I came across this on the Situationist blog. If you like it, and want more, they have a set of clips taken at a book talk he gave at the famouse Strand bookstore, here.
In Gödel, Escher, Bach: An Eternal Golden Braid, author Douglas Hofstadter introduces many wondrous things. (It is, after all, he said, "a metaphorical fugue on minds and machines in the spirit of Lewis Carroll".) One of those is the "smart-stupid", a computer that can be as smart or as stupid as the programmer wants it to be. This is, of course, modelled on the piano-forte (piano to you), which literally means "soft-loud".
Although he doesn't use the terminology, in today's Salon, Robert Reich deftly explains why Obama's proposed new business tax cuts are somewhat similar. Or rather, he explains how Obama, in proposing them, is being both smart and stupid at the same time--a pattern that goes even farther than Reich himself describes.
Unfortunately, just as loud drowns out soft, so, too, stupid drowns out smart.
Background first:
President Obama reportedly will propose two big corporate tax cuts this week.
One would expand and make permanent the research and experimentation tax credit, at a cost of about $100 billion over the next ten years. The other would allow companies to write off 100 percent of their new investments in plant and equipment between now and the end of 2011 at a cost next year of substantially more than $100 billion (but a ten-year cost of about $30 billion since those write-offs wouldn't be taken over the longer-term).
Then the stupid:
The reason businesses aren't investing in new plant and equipment has nothing to do with the cost of capital. It's because they don't need the additional capacity. There isn't enough demand for their goods and services to justify it. Consumers aren't buying because they're trying to come out from under a huge debt load, including mortgage debt; they have to start saving because their nest eggs are worth substantially less; and they've lost or are worried about losing jobs and pay.
In any event, small businesses don't have enough profits against which to use these tax credits and deductions, and large corporations are sitting on over a trillion dollars of profits and don't need them.
Then the really stupid:
Republicans and corporate lobbyists have been demanding tax cuts on corporate investments for one reason: Big corporations are investing in automated equipment, robotics, numerically-controlled machine tools, and software. These investments are designed to boost profits by permanently replacing workers and cutting payrolls. The tax breaks Obama is proposing would make such investments all the more profitable.
In sum, Obama's proposed corporate tax cuts (1) won't generate more jobs because they don't put any cash in worker's pockets (as would, for example, exempting the first $20,000 of income from the payroll tax and making up the difference by applying the payroll tax to incomes over $250,000); (2) will subsidize companies to cut even more jobs; and (3) will cost $130 billion - money that could better be spent helping states and locales avoid laying off thousands of teachers, fire fighters, and police.
Then the smart:
So why is Obama proposing them? To put Republicans in a bind. If they refuse to go along he can justifiably say they have no agenda other than obstruction. After all, the only thing they've been arguing for is lower taxes. On the other hand, if Republicans agree to support these corporate tax cuts, Obama can claim a legislative victory that will help Democrats neutralize their opponents in the upcoming elections.
The proposals also make it harder for Republicans to argue the Bush income tax cuts should be extended for the richest 3 percent of taxpayers because small businesses need it. Obama's corporate tax cuts would appear to do the trick.
The White House probably figures even if Republicans agree to the proposed tax cuts, nothing will come of it. Congress will be in session for only about two weeks between now and the midterm elections so it's doubtful these proposals would be enacted in any event.
Then more stupid:
But this cynical exercise could backfire if Republicans call Obama's bluff and demand the corporate tax cuts be put on a fast track and get signed into legislation before the midterms.
More troubling, Obama's whopping proposed corporate tax cuts help legitimize the supply-side dogma that the economy's biggest obstacle to growth is the cost of capital, rather than the plight of ordinary working people.
So, that's Robert Reich's rundown of the smart-stupid score sheet. And I have to say that from where I sit, the stupid totally overwhelms the smart, as it almost invariably must. But that's not the end of it by any means. There's more...
After months of modest gains, the U.S. economy lost 125,000 jobs during June. That's the worst jobs-related news this year. Without serious action soon, the struggling U.S. economy is going to get even uglier. Unfortunately, President Barack Obama's economic team was slow to recognize the severity of the jobs crisis, and now seems unable to get Congress to actually do something about it.
As David Corn notes for Mother Jones, the recent jobs data is actually much worse than the 125,000 figure implies:
"The economy needs about 150,000 new jobs a month to keep up with population growth and new entries into the jobs market. It needs a lot more than that to make up for the 8 million or so jobs lost in 2008 and 2009."
Recession 2.0
Although the economy sluggishly recovered from the catastrophic events of late 2008, economists are warning of a "double-dip" recession in which mass layoffs return. So why is Congress refusing to deal with the jobs crisis in the face of such terrible economic conditions?
Part of the problem, Corn notes, is that Obama didn't do a very good job selling his economic stimulus package to the public. The bill, which Obama pushed through in early 2009, really did improve the economy-it's the only reason why the unemployment rate is hovering around 10 percent instead of 12 percent or 13 percent. But by refusing to counter Republican attacks on so-called "wasteful spending" included in the package, Obama failed to show the public how much good the stimulus has done. Instead, the bill is widely perceived as another wasteful giveaway to special interests and akin to the bank bailout.
Spending is stimulus
In reality, government spending is the best way to stimulate the economy during a deep recession. It makes up for the shortfall in spending from consumers who have lost their jobs.
There are all kinds of ways the federal government can spend money to create jobs, including extending unemployment benefits to laid-off workers, providing funding to states to allow them to hire more teachers and cops, and hiring people to build roads and buildings. The government did all of these things with the stimulus package from early 2009, but it didn't do enough of any of them. The stimulus package was simply spread to thin.
