post office walls. And, as everyone knows, when the bank
decides to repossess your home, it's a public employee who will kick in the door.
All that should be enough to sour liberals' trust in government as a tool for
progressive social change. But the situation is much worse than Alterman
acknowledges. In the years since government—state and local as well as federal—
has shed its role as a kindly change agent, it has assumed a new one as über-cop:
building more penitentiaries, snapping up stoners, harassing blacks and Latino-
looking people on the streets. Nonviolent protests have dwindled, not only because
of activists' lingering deference toward Obama but because the police response to
any outdoor gathering so resembles the assault on Falluja.
Even the more helpful government programs have become agents of an increasingly
repressive state. Food stamp offices, public housing complexes and homeless
shelters are the sites of "warrant searches" used to gather up people who might
have missed a court date concerning an unpaid debt. Public housing residents are
subjected to drug tests; in many states, the process of applying for what remains
of welfare (Temporary Assistance to Needy Families) parallels that of being booked
by the police, complete with mug shots and fingerprints. Although you won't find
them out campaigning against ICE raids and urban stop-and-frisk programs, some
of the Tea Partyers seem to dimly understand this, with one handmade poster at
last year's 9/12 demonstration in Washington saying, for example, GOVERNMENT
HEALTH CARE = PEE IN A CUP.
And what is a liberal to make of the city of Maywood, California, which more or
less disbanded itself in June, outsourcing all municipal functions—sounds like a
liberal nightmare, right? Until you read that the now-defunct police department
was found by the state in 2009 to be "permeated with sexual innuendo,
harassment, vulgarity...and a lack of cultural, racial and ethnic sensitivity and
respect.''
Alterman acknowledges the problem only tentatively, observing that "one might
argue that this [Democratic] faith in government's ability to improve people's lives
is misplaced." You betcha. The role of the left should not be to uphold or defend
the government, meaning, for now, the corpo-Obama-Geithner-Petraeus state, but
to change it, drastically and from the ground up. That may sound overly radical to
Alterman, who seems to want "progressives who think of themselves as left of
liberal" to abandon even that tiny distinction. But as the Tea Partyers keep
reminding us in their nasty and demented ways, these are revolutionary times.
Barbara Ehrenreich
The Cost of Doing Nothing on Health Care
Forget what reform will cost -- we have to understand the price of a broken
system.
Joanne Kenen and Sarah Axeen | December 12, 2008 | web only
President-elect Barack Obama and his new health-reform chief, Tom Daschle,
made clear on Thursday that even amid tremendous economic crisis, their new New
Deal would take on that persistent piece of unfinished business from the old New
Deal -- health care.
"Some may ask how at this moment of economic challenge we can afford to invest
in reforming our health-care system," Obama said. "And I ask a different
question. I ask how can we afford not to."
A recent report by the New America Foundation's health-policy program estimates
that the cost of doing nothing about health care, including poor health and shorter
lifespan of the uninsured, is well above $200 billion a year and rising. That's
enough to cover the uninsured and still have some left over for other public-health
needs.
Health-insurance inflation will continue to outpace wages; the average cost of an
employer-sponsored insurance plan for a family would reach $24,000 in 2016, an
84 percent increase from today. At least half of U.S households would need to
spend more than 45 percent of their income to pay for insurance -- while the
coverage itself would be sparser. Health costs would further undermine the ability
of U.S. manufacturers to compete internationally, threaten the stability of U.S.
jobs, and deepen the burden on local, state, and federal budgets
Activists and advocates might focus on access, outcomes, and equity. But "what's
really moved health care to the forefront is costs," said Drew E. Altman,
president and CEO of the Henry J. Kaiser Foundation, summing up months of Kaiser
public-opinion research. "It's an economic issue. The combination of health-care
costs on working people with other economic burdens -- mortgage, rent, fuel --
are just devastating."
"There's a growing sense of crisis that health care will be unaffordable ... and
that the little insurance we have will be increasingly worthless," said Dr. Elliott
Fisher, one of the main forces behind the Dartmouth Atlas, the bible of U.S.
health-care irrationality. "And there's a sense of crisis about public health, about
the need to refocus the system on prevention, on health promotion, on the growing
burden of chronic disease."
