Two years ago, a post-Bush Republican Party that couldn't find itself on Google Maps was thoroughly thrashed for the second time in as many elections. The GOP had lost over 50 House seats over two election cycles, scores of state legislative chambers, governorships, US Senate seats, and the presidency to a guy named Barack Hussein Obama.
The latter, something most observers thought wouldn't happen in the United States until some time between the next arrival of Haley's Comet and when Kevin Costner evolves into a fish-humanoid hybrid to live on an Earth covered by H20.
It's amazing what can happen, however, when you have a Democratic president who doesn't live up to many of his core progressive promises, who blames his base for asking him to, and whose communications people, to quote Democratic National Committeeman and CNN Contributor Robert Zimmerman, "... couldn't sell cocaine to Charlie Sheen."
The results were on display this past Tuesday, when an American public tired of being unemployed, scared about their future, and looking for some kind of leadership, handed over the US House - in stunning fashion - to a coterie of cranks who have to put corks on the end of their forks not to jab their own eyes while eating. Think Steve Martin's Ruprecht from Dirty Rotten Scoundrels, and you get the basic picture of some of the Tea Party proxies we elected to Congress last week.
The broad outlines of economic policy are not really that complicated or hard to understand. Don't believe me? Well, just listen to Nobel Prize-winner Joseph Stiglitz as interviewed on Democracy Now! Wednesday, as he sheds light on a series of big topics that have been the subjects of far more heat than light. First, on the newly-hot-again topic of foreclosures:
AMY GOODMAN: Our guest is Joseph Stiglitz, Nobel Prize-winning economist, professor at Columbia University. His book is out in paperback, Freefall: America, Free Markets, and the Sinking of the World Economy.
So, just to summarize, you are for a national moratorium on foreclosures.
JOSEPH STIGLITZ: I think--inevitably, I think we have to be moving towards that. And the reason is very simple. There were such--the bad practices were so rife, the inequities were so rife, the fraudulent behavior was so common, that at this point we don't know what is a valid mortgage and not. And the consequences of throwing somebody out of their home, when they shouldn't be, are hard to reverse. I mean, just imagine what it does to the family--education of the kids are interrupted--what it does to the community. So, when we have to balance the injustices--and life is unfortunately always balancing one side versus the other--and where will their mistakes be easily reversed and where not? My view is, if we keep them in the homes for a little longer, they owe the money--they still owe the money, that doesn't let them off the hook--but what we're saying is we're not going to speed up this process of-where there's the serious risk of an inequity that will not be easily compensated for.
Who can argue with that when it's put so simply and directly? Answer: No one. Which is why there's so much invested in making sure that it's never put so simply and directly. That's sort of the pattern that's established throughout this interview.
Regarding the need for further stimulus, and why the deficit is a red herring just now, he's equally lucid and to-the-point:
AMY GOODMAN: Joe Stiglitz, the deficit, the battle cry of the Tea Party movement, of the Republicans, as well. Robert Rubin has weighed in, says any new stimulus plan is highly likely to be counterproductive. What do you think has to happen? Does the deficit matter? And how do you think it should be dealt with?
JOSEPH STIGLITZ:My view is we cannot afford not to stimulate the economy. So, you know, anybody that says we should go back to austerity or we should not have a second-round stimulus just doesn't understand economics. And let me be very clear about this. If we don't stimulate the economy, the economy is going to get weaker. When the economy gets weaker, tax revenues go down and expenditures go up. Already, more than 40 million Americans are on food stamps. Number of people on Medicaid is reaching record levels. So, revenues go down, expenditures go up, deficits get worse. If you stimulate the economy, then people get jobs, they spend money, tax revenues go up. Now, if we spend the money on investments-investments in education, technology, infrastructure-you grow the economy in the short run from the stimulus, you grow the economy in the long term because of the returns that you get on these investments.
I mean, just think about this from the point of view of a firm. If you are a firm and you could borrow at zero to two-and-a-half percent, which is what the government can borrow, and you have investment opportunities that you owe ten, 15, 20 percent, you would be irresponsible, you would be foolish, not to undertake those investments. So, anybody that says, "I'm going to only look at one side of the balance sheet, the liabilities; I'm not going to look at the other side, the assets," is really not understanding economics. It's that kind of reasoning that got our country in the trouble in the first place, the people who didn't-you know, shortsighted behavior of the banks that got our country in trouble in the first place. And to me, I just view those kinds of statements as totally irresponsible.
Get that? Look what he does in place of the standard, brain-dead, totally misleading analogy with household budget-balancing (which, taken literally, would mean that no one should ever hold a mortgage, right? Or a car loan?) He makes a genuinely appropriate and valid analogy with a business and its investment opportunities vs. costs. Another example that so lucid and on-point that the only way to counter it is to suppress it.
