from Ted Rall’s Rallblog by Ted Rall
INDEX (full text of stories follow Democracy Now headlines)
- Top Murdoch Aide Resigns in Phone-Hacking Scandal
- FBI Confirms News Corp. Investigation
- Protesters Rally Outside Murdoch’s NYC Home
- Libya Denies Claims of Tripoli Bombing Plan
- Kenya Opens New Camp for Somali Refugees
- U.S. Drone Strike Kills 6 in Yemen
- Arab League to Back Palestinian Statehood Campaign
- Clinton Foundation to Review Haiti Trailers Following Exposé
- Pentagon Declares Internet a Theater of War
- Hackers Steal 24,000 Files From Pentagon Contractor
- Group: Fake CIA Program Endangers Relief Programs
- California Enacts LGBT Education Law
- Kenyan Peace Activist Dekha Ibrahim Abdi Dies in Car Accident
- Israel Kills West Bank Resident, Strikes Gaza
Credit A Tiny Revolution for this great find. Larry Summers profiled and quoted in a January 2009 (hmm, what was happening around that time?) article in Time magazine titled “Can Larry Summers Save the Economy?” The key graph, safety net–wise (clearly my emphasis):
And then, perhaps as early as March, they’ll launch their biggest lift with the beginnings of a plan to reform Social Security and Medicare, the two entitlement programs that, even before the economy collapsed, were threatening the Treasury with bankruptcy. By any standard, it is a massive three-month agenda fraught with political risk. The key to getting it all done, Summers says, is entering into a “compact” with the country “that this isn’t just government as usual throwing money at things.” When Obama unveils his annual budget in late February or March, Summers promises that the President “is going to describe the kinds of approaches he wants to take to the entitlement problems that have been ignored for a long time.” Some options might include delaying retirement, stretching benefits and lifting the cap on taxable earnings. Could one of these prevail? “Remains to be seen,” Summers says.
There are other obscenities in the article. Feel free to browse. (I found the promise to “stabilize the housing market” especially quaint and amusing.)
If I’m reading this right, what this means is that in order to make the McConnell proposal more palatable to conservatives, there would be a mandated bipartisan review of entitlements next year. The source tells me that if a majority of the committee can agree on recommendations for entitlement reform, the proposal would also mandate a Congressional vote on those recommendations.
It’s unclear how Dems will respond to this. Democrats are already cool to the McConnell proposal because it includes spending cuts but no new revenues, but they may be willing to accept it because it spares entitlements. But now the proposal looks as if it will also force a review — and a vote on — entitlement reform. …
UPDATE: Another source close to the talks confirms that Harry Reid is in fact discussing this idea with McConnell, so it’s a real possibility.
from AMERICAblog: A great nation deserves the truth by Joe Sudbay (DC)
Most of us aren’t sophisticated enough to understand, but it’s for our own good.
The key question came from Jake Tapper:
Q: You’ve said that reducing the deficit will require shared sacrifice. We know — we have an idea of the taxes that you would like to see raised on corporations and on Americans in the top two tax brackets, but we don’t yet know what you specifically are willing to do when it comes to entitlement spending. In the interest of transparency, leadership, and also showing the American people that you have been negotiating in good faith, can you tell us one structural reform that you are willing to make to one of these entitlement programs that would have a major impact on the deficit? Would you be willing to raise the retirement age? Would you be willing to means test Social Security or Medicare?
THE PRESIDENT: We’ve said that we are willing to look at all those approaches. I’ve laid out some criteria in terms of what would be acceptable. So, for example, I’ve said very clearly that we should make sure that current beneficiaries as much as possible are not affected. But we should look at what can we do in the out-years, so that over time some of these programs are more sustainable.
I’ve said that means testing on Medicare, meaning people like myself, if — I’m going to be turning 50 in a week. So I’m starting to think a little bit more about Medicare eligibility. (Laughter.) Yes, I’m going to get my AARP card soon — and the discounts.
But you can envision a situation where for somebody in my position, me having to pay a little bit more on premiums or co-pays or things like that would be appropriate. And, again, that could make a difference. So we’ve been very clear about where we’re willing to go.
Yes, Obama has become very clear about where he is willing to go — and it’s not a good direction. As Stephanie Taylor from PCCC notes:
Today, for the first time, President Obama made clear that he’s considering benefit cuts even for Americans who currently depend on Social Security and Medicare. This is something Paul Ryan didn’t even embrace publicly.
Earlier today, PCCC delivered a message to the Obama campaign from over 200,000 signed pledges who had either volunteered or donated to Obama in 2012. The message is: we cannot support Obama in 2012 if he supports cuts Social Security, Medicare and Medicaid. Yes, the Obama campaign had a good first quarter for fundraising. But, that was the low hanging fruit. Jim Messina and the other political geniuses who set the direction for the Obama presidency don’t seem to think the base matters, but it does. Maybe Messina’s (and Bill Daley’s) buddies at Third Way, which supports cutting Social Security and Medicare, will make up for those 200,000+ disgruntled Obama supporters (except Third Way has no real constituency.)
It’s not just Obama. At DailyKos, Joan McCarter has a post titled, McConnell-Reid proposal puts target on Social Security, Medicare, Medicaid:
Greg Sargent has some key developments in the Reid-McConnell proposal that make it even worse. That commission it sets up? It’s designed specifically to “reform” Social Security and Medicare.
The semi-good news is that it puts the onus on members of Congress to actually vote to cut Social Security and Medicare, which they hate to do. It’s unclear right now whether congressional Democrats would line up with this. It could potentially mean putting off any cuts to Social Security and Medicare in this package, putting that vote off to later, when the commission comes up with its recommendations. But that’s not entirely clear yet.