Yet for all the positive signs coming from Obama, from Senate Democrats, even
from some segments of the health industry itself, there is still a strain of
conventional wisdom, in the media, in parts of Wall Street, and even in the policy
blogosphere, that says health reform is just too risky and too costly. We don't
have the consensus and we don't have the cash. Democrats can pass a bigger and
better State Children's Health Insurance Program (S-CHIP), a little of this, and a
little of that and call it a day.
Obama knows the history. "Year after year, " he said. "Our leaders offer up
detailed health-care plans with great fanfare and promise only to see them fail,
derailed by Washington politics and influence peddling. This simply cannot continue."
In 1993-1994 we had "fanfare and promise." But proponents of health reform
massively bungled the politics, the process, and the policy. Foes of reform,
expensively and expansively, exploited their errors. The upshot was that we, as a
nation, rejected comprehensive health reform. We didn't understand it. We didn't
like it. We certainly didn't want to pay for it. We decided that the status quo,
however flawed, was better than change.
What we didn't recognize in the 1990s was that the status quo was an illusion.
Imperceptibly to most of us, dramatic changes were underway in how we pay for
care, how we access care, and in the quality of our care. For the most part, they
were not changes for the better.
The number of uninsured spiked in the late 1980s, and when Bill Clinton was elected
in 1992, there were 38.6 million uninsured. By the time his health plan died in
1994, another 1.1 million had lost coverage. Now, we're at 46 million, and it's
likely soaring as jobs vanish and businesses cut benefits in a sinking economy.
Health-care spending in 1992 was $849 billion. Now it's $2.2 trillion -- slightly
less, actually, than pessimists had forecast back in the 1990s, because of the cost-
savings blip brought to us during the short-lived era of HMO ascendency. But
premiums in the early 1990s ate up 7 percent of family income. Today, it's 17
percent and growing, a trend that is aggravated by rising deductibles and co-pays.
Employers' burden has also grown. The average employer paid about $3,700
toward a family plan in 1996; it's approaching $10,000 today. That's for those
who are lucky enough to still have health benefits on the job. Had we passed the
Clinton health-care plan, with all its flaws, the Congressional Budget Office had
projected that overall health-care spending would have slowed down (after an initial
uptick) by about 7 percent by 2004, a $150 billion annual savings. And everyone
would have been covered.
The costs aren't measured only in dollars. Ample research by the Commonwealth
Fund and others has shown that for the uninsured and underinsured, health care is
often too little, too late. A recent Commonwealth study found that chronically ill
adults in the U.S. were far more likely than their counterparts in other developed
countries to face cost barriers to getting care. They were also more likely to have
experienced poor care coordination and/or a medical error.
Our health system today -- and it's become a cliché to wonder whether we should
even call it a "system" -- is different and more challenging than it was in 1992.
Then we had a coverage crisis. Now we have a coverage, cost, and quality crisis.
We have an aging population with multiple chronic illnesses being treated
inefficiently by numerous doctors who are paid to pile on tests and procedures but
who have no incentive to coordinate care. Research by the Rand Corporation has
found that when we do see a doctor, we only have a 50-50 chance of getting the
right care. Assuming we can find a doctor in a world where specialties like
dermatology and radiology bring more cash and cachet than primary care. We may
not get our diabetes controlled, but if we've got the money, we can have our body
parts scanned and erase our wrinkles.
Back in 1992, we had doctors, not primary-care providers. We were patients, not
"health-care consumers." About half of us were still in traditional fee-for-service
medicine (which is not necessarily the model that will serve us best in the future as
we reinvigorate primary care and tackle chronic disease). Then, managed care
extended its reach. But to borrow a phrase from Dr. Donald M. Berwick,
president and CEO of the Institute for Healthcare Improvement, instead of
managing our care, HMOs managed their cash.
"There were those that thought that managed care would save us. So we had the
'halcyon days' of managed care, only to see the managed-care revolution fail in a
public revolt," recalled Kaiser's Altman. The next solution, he noted, was "cost-
shifting to working people as the answer to our problems." That's still where we
are. Workers' share of employer-sponsored family policies rose by more than 160
percent from 1996 to 2008, far outpacing the growth in median household income.
Deductibles of $1,000 for an individual are the norm.
The link between quality gaps and the failure to cover everyone in 1994 is neither
as direct nor as easy to measure as the economic fallout. But it's not irrelevant.