Brad DeLong is more conservative than me. That's okay. Probably 99% of all Americans are more conservative than me. And 99% of the time, it really doesn't matter much that DeLong is more conservative than me. It's good to read folks who think clearly and freely share ideas, regardless of (if not because of) ideological differences. But this week a few weeks ago there was an exception, as DeLong pulled an old post quoting and commenting on a deeply flawed criticism of Naomi Klein's Shock Doctrine by Tyler Cowen. Given the ongoing potential destabilization of the world economy--caused by naked capitalism and resulting in unprecedented threats to the welfare state--the timing could not have been worse:
Tyler Cowen Thinks Naomi Klein Believes Her Own Bulls--- : October 04, 2007:
He reads her book. He doesn't think it meets minimum intellectual standards. I think he is right: now I can borrow Tyler's ideas and have an informed view:
Shock Jock - October 3, 2007 - The New York Sun: Rarely are the simplest facts, many of which complicate Ms. Klein's presentation, given their proper due. First, the reach of government has been growing in virtually every developed nation.... [T]he reach of government has been shrinking in India and China, to the indisputable benefit of billions.... [I]t is the New Deal -- the greatest restriction on capitalism in 20th century America and presumably beloved by Ms. Klein -- that was imposed in a time of crisis.... China was falling apart because of the murderous and tyrannical policies of Chairman Mao, which then led to bottom-up demands for capitalistic reforms.... [T]he reader will search in vain for an intelligent discussion of any of these points. What the reader will find is a series of fabricated claims, such as the suggestion that Margaret Thatcher created the Falkland Islands crisis to crush the unions and foist unfettered capitalism upon an unwilling British public.
I'm afraid that DeLong has it exactly backwards here. It's Cowen's review that fails the minimum standards test. And I say this as someone who's written hundreds of book reviews. For money. Not much money, mind you. But I was a paid professional, writing for daily and weekly newspapers, a political website, and Publishers Weekly magazine. In those capacities, I always regarded it as my duty to let readers know what the book was about. If I thought it was misconceived, I first felt obligated to say what it was, before saying why I thought it misconceived. I wanted people to find my reviews useful, even if they saw things quite differently. And this is the standard that Cowen's review utterly fails to meet. The condensed passage above gives no sense of her book, nor does Cowen's original. His clearest attempt to say something about it is this:
It's bad enough to be jobless for a few weeks; it's much worse being unemployed for months or years. Yet that's exactly what will happen to millions of Americans if the average forecast is right -- which means that many of the unemployed will lose their savings, their homes and more. To head off this outcome -- and remember, this isn't what economic Cassandras are saying; it's the forecasting consensus -- we'd need to get another round of fiscal stimulus under way very soon. But neither Congress nor, alas, the Obama administration is showing any inclination to act.
Not much about macro-economics is obvious, and even mathematical economists who subscribe to exactly the same sub-division of economic ideology can radically disagree about factors as fundamental as the fiscal multiplier.
Likewise even the definitions of terms like "unemployment" are so complicated and indefinitely qualified that even the most official of all official measures of unemployment by the Bureau of Labor Statistics is immediately fractured into six "alternative measures of labor underutilization," and there wouldn't be much hope for the average person to understand anything about the statistical measures of unemployment if all those different indicators weren't moving in exactly the same direction.
Zoom!
One of many unpleasant aspects of depression and recession economics is what you might call a snowball effect, and as more and more people lose jobs, the salesmen who formerly sold them boats goes under, and then the worker who built the boats, and so on.
Prescriptions for dealing with similar phenomena have been incorporated into the folk-wisdom of all times and places, in the form of nostrums like "an ounce of prevention is worth a pound of cure" and "a stitch in time saves nine," but American political economics possesses a peculiar un-wisdom of its own, and although one or two "stitches in time" could have prevented the whole mess ten years ago when Brooksley Born was ringing alarms all over Washington, and Larry Summers was making sure nobody listened, now the same little snowball which Ms. Born detected in its very beginnings has doubled its snow-mass again and again and again and turned into a regular avalanche.
But not every avalanche is a roaring monster consuming skiers and chalets and tiny Swiss villages on its way to the bottom of the mountain, because mountainsides all over the world are terraced with avalanche-fences to stop little avalanches before they grow, and almost every avalanche-fence in the world is located somewhere between the top of a slope and the middle, because by the time an avalanche gets anywhere near the bottom of a mountain, you need something more like the Great Wall of China than any kind of fence to stop it.