What is clear is that Democrats have shown a dangerous willingness to sacrifice core Democratic values.
from AMERICAblog: A great nation deserves the truth by Gaius Publius
Paul Krugman on the darkly funny prospect of some people’s sudden wake-up call (my emphases):
[T]here has been, I have to admit, an element of comic relief — of the black-humor variety — in the spectacle of so many people who have been in denial suddenly waking up and smelling the crazy.
Glad to see that Krugman’s in a “willing to point the finger” mood these days:
And may I say to those suddenly agonizing over the mental health of one of our two major parties:People like you bear some responsibility for that party’s current state.
He’s referring to pundits now wringing their hands, whose hands went un-wrung for years. (We call those people “operatives,” but that’s a quibble.)
Krugman then takes a side-trip into “how crazy are they?” land, with statements like this:
If a Republican president had managed to extract the kind of concessions on Medicare and Social Security that Mr. Obama is offering, it would have been considered a conservative triumph. But when those concessions come attached to minor increases in revenue, and more important, when they come from a Democratic president, the proposals become unacceptable plans to tax the life out of the U.S. economy.
If this were a post about Obama, that quote alone would be a scandal.
But let’s press on; this is a post about pundit responsibility:
Which brings me to the culpability of those who are only now facing up … Mr. Bush squandered the surplus of the late Clinton years, yet prominent pundits pretend that the two parties share equal blame for our debt problems. … [T]here has been no pressure on the G.O.P. to show any kind of responsibility, or even rationality — and sure enough, it has gone off the deep end. If you’re surprised, that means that you were part of the problem.
Very close, sir. In the article, you point the finger (at one point) at “those within the G.O.P.” But the last bolded statement above applies to many (if not most) in the media.
Maybe it’s time to take that next step, sir, and call out the rest of them from high atop those valued column inches at the New York Times? After all, as you’ve pointed out many times, this isn’t just academic (heh) — there’s a whole lot at stake.
This week the Center for Media and Democracy released 800 model bills, legislation that is straight out of the corporate playbook and drafted by the American Legislative Exchange Council. The group’s membership includes both state lawmakers and corporate executives who gather behind closed doors to discuss and vote on draft legislation. ALEC has come under increasing scrutiny in recent months for its role in crafting bills to attack worker rights, to roll back environmental regulations, privatize education, deregulate major industries and pass voter ID laws. Thanks to ALEC, at least a dozen states have recently adopted a nearly identical resolution asking Congress to compel the U.S. Environmental Protection Agency to stop regulating carbon emissions. We are joined by Lisa Graves, executive director of the Center for Media Democracy.
from Robert Reich
Recently I debated a conservative Republican who insisted the best way to revive the American economy was to shrink the size of government. When I asked him to explain his logic he said, simply, “government is the source of all our problems.” When I noted government spending had brought the economy out of the previous eight economic downturns, including the Great Depression, he disagreed. “The Depression ended because of World War Two,” he pronounced, as if government had played no part in it.
A few days later I was confronted by another conservative Republican who blamed the nation’s high unemployment rate on the availability of unemployment benefits. “If you pay someone not to work, they won’t,” he said. When I pointed out unemployment benefits couldn’t possibly be the cause of joblessness because there are now about five job seekers for every job opening, he scoffed. “Government always makes things worse.”
Government-haters seem to be everywhere.
Congressional Republicans, now led by House Majority Leader Eric Cantor, hate government so much they’re ready to sacrifice the full faith and credit of the United States in order to shrink it.
Taming the deficit isn’t their aim. They rejected Obama’s offer to cut $3 trillion of spending over the decade – including major reductions in entitlement programs – because his plan would also entail $1 trillion of tax increases. Their ultimate goal, in the words of their guru Grover Norquist, is to take government down to “the size where we can drown it in the bathtub.”
Where did this wrecking crew come from? And why do so many Americans seem to support them? To answer “the tea party” begs the question because the tea party itself is a product of this raging
Credit the economic fears and insecurities now felt by a broad swathe of the public who want to find a villain for what they’re going through. Wall Street is too abstract and the financial games that brought on the Great Recession almost impossible for most Americans to grasp. But the government bailout of the Street was a specific act almost everyone could instinctively understand – and to most Americans it seemed perversely wrong.
It’s no coincidence that the emergence of the tea party coincided with the Wall Street bailout. An acquaintance who has embraced the tea party explained to me she hates government “because it’s always captured by the powerful, who take our taxes and eat our lunch.”
At the same time most of what government does that helps average people is now so deeply woven into the thread of daily life that it’s no longer recognizable as government. Think of the indignant voters who showed up at congressional town meetings to protest Obama’s health care bill shouting “don’t take away my Medicare!”
A recent paper by Cornell political scientist Suzanne Mettler surveyed how many recipients of government benefits don’t really believe they have received any benefits. She found that over 44 percent of Social Security recipients say they “have not used a government social program.” More than half of families receiving government-backed student loans said the same thing, as did 60 percent of those who get the home mortgage interest deduction, 43 percent of unemployment insurance beneficiaries, and almost 30 percent of recipients of Social Security Disability.
Add in the relentlessly snide government-hating and baiting of Fox News and Rush Limbaugh and his imitators on rage radio; include more than thirty years of Ronald Reagan’s repeated refrain that government is the problem; pile on hundreds of millions of dollars from the likes of oil tycoons Charles and David Koch intent on convincing the public that government is evil, and you have all the ingredients for the emergence of a wrecking-ball right that’s intent on destroying government as we know it.
The final critical ingredient has been the abject failure of the Democratic Party – from the President on down – to make the case for why government is necessary.
One would have thought the last few years of mine disasters, exploding oil rigs, nuclear meltdowns, malfeasance on Wall Street, wildly-escalating costs of health insurance, rip-roaring CEO pay, and mass layoffs would have offered a singular opportunity to explain why the nation’s collective well-being requires a strong and effective government representing the interests of average people.