An inefficient system, marked by cost-shifting, perverse incentives, fragmentation,
overcrowding, and frayed safety nets does not a quality nirvana make. After a pair
of Institute of Medicine reports documented that up to 98,000 people die in
hospitals each year through medical errors, an inpatient-focused quality movement
has made strides. "I'm moderately optimistic that over a period of years ahead
we'll have care that is safer and more evidence-based in hospitals," IHI's Berwick
said. But you can only go so far in repairing quality in a broken system. "It's like
fixing a carburetor but having the wrong car," he added.
Barack Obama's election has created a second chance. The moral case for reform
is beyond question. The uninsured live sicker and die sooner. No other country
comes anywhere near our record of spending so much and leaving so many
uncovered.
"The dynamics of this recession are worse than in 1992," said Paul Ginsberg,
president of the Center for Studying Health System Change. "What people today
see is that they are a job loss away from being uncovered. Or, if they work for a
small employer, from paying a lot more for coverage. If they have it. If their
employer continues providing it."
Throw in the quality challenges, the errors and infections, the lack of care
coordination, the vast and unjustifiable variations in how medicine is practiced from
one place to another, an emergency system so strained that an ambulance is
diverted from an overcrowded emergency room at least once every minute. It's
bleak.
So bleak that it might change the conventional wisdom. In short, we need to
understand that just like in 1992, we're on a trajectory. And the status quo is not
an option.
The Economy Is Getting Worse and Worse -- And No One's Doing a Thing About It
The economy is already down, and it can go lower. And no one seems willing to fix
it.
August 22, 2010 |
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We know we live in hard times that are on the verge of getting harder, with
500,000 new claims for unemployment last week, a recent record.
The stock market may be over for now as fear and panic drives small investors
out. Big corporations hoard stashes of cash rather then hire workers. The D word
(depression) is back in play.
Foreclosures are up, and the administration’s programs to stop them are down, well
below their stated goals, only helping a sixth of those promised assistance.
And here’s a statistic for you: 300,000. That’s the number of foreclosure filings
every month for the past 17 months. This year, 1.9 million homes will be lost,
down from 2 million last year. Is that progress? In July alone, 92,858 homes were
repossessed.
At the same time, the number of canceled mortgage modifications exceeded the
number of successful ones. According to Ml-implode.com, last month, “the number
of trial modification cancellations surged to 616,839, greatly outnumbering the
421,804 active permanent modifications."
And don’t think this problem only affects those homeowners about to go homeless.
According to the New York Times, Michael Feder, the chief executive of the real
estate data firm Radar Logic, says we are all at risk.
“My concern is that if we have another protracted housing dip, it’s going to bring
the economy down,” Mr. Feder said. “If consumers don’t think their houses are
worth what they were six months ago, they’re not going to go out and spend
money. I’m concerned this problem isn’t being addressed.”
The larger point is that even if you believe the economy is already down, it can go
lower. No one knows how to “fix" it either, just as BP couldn’t plug the “leak”
that, truth be told, is still oozing oil.
So what are we doing about it? Are we demanding debt relief or a moratorium on
foreclosures? Are we shutting down the foreclosure factories? Nope.
Progressives are spending time and wasting passion this August debating the
construction of an Islamic Cultural Center near Ground Zero, invariably responding
to the provocations and agenda of adversaries. They are always on the defense,
never taking the offense.
Who is beating the drum for job creation and a new economic policy? Maybe the
unions, but their voices are muted and ignored in the electronic noise machine.
Marches are planned for August 28 in Detroit and October 2 in Washington. But
the expected war of words between Rev. Al Sharpton and Glenn Beck over the
legacy of the March on Washington is expected to generate more heat.
Meanwhile, even as the administration seems to be finding signs of a “recovery,” a
parade of failures march on from the discovery that there is an oil slick the size
of Manhattan in the Gulf to the persistence of frauds in finance from state pension
funds in New Jersey to the case against the head of the Bank of America. Even
worse, ShoreBank, one of the banks that community activists considered a national
model of social responsibility has gone down in Chicago, the 104th bank to fail this
year, with 15 branches including some in Detroit and Cleveland. It was also active
in 40 countries. In June, it reported over $2 billion in deposits. By August, it was
gone.
In all, 349 U.S. banks have disappeared since 2007.
ShoreBank promoted itself as a community development and environmental bank.
Based in Michelle Obama’s old neighborhood, it boasted the slogan “Let's Change
the World.” Now the world of Wall Street has changed the bank with a
partnership of investors, including American Express, Bank of America and Goldman
Sachs, taking over under the name United Partnership.