This is a picturesque translation of the arguments Paul Krugman and Joseph Stiglitz and Dean Baker and many other honest economists made for applying a realistic stimulus to the American economy before our current recession/depression developed too much momentum, but instead we got a feeble and slow-motion stimulus full of tax-cuts, like a rickety fence that wouldn't even stop a rabbit, much less an avalanche, and the American economy is still bleeding ten or fifteen or twenty thousand jobs every day.
I have been in the battling-the-rich-and-powerful-on-behalf-of-the-poor-and-middle- income business for a very long time now (almost 30 years), and it can get pretty discouraging at times. For one thing, in some news that I am sure will be shattering to you, the rich and powerful have a lot more money. And they have seemed to have a lot more political friends over that era than do the poor and the middle income folks combined.
But hope rises anew from time to time, and there are encouraging signs. The most obvious one, of course, is that we have a President and both houses of Congress led by center-left politicians who will be with the poor and middle income quite a bit more than their predecessors in the Bush White House and the Republican led Congress - not always, of course, but more than the last set of politicians. But my hopes are rising for a lot less visible reasons than that.
More on what those reasons on in the extended entry.
There's a thought provoking article in the new Vanity Fair by Joseph Stiglitz, the Nobel Prize winning economist, which evaluates what the current financial situation >throughout the world means to America's position in it.
It is worth reading and thinking about, since it lays most of the responsibility on a "free-market economy" as foisted on the world by a greedy and thoughtless Wall Street, which set very different standards for other countries than it adopted for the U.S. This from the article:
Tax time is reason enough to reflect on our budgets, personal and national. How realistic are our expenditures? Do we spend more than we earn? Does our income allow for a few irrational indulgences? Do discretionary dollars exist? Might we consider our ample debt. Does this represent a temporary deficit, easily resolved, or an obligation that cannot be paid promptly. We may wish to rethink our reality. At home, families have taken scissors to credit cards. More than the minimum payment is made. The intention is to lessen liabilities and increase savings. In the month of April, after we pay Uncle Sam, most of us concluded, it is time to clean our own fiscal house. Next, we move to the nation's ledger.
Expenses The largest share of our moneys go to military operations. The terror tax has become a tremendous burden of American household and communities. Yet, few wish to rethink this "duty."
The U.S. economy just keeps getting worse. Given the absolute pummeling the job market has taken over the past five months, we're going to need some much stronger medicine than policymakers are currently proposing. It's increasingly clear that President Obama's stimulus plan was devised for a far milder downturn, and this week we received further evidence of the recession's high human cost.
(Hat-tip: Tom Wells in the diaries). In an article for Vanity Fair entitled "Capitalist Fools," Joseph Stiglitz offers the progressive outline of the cause of the financial crisis. The whole thing is worth a read. It touches on a number of debates we have had here on Open Left recently, including the role of Larry Summers in the current mess, the relative importance of personnel in relation to policy in the executive branch, what should have been done with the bailout, and the unavoidable presence of ideology in policy making. Here is a quick look at all four:
1. The Relative Importance of Personnel and Policy
But Volcker also understood that financial markets need to be regulated. Reagan wanted someone who did not believe any such thing, and he found him in a devotee of the objectivist philosopher and free-market zealot Ayn Rand.
Greenspan played a double role. The Fed controls the money spigot, and in the early years of this decade, he turned it on full force. But the Fed is also a regulator. If you appoint an anti-regulator as your enforcer, you know what kind of enforcement you'll get. A flood of liquidity combined with the failed levees of regulation proved disastrous.
If the people hired to enforce certain laws or policies do not believe in those laws or policies, then they probably won't do a very good job enforcing those laws or policies. It is in this sense that hiring Alan Greenspan was, in and of itself, a huge act of de-regulation without the need to pass any laws. Personnel matters quite a bit. To argue otherwise is akin to arguing, say, that it doesn't matter who police officers are, since the law is the same no matter who is enforcing it. The perspectives, beliefs and character of the police officers matter quite a bit.
Joseph Stiglitz won the Nobel Prize for economics in 2001. He was Chairman of the President's Council of Economic Advisors from 1995 to 1997 for Bill Clinton. He is also the former Senior Vice President and Chief Economist of the World Bank. He opposed financial industry deregulation under Clinton, fought with Larry Summers, who is now Obama's chielf economic advisor, over regulating derivatives (Stiglitz wanted to, but Summers won and that wrong decision contributed to the mess we are in.) Stiglitz, while favoring trade, has questioned some of the faith-based beliefs of the free trade fundamentalists.