Thousands of inmates in at least 13 prisons across California’s troubled prison system have been on hunger strike for almost two weeks. Many are protesting in solidarity with inmates held in Pelican Bay State Prison, California’s first super-maximum security prison, over what prisoners say are cruel and unusual conditions in “Secure Housing Units.” We play an audio statement from one of the Pelican Bay prisoners, and speak to three guests: Dorsey Nunn, co-founder of “All of Us or None” and executive director of Legal Services for Prisoners with Children, and one of the mediators between the prisoners on hunger strike and the California Department of Corrections; Molly Porzig, a member of the Prisoner Hunger Strike Solidarity coalition and a spokesperson for Critical Resistance; and Desiree Lozoya, the niece of an inmate participating in the Pelican Bay Hunger Strike, who visited him last weekend.
from Informed Comment by Juan
Spencer Ackerman at Wired reports on the Freedom of Information Act lawsuit launched on my behalf by the American Civil Liberties Union against the CIA, FBI, Department of Justice, and Office of the Director of National Intelligence. See also the Detroit News and the Detroit Free Press.
“At the heart of this action is whether the CIA, FBI and other agencies undertook an investigation of a U.S. citizen for the simple fact that he was a critic of U.S. government policy. Such a chilling of First Amendment freedoms, if it did in fact take place, would send shock waves through the public arena, threatening to limit the open debate that makes our democracy strong. The public has an urgent need to know whether government agencies are sweeping aside the law and spying on Americans who do nothing more than speak their minds.”
I had told the ACLU, “Americans don’t need permission from their government to write and publish their political opinions. If the Bush White House pettily attempted to use the CIA to destroy my reputation by seeking dirt on my private life in order to punish me for speaking out, that would be a profound violation of my Constitutional rights.”
Eminent New York Times national security correspondent James Risen reported on the front page of the New York Times on June 15 that a retired CIA operative had alleged that he was tasked with providing information of a potentially damaging sort on my private life as the result of a request made to his boss, David Low, by the Bush White House. The operative, Glenn Carle, declined, but discovered that his immediate boss did pass over a report on me. Later on he found out that another, junior, analyst had been given the task of digging dirt on me so as to discredit me.
All I can figure is that the Bush White House was upset over my analysis of the course of the Iraq War, which it depicted as a bright and glorious enterprise. In contrast, I was simply trying as best I could from a distance to understand what exactly was happening in that country, using the Arabic press and my own sources on the ground. My depiction did not accord with theirs. Carle reports the junior analyst as being disturbed at my criticisms of the Bush administration. (It is hard to remember now, perhaps, that US conservatives actually made the argument in 2005 that it was unpatriotic to criticize a president prosecuting a foreign war! )
My initial response to the story is here.
Given Mr. Carle’s revelations, ACLU and I filed a request with all four agencies for an expedited FOIA process. That is, while the Freedom of Information Act allows citizens to request the files government agencies may hold on them, in most cases the agency concerned can take its own sweet time about responding to the request. But sometimes there is a “compelling need,” and the agency agrees to meet the request quickly, or is instructed to do so by a judge.
A compelling need is often acknowledged where the government interferes in the freedom of speech rights of journalists, and I do a fair amount of journalism. In this instance, the urgency is also increased by the possibility that the Senate Select Committee on Intelligence may launch its own investigation into the allegations.
But the CIA and the FBI haven’t deigned to respond to the request for an expedited FOIA process (which is contrary to the FOIA law, specifying that they must respond within 10 days). The DOJ replied that they’d check for documents in a very limited way. The Office of the Director of National Intelligence bald-facedly denied that there was any compelling need to speed up the FOIA release of documents it might hold on me. In other words, the ODNI is not alarmed and feels no urgency about the revelation that a White House asked the CIA to violate its charter and US law in order to have it investigate me and try to discredit me merely for speaking my mind.
Since these agencies seem not to be taking this whole affair very seriously, the ACLU and I were left with no choice but to launch this lawsuit. Mr. Carle’s account affirms that there was a paper trail to this Bush administration attempt to enlist the CIA in domestic surveillance on an American in order to play dirty tricks on him. We need to see those documents in order to fight back and keep American democracy strong.
Eliot Spitzer: Holder’s Justice Dept should investigate Murdoch media for “corrupt practices and revoke its TV licenses if found guilty”
from AMERICAblog: A great nation deserves the truth by Gaius Publius
[I]t is hard to believe that the misbehavior in Murdoch’s media empire stopped at the water’s edge. Given the frequency with which he shuttled his senior executives and editors across the various oceans—Pacific as well as Atlantic—it is unlikely that the shoddy ethics were limited to Great Britain.
Much more importantly, the facts already pretty well established in Britain indicate violations of American law, in particular a law called the Foreign Corrupt Practices Act. The Justice Department has been going out of its way to undertake FCPA prosecutions and investigations in recent years, and the News Corp. case presents a pretty simple test for Attorney General Eric Holder: If the department fails to open an immediate investigation into News Corp.’s violations of the FCPA, there will have been a major breach of enforcement at Justice. Having failed to pursue Wall Street with any apparent vigor, this is an opportunity for the Justice Department to show it can flex its muscles at the right moment. While one must always be cautious in seeking government investigation of the media for the obvious First Amendment concerns, this is not actually an investigation of the media, but an investigation of criminal acts undertaken by those masquerading as members of the media.
The Foreign Corrupt Practices Act was written in the 1970s to prevent American corporations from “bribing overseas officials in order to secure business deals, … to bring some baseline of ethics to international business.” Thus, as Spitzer writes:
[A]cts in Britain by British citizens working on behalf of News Corp. create liability for News Corp., an American business incorporated in Delaware[.] … The rampant violations of British law alleged—payments to cops to influence ongoing investigations and the hacking of phones—are sufficient predicates for the Justice Department to investigate. Indeed, the facts as they are emerging are a case study for why the FCPA was enacted.