Hundreds of other banks are on the FDIC hit parade and may be next.
There were many worse casualties in banking in the past according to Barry James
Dyke’s informative book, Pirates of Manhattan. He notes that 10,000 banks failed
during the Depression and 2,900 bit the dust in the S&L crisis. The current
number might have been higher had Congress not bailed out the Banksters who
used some of our money to play PacMan, gobbling up smaller institutions.
AP reported, “ShoreBank lost $39.5 million in the second quarter amid soured real
estate loans. The bank had been under a so-called cease and desist order from the
FDIC for more than a year, requiring it to boost its capital reserves. ShoreBank
was able to raise more than $146 million in capital this spring from several big
Wall Street institutions. It was unable, however, to secure federal bailout funds it
sought from the Treasury Department's Troubled Asset Relief Program.”
Republicans are “investigating” alleged administration support for the Bank, AP
explained:
Rep. Darrell Issa of California, the senior Republican on the House Oversight and
Government Reform Committee, sent a letter to a White House legal adviser asking
specific questions on possible contacts between administration officials and
executives of ShoreBank or potential investors. The White House has said no
administration officials met with ShoreBank concerning its rescue or requested help
from financial institutions on its behalf.
Questions raised by Republicans, of course, seek to politicize the issue when it is
the FDIC ‘s deal with the big banks that needs to be probed, as Zero Hedge
explains:
As it stands, Goldman and 11 other banks are receiving a multimillion-dollar gift to
conduct a portfolio liquidation run-off of ShoreBank's assets, while merely making
sure existing deposits are serviced.
(Note: the FDIC is led by a Republican. Hmm.)
Blogger Mike Shedlock concludes: “The FDIC's handling of Shore Bank smells as
bad as a pile of dead alewives on a Chicago beach in mid-July."
My question is: Why didn’t the administration help shore up ShoreBank (if it could
be shored up) as it did so many of the "too big to fail" banks? Its hands-off
attitude, perhaps in fear of criticism, helped doom the bank and, by extension,
the idea that we could have socially responsible lending institutions.
So much for the priorities and power of Obama’s “Chicago Mafia.”
If they don’t have the guts to save a bank in their own hometown, a bank they
know has meant so much to so many, is it any wonder they won’t take on the
crimes of Wall Street?
Last week, Treasury Secretary Tim Geithner complained he is being falsely
identified as a “Goldman guy,” and insisted that he never worked for the financial
institution that was recently branded a “giant squid on the face of humanity.”
Geithner doesn’t seem to realize that the speculation is not based on the details of
his resume but on an assessment of his track record as a toady for the pals he
worked with when he ran the Federal Reserve Bank in New York.
And by the way, Tim, why the holdup on the appointment of Elizabeth Warren to
run the new Consumer Financial Protection Bureau in your old institution? Is she too
smart and popular for you?
Why the fiddling while our modern Rome burns?
Danny Schechter writes the News Dissector blog for MediaChannel.org. His latest
book is PLUNDER: Investigating Our Economic Calamity (Cosimo Books).
The Economy is in Big Trouble
By MIKE WHITNEY
Imagine the reaction at the White House when the Department of Labor released
its weekly unemployment figures on Thursday. Jobless claims rose by 12,000 to
500,000 in the second week of August. There's been no improvement in the jobs
market in 9 months and now unemployment is edging upwards again. This wasn't
supposed to happen. The Obama administration had bet everything that the
economy had turned the corner and would gradually get better. Many economists
saw less than a 10 per cent chance that the economy would tip back into
recession. After all, double dip recessions are "extremely rare". Now more people
are losing their jobs and Team Obama is caught in the headlights. There is no
back-up plan, no Plan B. The Democrats will face the midterms with no stimulus to
create new jobs and with an economy that is steadily deteriorating. It's going to
be a massacre and they know it.
Obama and his lieutenants have stopped talking about austerity measures. The plan
to dismantle Social Security has been put on hold,( though the Commission headed
by the appalling former Senator Alan Simpson grinds on with its mission of
destruction.) No one wants to hear about belt tightening when the future is
uncertain and they're worried about losing their jobs. Obama will have to shift-
gears again; switch from promoting the elitist "privatize everything" agenda to his
"I feel your pain" routine. He might want to dig up some archived video of B.
Clinton chewing his lip and blinking back the tears.