Stiglitz has an excellent article in Vanity Fair on how we got to the worst economic times since the 1930s. He points to five key mistakes-under Reagan, Clinton, and Bush II-and one national delusion.
The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal.
How's that Wall Street bailout working out for you?
Even after Wall Street panicked Congress into approving up to $700 billion to buy "toxic" mortgage-backed securities, the stock market continued to plunge and credit markets tightened. But a week after Treasury Secretary Henry Paulson reportedly told President Bush "There is no Plan B," it turns out there is one: The Federal Reserve, on its own authority, plans to buy unsecured short-term debt ("commercial paper") to corporations needing credit to maintain operations.
"This will keep the credit markets working even if the zombie banks aren't up to the task," Dean Baker of the Center for Economic and Policy Research wrote at Prospect.org (Oct. 7). "In other words, the threat of a complete meltdown in the absence of a bailout was nonsense and the media once again got taken for a ride by the Bush administration."
Baker, like many progressive economists, favored a direct injection of capital into the banking system instead of overpaying for bad assets, as Paulson proposed.
I'm listening to Dick Durbin and Chris Dodd, Senators who I want to believe get this political moment, plead in favor of this bailout. All day, Senators have been railing against the need to vote on this bill, deeming themselves 'angry' at the mess we're in, and then discussing why it is the most important patriotic vote possible to vote 'yes' on this $700 billion bill. I'm seeing progressive economist Dean Baker call this a $700 billion give-away to Wall Street, and Paul Krugman arguing it won't cost the taxpayer anything. This is a complex situation, and I am not a financial expert. But I don't think analyzing this situation requires financial expertise, it requires common sense, a willingness to see through elite bullshit, and a skeptical eye towards wealthy strongmen who argue that politics is hijacking our economy. In fact, it's not clear to me that financial expertise is particularly useful in determining whether this bailout should go forward. For instance, it doesn't take financial expertise to understand that the Senate's choice to make a millionaires tax to pay for the bailout a voice vote, so no Senator would have to go on record, is evidence that this is a rotten deal put forward by those in thrall to a rotten ideology. But there are financial experts on our side. David Cay Johnston, the Pulitzer prize winning author of Perfectly Legal and Free Lunch, notes:
There's a new study out by two economists with the International Monetary Fund. IMF policy. They published a study, in which they study 42 banking crises around the world over the last 37 years. And they concluded essentially this: bail-outs don't usually work; they often make things worse; and they are fundamentally a transfer of wealth from everybody to bankers and their customers.
This bailout is a really bad idea, and it's one that's going to cost us a lot for a very long time. There are various groups of people who have pushed this bailout; the most corrupt are the Bush faction, followed closely by the Wall Street kleptocrats, and of course, the wealthy Democratic donor class (who cut the $50k and over checks to the party). But people like Barack Obama, and yes, progressive economists Paul Krugman, James Galbraith, Robert Kuttner, Joseph Stiglitz, and Jared Bernstein have decided that it is on balance more worth it to get this done than not. And like it or not, that's where we're going.
The Bush Administration was wrong about the benefits of the war and it was wrong about the costs of the war. The president and his advisers expected a quick, inexpensive conflict. Instead, we have a war that is costing more than anyone could have imagined.
The cost of direct US military operations - not even including long-term costs such as taking care of wounded veterans - already exceeds the cost of the 12-year war in Vietnam and is more than double the cost of the Korean War.
Indeed, it is, they go on to say, more expensive than any other war we've ever fought, except for World War II.
There are so, so many lies surrounding the Iraq War, that it's hardly surprising the cost itself should be so wildly misrepresented.
It's not just that the operating costs are excluded from the normal budget process, or even that so much of the costs are deferred to the future in the form of caring for tens of thousands of military personel who will live out their lives with grave and costly injuries.
It's also, quite simply, that this war, unlike earlier ones, was designed from the start to appear utterly costless--look ma, no taxes!--when in fact it was anything but.
And that is why the truth about the cost of the war is anything but an incidental concern, but instead cuts to the very heart of the evil enterprise that Congress has yet to confront.
As Juan Gonzales reported on Democracy Now! yesterday, the Bush White House push-back has begun in earnest:
In response to the $3 trillion price estimate, the White House has gone on the offensive. White House spokesperson Tony Fratto told reporters, "People like Joe Stiglitz lack the courage to consider the cost of doing nothing and the cost of failure. One can't even begin to put a price tag on the cost to this nation of the attacks of 9/11."
So, in response to the truth about what the war cost, we get yet another re-telling of the lie that Iraq had anything at all to do with 9/11. Well, at least now we can do away with calling these "cheap lies." They are, no doubt, shoddy beyond all belief. But no one can call them, "cheap".
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