That “payments to cops” part is troubling, since as Spitzer writes in the start of this column, the “pseudo-investigations conducted by Scotland Yard are likewise proving to be corrupt and unreliable.” That’s the Scotland Yard. Murdoch tars everything he touches.
Interesting test for Holder, don’t you think? Let’s just see what he does. (Think Murdoch will charge “political investigation”? Think that will throw Obama/Holder off the scent? What’s an un-reelected administration to do?)
[I delivered a condensed version of this as my July 16 radio commentary. It’s a rewrite, with some additional material, of the easy money vs. jobs program debate presented in fragments below.]
I’ve been involved in some internet polemics—remember internet polemics, back before the Facebook “like” button made everyone sweet and nice?—that I thought might be worth recounting here. It all started when my friend (and occasional Behind the News guest) Corey Robin, a professor of political science at Brooklyn College, asked for comments on a piece by the liberal blogger Matthew Yglesias, a contribution to a debate hosted byThe Atlantic magazine’s website on the single-best thing we can do to spark job creation. (For Corey’s own thoughts on the issue, along with links to other disputants, see here.) The “debate” itself was a remarkable collection of tiny little “ideas”—expand the R&D tax credit, offer entrepreneurs the welcome mat (I’m surprised they were treated any other way in this very capital-friendly country), increase the amount of money in circulation, fire the bad teachers (that from former DC schools chief Michelle Rhee, who didn’t put it exactly that way, but that’s what she meant), offer a tax credit to employers for hiring the long-term unemployed), and so on. Yglesias’ contribution was suggesting that the Federal Reserve should adopt a higher inflation target, which although not explicitly stated, is now probably 2%. This suggestion is all wet.
Raising the inflation target implies that the Fed has been too tight, when in fact it’s been anything but. It’s been pumping like crazy since the financial crisis broke out. We’ve gone through two rounds of quantitative easing (which basically means the Fed bought gobs of long-term Treasury bonds, which it usually doesn’t do). This extended program of indulgence has set the loons of the right aflame, leading them to fulminate about currency debasement and hyperinflation, when in fact it’s done little but encourage commodity speculation.
In fact, the BLS released the June inflation numbers on Friday morning, and they provide an interesting perspective on all this. The headline CPI number was down for the month, because energy prices have been falling. The year-to-year rate was 3.4%, the highest it’s been in three years, just before the Great Recession and the collapse in oil prices took it down below 0. Leaving out food and energy, core inflation is running just under 2%, also the highest it’s been in three years. Despite this modest rise in inflation, which is what you’d expect from a commodity price spike and something of a recovery from utter collapse, the economy is losing steam, not strengthening.
hating jobs programs
Back to the more theoretical level. Orthodox types—and I’m including Yglesias, who describes his political leanings as “neoliberal” on his Facebook profile page—usually prefer monetary to fiscal remedies. Why? Because they operate through the financial markets and don’t mess with labor or product markets or the class structure. A jobs program and other New Deal-ish stuff would mess with labor and product markets and the class structure, and so it’s mostly verboten to talk that way. From an elite point of view, the primary problem with a jobs program—and with employment-boosting infrastructure projects—is that they would put a floor under employment, making workers more confident and less likely to do what the boss says, and less dependent on private employers for a paycheck. It would increase the power of labor relative to capital. I’m not sure that Yglesias understands that explicitly, but it’s undoubtedly part of his unexamined “common sense” as a semi-mainstream pundit.
Jobs programs and infrastructure investment can be very potent economic tools. Economists use the concept of a multiplier to estimate the effects of fiscal policy on the economy. For example, a multiplier of 1.5 means that for every dollar the government spends, GDP would increase by $1.50. The multipliers on jobs programs and infrastructure are quite high. According to Economy.com, such spending has a mulitplier of about 1.6 to 1.7—meaning that for every $1.00 spent on such programs, GDP increases about about $1.60-1.70. (Economy.com is run by Mark Zandi of Economy.com, who advised John McCain during the 2008 campaign, so these multipliers are not from some pinko source.) The multipliers on tax cuts are much much lower – under $0.40 for extending the Bush tax cuts or giving corporations tax breaks (meaning that they increase GDP by less than half what they cost). The multiplier on the payroll tax holiday is higher—around $1.20 – because the working class spends all it gets, but the upper brackets don’t. Infrastructure spending has a big kick not just because workers spend so much of what they get, it also involves buying lots of raw materials and equipment, meaning large spillover effects beyond the site of the initial spending.
So aside from putting the unemployed to work, a compellingly humane goal in itself, and spiffing up our rotting environment, jobs programs and infrastructure investment would boost broad economic growth dramatically. But we can’t do that, because the yahoos don’t like it (high-speed rail = Europe = fags) and because jobs programs might lead the working class to develop an attitude, and we can’t have that. Therefore, respectable people don’t suggest such things.
There’s also a strain of populist thought, prominent in U.S. political history, that embraces inflation and easy money as some sort of curative strategy. I don’t agree. Easy money is really a cowardly substitute for redistribution—over the long term, Milton Friedman was more or less right that loose money can’t change the economic fundamentals. It can’t spark much growth, it can’t raise real wages—it’s mostly just froth. To spark growth and raise wages you need serious spending, better labor laws, and stronger and more pervasive unions. Or, to put it another way, the best that loose money can give us is more of the same; jobs programs and infrastructure spending can give us child care and high-speed rail, and not just more consumer goods and carbon dioxide emissions.
The embrace of inflation and easy money as good things has a long tradition in American populism—which makes sense, given its roots in a petty bourgeois love of small business, which wants easy money without higher wages, tighter regulation, and unions that might come with a more class-conscious agenda. Or, as I said earlier, it leaves the structure of class relations largely untouched.
Sure, we need a central bank that doesn’t tighten to make sure that unemployment doesn’t get too low, as the Fed has done in the past. But that’s about it. I don’t want a monetary policy that encourages inflation. It doesn’t work as a stimulus, and it can have bad results. Over time, people find inflation very destabilizing, and can lead to a taste for an authoritarian solution, to counter the sense that things are out of control. That was an important part of the rightward turn during the 1970s—and not just in elite opinion, but popular opinion as well. It contributed mightily to the election of Reagan and Thatcher.