All of the economic data is being revised downwards. The economy is in big trouble
and the politicians are just starting to catch on. Stocks fell sharply on Thursday
(Dow down 144 points) on news that manufacturing (Philly Fed Index) shrank in
August beyond analysts expectations. Nearly every category fell including shipments
and new orders. The Dow Jones is off 10 per cent since April 23, more than a
1,000 point loss in the last 4 months. Also, Moody's reported that commercial real
estate prices slipped another 4 per cent in June. According to Calculated risk
website, "Commercial real estate values are now down 41.3 per cent from the peak
in late 2007." It's a bloodbath.
Bond yields on US Treasuries continue to tumble as investor pessimism grows and
increasingly bleak news feeds the fears of another slump. The two-year note has
been setting records nearly every day. The benchmark 10-year which peaked at
3.99 per cent in April has since descended into Bernanke's inferno. It was last
seen parachuting to terra firma at 2.61 per cent. If it continues to plunge at this
rate, it will be below 2 per cent by year-end. Welcome to Japan.
Try to grasp the significance of bond yields. The business media spins the news
and tries to dress up the data with all kinds of happy talk. Bond yields reflect cold
hard reality. Investors only plunk their money into low-yielding liquid assets when
they're sure things are going to get worse. Much worse. The rumors of a "bond
bubble" is all nonsense. These aren't leveraged assets; there's no risk. People
accept modest returns because they're afraid to put their money anywhere else.
It's a referendum on failed monetary policy.
30-year mortgage rates are pinned to the 10-year which is why rates are lower
now than any time in history. Still, housing inventory continues to build. Realtors
are finding that they can't giveaway homes at any price. So much for the
American dream.
Policymakers at the Fed, the Treasury, the White House and the Congress now
look on as the foundations of the so-called recovery crack before their very eyes.
Many of their careers will undoubtedly follow the economy down the drain. As the
stimulus runs out, unemployment will rise, deleveraging and debt liquidation will gain
momentum, and the economy will succumb to a second vicious contraction. Digging
out will not be easy.
Mike Whitney lives in Washington state and can be reached at fergiewhitney@msn.
com.
The Iranian Threat
By Noam Chomsky
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July 2010
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The dire threat of Iran is widely recognized to be the most serious foreign policy
crisis facing the Obama administration. General Petraeus informed the Senate
Committee on Armed Services in March 2010 that "the Iranian regime is the
primary state-level threat to stability" in the U.S. Central Command area of
responsibility, the Middle East and Central Asia, the primary region of U.S. global
concerns. The term "stability" here has its usual technical meaning: firmly under U.
S. control. In June 2010 Congress strengthened the sanctions against Iran, with
even more severe penalties against foreign companies. The Obama administration
has been rapidly expanding U.S. offensive capacity in the African island of Diego
Garcia, claimed by Britain, which had expelled the population so that the U.S.
could build the massive base it uses for attacks in the Central Command area. The
Navy reports sending a submarine tender to the island to service nuclear-powered
guided-missile submarines with Tomahawk missiles, which can carry nuclear
warheads. Each submarine is reported to have the striking power of a typical
carrier battle group. According to a U.S. Navy cargo manifest obtained by the
Sunday Herald (Glasgow), the substantial military equipment Obama has dispatched
includes 387 "bunker busters" used for blasting hardened underground structures.
Planning for these "massive ordnance penetrators," the most powerful bombs in the
arsenal short of nuclear weapons, was initiated in the Bush administration, but
languished. On taking office, Obama immediately accelerated the plans and they
are to be deployed several years ahead of schedule, aiming specifically at Iran.
"They are gearing up totally for the destruction of Iran," according to Dan Plesch,
director of the Centre for International Studies and Diplomacy at the University of
London. "US bombers and long range missiles are ready today to destroy 10,000
targets in Iran in a few hours," he said. "The firepower of US forces has
quadrupled since 2003," accelerating under Obama.