Some partisans of the loose money/higher inflation view (e.g. Josh Mason) argue that such policies could be redistributionist—shifting wealth from richer creditors to poorer debtors by eroding the real value of the debt over time. But that position assumes that high personal debt levels are desirable and/or eternal. Debt has been used to offset stagnant wages and, up until a few years ago, inflated housing prices. Permanent inflation can’t increase real incomes and it can’t improve the quality of life.
Josh also argues that high real interest rates—market interest rates less the inflation rate—are hallmarks of neoliberalism, so presumably low real rates would be anti-neoliberal. Yes, high real interest rates were part of the early days of neoliberalism, but they haven’t been so much since. Real rates on 10-year U.S. Treasury bonds averaged 4.9% from 1983-95—but from 1996-2006, they averaged 2.6%, not much higher than they were in the 1960s, 2.3%. Since 2006, real long rates have averaged 1.6%.
Things were surprisingly not so different in a real social democracy, Sweden. Real long rates averaged 4.8% from 1983-95, just 0.1 point lower than the U.S., and they were 4.1% from 1996-2006, 1.6 points *higher* than the U.S. Real long rates in Sweden during the 1960s were 2.0%, just 0.3 point lower than the U.S. Yet for just about every period in modern history, Sweden’s real hourly earnings have grown faster than the U.S.: 1.3 points faster in the 1960s, 1.2 points faster during the early neoliberal era (1983-95, when Swedish real interest rates were almost identical to the U.S.’s), and 1.6 points faster during the later neoliberal era (1996-2006, a period during which Swedish real rates *exceeded* U.S. rates).
The Swedish central bank, the oldest in the world, is a pretty tough customer. But what made the difference in Sweden—why their wages increased while ours stagnated—were all the other, real sector institutions, like redistributive fiscal policies (tax-funded welfare state benefits), active labor market policies (which promote employment aggressively), and union-friendly labor law.
Finally, the politics of loose money are intriguing. Proponents act as if the bourgeoisie won’t notice if the value of their bonds is being eaten away by rising inflation. Or if they notice, they won’t care. So it’d take considerable political strength to push a central bank into actively inflationary policies. But if you have that sort of strength, why not go for the stuff that can really make a difference—the social democratic package I mentioned for Sweden? Or, in the context of this original debate, a jobs program and serious infrastructure investment rather than loose money?
from Ted Rall’s Rallblog by Ted Rall
The Associated Press’ Paul Wiseman had one of the snappier headlines last week: “The Economic Recovery Turns Two—Feel Better?”
“After previous recessions, people in all income groups tended to benefit,” Wiseman wrote. “This time, ordinary Americans are struggling with job insecurity, too much debt and pay raises that haven’t kept up with prices at the grocery store and gas station. The economy’s meager gains are going mostly to the wealthiest…A big chunk of the economy’s gains has gone to investors in the form of higher corporate profits.”
Wiseman quoted David Rosenberg, chief economist at Gluskin Sheff + Associates in Toronto: “The spoils have really gone to capital, to the shareholders.”
Karl Marx, call your office.
More than at any previous time in their lives, Americans looking for answers and facts are forced to read between the lines of press and broadcast accounts that bear little resemblance to reality “on the ground,” as they say on cable news. Truth, when it can be coaxed out of propaganda so patently ridiculous that it has become indiscernible from the standard-issue “everything is great, our leaders know best” nonsense of the world’s autocracies, is revealed in sloppy contradictions. Wiseman, though flying on the side of the agenda-busting angels, is no exception: is the U.S. economy generated “meager gains” or “spoils”? Hm.
On its face the official narrative is false to a laughably Orwellian extreme. The recession is over; the recovery is well underway, they say. However, as The Wall Street Journal reports, the recovery is slow and mainly benefiting big business. “While the U.S. economy staggers through one of its slowest recoveries since the Great Recession,” the paper wrote July 5th, “American companies are poised to report strong earnings for the second quarter—exposing a dichotomy between corporate performance and the overall health of the economy.”
The same “dichotomy” afflicts every industrialized nation except for Germany and Luxembourg, both of which have seen unemployment return to the levels before the global fiscal crisis that began in September 2008.
Logical holes in the argument gape so wide you could drive a truck through it—if it was worth putting it out on the road without goods to fill it with, or consumers to buy them.
First, high bottom lines don’t necessarily reflect healthy companies. A company can suffer declining sales and market share yet still increase profits by laying off workers, thus reducing payroll expenses. For example, the Internet search giant Yahoo! saw revenues decline 12 percent in late 2010 yet doubled its profits. How’d they do it? They fired one percent of their workforce. If Yahoo! were to continue this trend, it would soon cease to exist.
Second, First World economies are two-thirds reliant on consumer spending. Consumers in the United States, as well as those throughout the world, are in big trouble. The official U.S. unemployment rate is 9.1 percent but the “real rate”—the one calculated the way most other countries do theirs, which includes people whose unemployment benefits have lapsed—is closer to 20 percent, higher than those of Tunisia and Egypt at the start of the Arab Spring. People who still have jobs have suffered pay cuts both visible and invisible, the latter from galloping inflation in fuel and other costs that government agencies intentionally omit from calculations of consumer price indices.
Question one: Can an economy “recover” without its people?
Airports and shopping malls throughout the United States are empty. Advertising space on billboards and newspapers go begging. Storefronts from Fifth Avenue in New York to the Las Vegas Strip to small towns in the Midwest are boarded up. The price of homes, which for middle-class Americans are often their sole substantial form of savings, continues to decline after the real estate bubble burst in 2008. Consumer confidence, the measure of people’s willingness to part with cash to buy goods and services, is in the tank.
When 60 percent of Americans rate the economy as poor, don’t count on them to buy stuff.
“Workers’ wages and benefits [now] make up 57.5 percent of the economy, an all-time low,” wrote the AP’s Wiseman. “Until the mid-2000s, that figure had been remarkably stable—about 64 percent through boom and bust alike.”
Corporate CEOs may be whistling past the graveyard, raking in huge bonuses and pay raises approved by compliant boards of directors, but the overall state of the economy is a disaster. Recovery? Forget it—there isn’t one. Are we still in a recession? That would be an improvement. By most measures—unemployment, collapsing gross domestic product, falling incomes—this is a global depression. But the government won’t even admit that there’s a problem—except for unemployment and falling wages.
“Who are you going to believe?” the comedian Groucho Marx asked. ” Me, or your lying eyes?”
In the role of Mr. Marx is one Barack Obama. Like his outgoing predecessor George W. Bush, Obama’s response to the 2008 meltdown was to transfer trillions of dollars out of the U.S. treasury into the portfolios of investment banks, insurance companies, airlines and automobile manufacturers, no questions asked. This corporate-based approach relied upon Reagan-style trickle-down economics, the repeatedly failed theory that wealth transferred to the highest echelons of the ruling classes eventually “trickles down” in the form of increased spending, economic activity and hiring to the middle- and working classes. Not surprisingly, this non-response response succeeded in one area: increasing the salaries and perks of corporate executives. Job growth has been non-existent.
When Bush’s invading armies failed to find weapons of mass destruction in Iraq, his administration’s answer was to claim that, in fact, they had. Obama’s economic strategy takes the same tack, repeatedly “talking up” the economy despite the hard evidence right before his listeners—in their paychecks or lack thereof—that there is little to brag about. Back in April 2009, Obama claimed that his pseudo-stimulus banker-enrichment program was “starting to generate signs of economic progress.”
The president stayed the course in 2010. “Make no mistake, we are headed in the right direction,” Obama said in July, while allowing: “We are not headed there fast enough for a lot of Americans. We’re not headed there fast enough for me either.”
January 2011: “We know these numbers can bounce around from month to month, but the trend is clear…The economy added 1.3 million jobs last year, and each quarter was stronger than the previous quarter, which means that the pace of hiring is beginning to pick up.”
Obama omitted the fact that the U.S. economy must add a net of 1.2 million jobs annually just to keep up with the increasing size of the labor force due to immigration and population growth.
June 2011: “There will be bumps on the road to recovery.”
Question two: What happens when you try to convince people who are suffering that, in fact, they are just fine?
Either Obama’s powers of persuasion are lacking or the American people have wised up. Whatever the reason, they don’t believe him. According to the Gallup poll, which asks whether respondents think the economy is improving or getting worse, the mood has become increasingly pessimistic along the bumpy road to recovery.
The Department of Labor announced this week that the U.S. economy had added a mere 18,000 jobs in June, a net loss of 82,000. Eight million jobs were lost during the 2008-09 debacle; some two to three million more since the “recovery” began.
The respected website Shadow Government Statistics currently places the real unemployment rate at 22.8 percent—equivalent to the worst months of the Great Depression of the 1930s.
With nearly one out of four Americans jobless and countless more underemployed, tensions are emerging between classes in this traditionally “classless” society in which both the rich and poor identify themselves as “middle class.” Though the wealthy always do better during tough times (well, during any times!), the gap is widening at an astonishing rate. “U.S. workers averaged $46,742 in 2010, up 2.6 percent from 2009,” according to USA Today. Bear in mind, with a real inflation rate (calculated the same way as inflation is calculated by other Western countries) of 11.2 percent, these workers are losing ground. Meanwhile, the paper noted, “average compensation among S&P 500 CEOs rose to $12 million in 2010, up 18 percent from 2009—and that’s not counting the potential multimillion-dollar value of stock or stock options, which are granted at set prices and provide holders profits as stock values rise.”
The numbers are jaw-dropping. John Hammergren, CEO of the McKesson healthcare services firm, received $150.7 million in 2010. Fashion maven Ralph Lauren paid himself $75.2 million. “Some of the gains are humongous,” said Paul Hodgson of GovernanceMetrics.
To the citizens of countries for whom $46,000 a year would seem like a king’s ransom, Americans’ resentment of CEOs who receive annual salaries on par with the gross domestic products of some nations no doubt seems petty if not a little silly. Yet they (and the CEOs) should ignore the prosperity chasm at their own peril. American politics, already more divisive as seen through such phenomena as the nativist Tea Party movement on the far right and the anarcho-libertarians of the left, will fracture further until the center (what center?) no longer holds.
Americans may be better off than most people on the planet. But they don’t feel like it. Perception becomes reality when people are scared.
The world cannot feel safe when its sole remaining superpower is falling apart at the seams. If patriotism is the last refuge of the scoundrel, militarism is the desperate last act of an oppressive government in a state of economic collapse.
At the core of the when-is-a-recovery-not-a-recovery question is vocabulary. What is a recession? How do we know when it’s over?
Beginning in the 1970s American economists began to define recession as being in effect when GDP falls during two consecutive fiscal quarters.
One result of this definition is that a recession is often not officially “declared” by mainstream economists until it is over—i.e., when GDP begins to rise again. This contributes to a strange reality gap: We are not in a recession until we are in a recovery. Effectively, then, it is rare for the American news media to state at any given time that the U.S. economy is then in a recession. Naturally, this contributes to the perception that newspapers and TV stations lie to them, and that they do so on behalf of an uncaring regime.
The 2008 collapse was exceptionally long. Nevertheless, this rule of the undeclared recession held. On December 1, 2008 the National Bureau of Economic Research declared that a recession head begun on December 1, 2007. They later declared it over as of June 2009. Thus a recession that had lasted one and a half years was only officially acknowledged for six months.