The Arab press reports that an American fleet (with an Israeli vessel) passed
through the Suez Canal on the way to the Persian Gulf, where its task is "to
implement the sanctions against Iran and supervise the ships going to and from
Iran." British and Israeli media report that Saudi Arabia is providing a corridor
for Israeli bombing of Iran (denied by Saudi Arabia). On his return from
Afghanistan to reassure NATO allies that the U.S. will stay the course after the
replacement of General McChrystal by his superior, General Petraeus, Chair of the
Joint Chiefs of Staff Admiral Michael Mullen visited Israel to meet IDF Chief of
Staff Gabi Ashkenazi and senior military staff, along with intelligence and planning
units, continuing the annual strategic dialogue between Israel and the U.S. The
meeting focused "on the preparation by both Israel and the U.S. for the
possibility of a nuclear capable Iran," according to Haaretz, which reports further
that Mullen emphasized that, "I always try to see challenges from Israeli
perspective." Mullen and Ashkenazi are in regular contact on a secure line.
The increasing threats of military action against Iran are, of course, in violation of
the UN Charter and in specific violation of Security Council resolution 1887 of
September 2009 which reaffirmed the call to all states to resolve disputes related
to nuclear issues peacefully, in accordance with the Charter, which bans the use or
threat of force.
Some analysts, who seem to be taken seriously, describe the Iranian threat in
apocalyptic terms. Amitai Etzioni warns that, "The U.S. will have to confront Iran
or give up the Middle East," no less. If Iran's nuclear program proceeds, he
asserts, Turkey, Saudi Arabia, and other states will "move toward" the new
Iranian "superpower." To rephrase in less fevered rhetoric, a regional alliance
might take shape independent of the U.S. In the U.S. army journal Military
Review, Etzioni urges a U.S. attack that targets not only Iran's nuclear facilities,
but also its non-nuclear military assets, including infrastructure—meaning, the
civilian society. This kind of military action is akin to sanctions—causing 'pain' in
order to change behaviour, albeit by much more powerful means."
What is the Threat, Exactly?
Such inflammatory pronouncements aside, what exactly is the Iranian threat? An
authoritative answer is provided by military and intelligence reports to Congress in
April 2010 [Lieutenant General Ronald L. Burgess, Director, Defense Intelligence
Agency, Statement before the Committee on Armed Services, U.S. Senate, 14
April 2010; Unclassified Report on Military Power of Iran, April 2010; John J.
Kruzel, American Forces Press Service, "Report to Congress Outlines Iranian
Threats," April 2010 (www.defense.gov). The brutal clerical regime is doubtless a
threat to its own people, though it does not rank particularly high in that respect
in comparison to U.S. allies in the region. But that is not what concerns the
military and intelligence assessments. Rather, they are concerned with the threat
Iran poses to the region and the world.
The reports make it clear that the Iranian threat is not military. Iran's military
spending is "relatively low compared to the rest of the region," and minuscule as
compared to the U.S. Iranian military doctrine is strictly "defensive…designed to
slow an invasion and force a diplomatic solution to hostilities." Iran has only "a
limited capability to project force beyond its borders." With regard to the nuclear
option, "Iran's nuclear program and its willingness to keep open the possibility of
developing nuclear weapons is a central part of its deterrent strategy."
Though the Iranian threat is not military aggression, that does not mean that it
might be tolerable to Washington. Iranian deterrent capacity is considered an
illegitimate exercise of sovereignty that interferes with U.S. global designs.
Specifically, it threatens U.S. control of Middle East energy resources, a high
priority of planners since World War II. As one influential figure advised,
expressing a common understanding, control of these resources yields "substantial
control of the world" (A. A. Berle).
But Iran's threat goes beyond deterrence. It is also seeking to expand its
influence. Iran's "current five-year plan seeks to expand bilateral, regional, and
international relations, strengthen Iran's ties with friendly states, and enhance its
defense and deterrent capabilities. Commensurate with that plan, Iran is seeking to
increase its stature by countering U.S. influence and expanding ties with regional
actors while advocating Islamic solidarity." In short, Iran is seeking to
"destabilize" the region, in the technical sense of the term used by General
Petraeus. U.S. invasion and military occupation of Iran's neighbors is
"stabilization." Iran's efforts to extend its influence in neighboring countries is
"destabilization," hence plainly illegitimate. It should be noted that such revealing
usage is routine. Thus, the prominent foreign policy analyst James Chace, former
editor of the main establishment journal Foreign Affairs, was properly using the
term "stability" in its technical sense when he explained that in order to achieve
"stability" in Chile it was necessary to "destabilize" the country (by overthrowing
the elected Allende government and installing the Pinochet dictatorship).