Moreover, the definition of recession is obviously faulty.
For most ordinary people, unemployment is the leading economic indicator. A secondary indicator is income.
Do I have a job?
Can I find a job?
How much can I earn?
The answers to those questions provide the most accurate indicators of economic health. When two-thirds of the economy (or 59 percent now) relies on consumer spending, who gives two figs about whether GDP goes up or down during two consecutive quarters? The fact that the press takes this non-people-based definition of recession seriously provides strong insight into its mindset: People are irrelevant.
“The average American does not view the economy through the prism of GDP or unemployment rates or even monthly jobs numbers,” top presidential advisor David Plouffe says, nearly sounding human. “People won’t vote based on the unemployment rate. They’re going to vote based on: ‘How do I feel about my own situation? Do I believe the president makes decisions based on me and my family?’”
Based on that assessment, Obama should start packing. He has not done anything that might have helped the unemployed: extending jobless benefits, forcing banks to renegotiate mortgages for homeowners, imposing national commercial and residential rent control, substantial tax credits for the poor and working class. And it shows: the consumer who lays the golden egg has no money to spend—and economic activity has all but ceased.
People are furious. But they are angrier at the thought that the rich are getting richer and that the president isn’t actively searching for solutions than they are about the fact that they can’t pay their bills.
Two years into Obama’s presidency “we are still treading water at the bottom of a deep hole,” summarizes economist Heidi Shierholz.
In the not-so-long run, however, things could get a lot uglier than the Democrats taking a beating in America’s November 2012 elections. The R-word—not recession, but revolution—could be in the offing.
Everyone in the forecasting business is scrambling to mark down both their estimates of second-quarter growth and their forecasts for later in the year. Goldman Sachs (no link) was pretty optimistic a few months ago; now they’ve grown quite pessimistic:
At this point, GS is predicting an unemployment rate of 8 3/4 percent at the end of 2012 — five years after the Great Recession began.
They also note that the bump in underlying inflation due to commodity price hikes seems to be ebbing:
As I pointed out yesterday, the same thing is true of the sticky-price CPI, which is arguably the conceptually closest thing to what we really mean by core inflation:
So, terrible growth prospects; low inflation; oh, and low interest rates, with no sign of the bond vigilantes. Ordinary macroeconomic analysis tells you very clearly what we should be doing: fiscal expansion and monetary expansion by any means we can manage; in fact, the case for a higher inflation target pops right out of just about any model capable of producing the kind of mess we’re in.
And what are we talking about in policy terms? Spending cuts and an end to monetary expansion.
I know the arguments — fear of invisible bond vigilantes, fear that 70s-style stagflation is just around the corner despite the absence of any evidence to that effect. But why do such arguments have so much traction, while everything economists have spent the last three generations learning is brushed aside?
One answer is that macroeconomics is hard; the idea that if families are tightening their belts, the government should do the same, is as deeply intuitive as it is deeply wrong.
But the susceptibility of politicians — including, alas, the president — and pundits to these wrong ideas demands a deeper explanation.
a wide refocusing of the mechanisms of our society towards the crucial obsession of oligarchs: wealth and income defense.
That has to be right. It doesn’t necessarily take the form of pure cynicism; it’s more a matter of the wealthy gravitating toward views of economic policy that make immediate sense in terms of their own interests, and politicians believing that only these views count as Serious because they’re the views of wealthy people.
But the upshot is terrible: more and more, this really does look like the Lesser Depression, a prolonged era of disastrous economic performance. And it’s entirely gratuitous.
[I’ve gotten out of the habit of posting these. Here’s last week’s — this week’s to come later today.]
U.S. economic slowdown • the depressing debt ceiling debate
The mostly weak tone of U.S. economic data continues, following the precedent of disappointment set by the torpid employment report for May. First-time claims for unemployment insurance fell only slightly last week, and the four-week average remains quite high—not at recession levels, but at stalling recovery levels. And the number of people continuing to draw benefits, which had been in a long downtrend, stalled in April, and is now flat. At least it’s not rising, but if the recovery weren’t losing oomph, it would have extended its decline from its still-high levels.
Meanwhile, the news from the housing market—whose recovery is probably a prerequisite to any decent broad economic recovery—continues to be ugly, with sales depressed and prices continuing to fall. (It’s weird when declining prices for one of life’s essentials, shelter, is considered bad news, but that’s they way our housing market works.) There are about five different measures of house prices in common use, each of which sings a different variation on the same basic theme: after stabilizing early last year, house prices began falling again late in the year. There are still too many vacant houses and houses in foreclosure hanging over the market to allow prices to recover. Since just about every economic recovery in modern times has been led by housing, this is not good news.
Neither is the continued erosion of the Economic Cycles Research Institute’s weekly leading index, designed to forecast turns in the economy several months out. It’s still positive, but for every one of the last ten months, at a less positive rate than the month before.
As I’ve said before, I don’t think we’re headed back into recession—though that’s always possible. Instead, I think we’re experiencing a textbook post-bubble economy, lifeless, unable to get out of its own ways. There are too many structural pathologies—inequality, debt, hollowing out (though the strength in manufacturing is surprising, and hopeful for the longer term)—that are unacknowledged and unaddressed. All anyone can do now is talk about cutting government spending—local, state, and federal.
The melodrama over the debt ceiling in DC is seriously depressing. It’s a fact that if the Treasury were unable to make an interest payment on its bonds, all hell would break loose in the financial markets. Not only are Treasury securities considered the safest in the world, a reputation that would be destroyed by default, but there are many complex arrangements that depend on the flow of Treasury interest to remain solvent. Any disruption of that would cause interest rates to rise dramatically, and derail what little recovery we’ve had. Republicans seem willing to risk all that because they see the threat as a way to cut the budget viciously—it’s a form of blackmail, really. And the threat is directed against someone, Barack Obama, who is famous for pre-emptive compromise.
But it may be wrong to see Obama as simply weak. He would almost certainly gain politically by saying publicly, loudly and frequently, that the Republican plan is a way of forcing cuts to immensely successful programs like Medicare and Social Security that could not past muster without the threat of a crisis. But maybe he’s really not opposed to such cuts. He may be hoping for more moderate ones than Paul Ryan is suggesting, but not opposed to the cuts in principle. When people consistently behave in ways that look irrational, you may just be missing the rationale behind their behavior.
After a bruising midterm election, the president moves to the political center. He distances himself from his Democratic base. He calls for cuts in Social Security and signs historic legislation ending a major entitlement program. He agrees to balance the budget with major cuts in domestic discretionary spending. He has a showdown with Republicans who threaten to bring government to its knees if their budget demands aren’t met. He wins the showdown, successfully painting them as radicals. He goes on to win re-election.
Barack Obama in 2012? Maybe. But the president who actually did it was Bill Clinton. (The program he ended was Title IV of the Social Security Act, Aid to Families with Dependent Children.)
It’s no accident that President Obama appears to be following the Clinton script. After all, it worked. Despite a 1994 midterm election that delivered Congress to the GOP and was widely seen as a repudiation of his presidency, President Clinton went on to win re-election. And many of Mr. Obama’s top aides—including Chief of Staff Bill Daley, National Economic Council head Gene Sperling and Pentagon chief Leon Panetta—are Clinton veterans who know the 1995-96 story line by heart.
Republicans have obligingly been playing their parts this time. In the fall of 1995, Speaker Newt Gingrich was the firebrand, making budget demands that the public interpreted as causing two government shutdowns—while President Clinton appeared to be the great compromiser. This time it’s House Majority Leader Eric Cantor and his Republican allies who appear unwilling to bend and risk defaulting on the nation’s bills—while President Obama offers to cut Social Security and reduce $3 of spending for every dollar of tax increase.
And with Moody’s threatening to downgrade the nation’s debt if the debt limit isn’t raised soon, Republicans appear all the more radical.
So will Barack Obama pull a Bill Clinton? His real problem is one Mr. Clinton didn’t have to contend with: a continuing terrible economy. The recession in 1991-92 was relatively mild, and by the spring of 1995, the economy was averaging 200,000 new jobs per month. By early 1996, it was roaring—with 434,000 new jobs added in February alone.
Martin Kozlowski I remember suggesting to Mr. Clinton’s then-political adviser, Dick Morris, that the president come up with some new policy ideas for the election. Mr. Morris wasn’t interested. The election will be about the economy—nothing more, nothing less, he said. He knew voters didn’t care much about policy. They cared about jobs.
President Obama isn’t as fortunate. The economy remains hampered by the Great Recession, brought on not by overshooting by the Federal Reserve but by the bursting of a giant housing bubble. As such, the downturn has proven resistant to reversal by low interest rates. The Fed has kept interest rates near zero for more than two years, opened the spigots of its discount window, and undertaken two rounds of quantitative easing—all with little to show for it.
Some in the White House and on Wall Street assume the anemic recovery will turn stronger in the second half of the year, emerging full strength in 2012. They blame the anemia on disruptions in Japanese supply chains, bad weather, high oil prices, European debt crises, and whatever else they can come up with. These factors have contributed, but they’re not the big story.
When the Great Recession wiped out $7.8 trillion of home values, it crushed the nest eggs and eliminated the collateral of America’s middle class. As a result, consumer spending has been decimated. Households have been forced to reduce their debt to 115% of disposable personal income from 130% in 2007, and there’s more to come. Household debt averaged 75% of personal income between 1975 and 2000.
We’re in a vicious cycle in which job and wage losses further reduce Americans’ willingness to spend, which further slows the economy. Job growth has effectively stopped. The fraction of the population now working (58.2%) is near a 25-year low—lower than it was when recession officially ended in June 2009.
Wage growth has stopped as well. Average real hourly earnings for all employees declined by 1.1% between June 2009, when the recovery began, and May 2011. For the first time since World War II, there has been a decline in aggregate wages and salaries over seven quarters of post-recession recovery.
This is not Bill Clinton’s economy. So many jobs have been lost since Mr. Obama was elected that, even if job growth were to match the extraordinary pace of the late 1990s—averaging 300,000 to 350,000 per month—the unemployment rate wouldn’t fall below 6% until 2016. That pace of job growth is unlikely, to say the least. If Republicans manage to cut federal spending significantly between now and Election Day, while state outlays continue to shrink, the certain result is continued high unemployment and anemic growth.
So Mr. Obama’s challenge in 2012 has nothing to do with Mr. Clinton’s in 1996. Most Americans care far more about jobs and wages than they do about budget deficits and debt ceilings. Even if Mr. Obama is seen to win the contest over raising the debt limit and succeeds in painting Republicans as radicals, he risks losing the upcoming election unless he directly addresses the horrendous employment problem.
How can he do this while continuing to appear more reasonable than Republicans on the deficit? By coming up with a bold jobs plan that would increase outlays over the next year or two but would credibly begin a long-term plan to shrink the budget. To the extent the jobs plan spurs growth, the long-term ratio of debt to GDP will improve.
Elements of the plan might include putting more money into peoples’ pockets by exempting the first $20,000 of income from payroll taxes for the next year, recreating a Works Progress Administration and Civilian Conservation Corps to employ the long-term jobless, creating an infrastructure bank to finance improvements to roads and bridges, enacting partial unemployment benefits for those who have been laid off from part-time jobs, and giving employers tax credits for net new hires.
The fight over the debt ceiling will be over very soon. Most Washington hands know it will be raised. Political tacticians know President Obama will likely appear to win the battle, and his apparent move to the center will make Republicans look like radicals. But the Clinton script will take the president only so far. If he wants a second term, he’ll have to come out swinging on jobs.
[I wrote this for today’s Wall Street Journal]