Beyond these crimes, Iran is also carrying out and supporting terrorism, the
reports continue. Its Revolutionary Guards "are behind some of the deadliest
terrorist attacks of the past three decades,"including attacks on U.S. military
facilities in the region and "many of the insurgent attacks on Coalition and Iraqi
Security Forces in Iraq since 2003." Furthermore, Iran backs Hezbollah and
Hamas, the major political forces in Lebanon and in Palestine—if elections matter.
The Hezbollah-based coalition handily won the popular vote in Lebanon's latest
(2009) election. Hamas won the 2006 Palestinian election, compelling the U.S. and
Israel to institute the harsh and brutal siege of Gaza to punish the miscreants for
voting the wrong way in a free election. These have been the only relatively free
elections in the Arab world. It is normal for elite opinion to fear the threat of
democracy and to act to deter it, but this is a rather striking case, particularly
alongside of strong U.S. support for the regional dictatorships, emphasized by
Obama with his strong praise for the brutal Egyptian dictator Mubarak on the way
to his famous address to the Muslim world in Cairo.
Israel/Palestine
The terrorist acts attributed to Hamas and Hezbollah pale in comparison to U.S.-
Israeli terrorism in the same region, but they are worth a look nevertheless. On
May 25 Lebanon celebrated its national holiday Liberation Day, commemorating
Israel's withdrawal from southern Lebanon after 22 years, as a result of
Hezbollah resistance—described by Israeli authorities as "Iranian aggression"
against Israel in Israeli-occupied Lebanon (Ephraim Sneh). That, too, is normal
imperial usage. Thus. President John F. Kennedy condemned the "the assault from
the inside" in South Vietnam, "which is manipulated from the North." This
"assault" by the South Vietnamese resistance against Kennedy's bombers, chemical
warfare, programs to drive peasants to virtual concentration camps, and other such
benign measures was denounced as "internal aggression" by Kennedy's UN
Ambassador, liberal hero Adlai Stevenson. North Vietnamese support for their
countrymen in the U.S.-occupied South is aggression, intolerable interference with
Washington's righteous mission. Kennedy advisors Arthur Schlesinger and Theodore
Sorenson, considered doves, also praised Washington's intervention to reverse
"aggression" in South Vietnam—by the indigenous resistance, as they knew, at least
if they read U.S. intelligence reports. In 1955, the U.S. Joint Chiefs of Staff
had defined several types of "aggression," including "Aggression other than armed,
i.e., political warfare or subversion." For example, an internal uprising against a U.
S.-imposed police state, or elections that come out the wrong way. The usage is
also common in scholarship and political commentary, and makes sense on the
prevailing assumption that We Own the World.
Hamas resists Israel's military occupation and its illegal and violent actions in the
occupied territories. It is accused of refusing to recognize Israel (political parties
do not recognize states). In contrast, the U.S. and Israel not only do not
recognize Palestine, but have been acting relentlessly and decisively for decades to
ensure that it can never come into existence in any meaningful form. The governing
party in Israel, in its 1999 campaign platform, bars the existence of any
Palestinian state—a step towards accommodation beyond the official positions of
the U.S. and Israel a decade earlier, which held that there cannot be "an
additional Palestinian state" between Israel and Jordan, the latter a "Palestinian
state" by U.S.-Israeli fiat whatever its benighted inhabitants and government
might believe.
Hamas is charged with rocketing Israeli settlements on the border, criminal acts no
doubt, though a fraction of Israel's violence in Gaza, let alone elsewhere. It is
important to bear in mind, in this connection, that the U.S. and Israel know
exactly how to terminate the terror that they deplore with such passion. Israel
officially concedes that there were no Hamas rockets as long as Israel partially
observed a truce with Hamas in 2008. Israel rejected Hamas's offer to renew the
truce, preferring to launch the murderous and destructive Operation Cast Lead
against Gaza in December 2008, with full U.S. backing, an exploit of murderous
aggression without the slightest credible pretext on either legal or moral grounds.
Turkey, a Model for Democracy
The model for democracy in the Muslim world, despite serious flaws, is Turkey,
which has relatively free elections, and has also been subject to harsh criticism in
the U.S. The most extreme case was when the government followed the position of
95 percent of the population and refused to join in the invasion of Iraq, eliciting
harsh condemnation from Washington for its failure to comprehend how a
democratic government should behave: under our concept of democracy, the voice
of the Master determines policy, not the near-unanimous voice of the population.
The Obama administration was once again incensed when Turkey joined with Brazil