Roots of recession
As Robert Reich explains for The Nation, the recession itself was created by deep economic inequality. By 2007, the wealthiest 1 percent of Americans made 23.5 percent of the nation's total income. Figures like that had not been seen since 1929, when the richest 1 percent made 23.9 percent of the nation's total wealth. All of this concentration at the top means that the elite enjoy a disproportionate share of economic gains, but it also sets the entire economy up for massive shocks.
When the rich have all of that money, they have to invest it somewhere. When the majority of citizens are seeing sluggish wage growth, or even a drop in wages, as the U.S. experienced during the Bush years, there aren't enough valuable assets out there that can absorb that investment. As a result, rich people put their money in speculative asset bubbles. When those bubbles burst, the entire economy can come crashing down, as it did in both 1929 and 2008.
Rampant inequalities around the globe
As Melinda Burns highlights for AlterNet, rampant inequality in not unique to the U.S. More than half of the world's population lives on less than $2 a day, and decades of conservative economic policies have been unable to reverse that hardship.
One of the best ways to relieve global poverty is also one of the most intuitive-give money to the poor. Brazil has made an aggressive push to cope with widespread poverty by providing $31 billion in pensions and grants to the poor every year. As a result, the nation's poverty rate has declined from 28 percent in 2000 to 17 percent in 2008, while child malnutrition was cut in half. These policies make good economic sense. When poor people have money to spend, they spend it and fuel growth that benefits the entire economy.
Social insecurity
And yet in the U.S., Obama is seriously considering cutting Social Security in order to reduce the federal budget deficit. As Margaret Smith emphasizes for In These Times, Obama has created a bipartisan "debt commission," and packed it full of ideologues from both political parties who have been fighting for years to slash Social Security.
This doesn't really make sense, because Social Security is funded by its own dedicated tax revenue, and is sitting on a multi-trillion-dollar surplus created by those taxes. It really can't do much to reduce the deficit. With interest rates at record lows, lawmakers do not currently have any reason to be worried about the deficit. But if they wanted to take action on it, they'd have to deal with long-term issues like the rising cost of health care, the bloated defense budget and absurdly low tax rates on the rich. Cutting off income for senior citizens won't help.
Blocking economic stimulus won't help
And neither will efforts to block short-term economic stimulus. But Obama's emphasis on the budget deficit plays into the hands of Congressional opportunists who want to block his economic recovery efforts. If we're told over and over again that the real economic problem is the budget deficit, no money is going to be dedicated to problems like jobs-even if that money would actually help the government's fiscal position by fueling economic growth.
The American economy is in the middle of an absolute employment crisis. Without strong federal action, it's going to get worse.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
Last week, the Securities and Exchange Commission filed fraud charges against Goldman Sachs and underscored what most Americans have believed for some time: Wall Street has rigged the economy in its own favor, and will stop at nothing-not even outright theft-to boost its profits. What's worse, Goldman's scam could have been completely prevented by better regulations and law enforcement.
Goldman's heist
Let's be clear. "Financial fraud" means "theft." Goldman Sachs sold investors securities that were stocked with subprime mortgages and had been cherry-picked by a hedge fund manager named John Paulson. Paulson believed these mortgages were about to go bust, so he helped Goldman Sachs concoct the securities so that he could bet against them himself.
Goldman Sachs, like Paulson, also bet against the securities. But when Goldman sold the securities to investors, it didn't tell them that Paulson had devised the securities, or that he was betting on their failure. By withholding crucial information from investors, Goldman directly profited from the scam at the expense of its own clients. If ordinary citizens did what the SEC's alleges Goldman did, we'd call it stealing.
As Nick Baumann emphasizes for Mother Jones, the SEC's suit against Goldman is just the tip of the iceberg. During the savings and loan crisis of the late 1980s, literally thousands of bankers were jailed for financial fraud. Today's crisis was much larger in scope, yet the Goldman allegations are among the first serious charges of legal wrongdoing to emerge (other complaints have been filed against Regions Bank and former Countrywide CEO Angelo Mozilo). If the SEC or the FBI are doing their jobs, we should see many more of these cases.
Bust 'em up.
How do banks get away with these kinds of shenanigans and still secure epic taxpayer bailouts? It's all about their political clout, as Robert Reich notes for The American Prospect. So long as banks are so enormous that they can ruin the economy with their collapse, the institutions will always carry tremendous political clout.
Even in the case of Goldman Sachs, which is too-big-to-fail by any reasonable standard, the SEC's fraud case is being filed three years after the company's alleged offense. That's well after the company rode to safety on the Troubled Asset Relief Program, the AIG bailout and billions more in other indirect assistance-and only after multiple journalists made Goldman's offensive transactions general public knowledge.
If we don't break up the big banks, politically connected Wall Street titans will make sure they get bailed out when the next crisis hits, regardless of whatever laws we have on the books.
Fix the derivatives casino
If Congress doesn't soon pass a bill to break up behemoth banks, it will be neglecting the gravest problem in our financial system today. But several other reforms are needed if Wall Street is ever going to serve a useful economic function again.
As Nomi Prins emphasizes for AlterNet, much of the Wall Street profit machine has been divorced from the economy that the rest of us live in. These days, banks make most of their money from securities trades and derivatives deals. Their actual lending business is taking a beating. That means big banks have very little incentive to promote economic well-being for every day citizens. We need to create these incentives by banning economically essential banks from engaging in securities trades, and make sure all derivatives transactions are conducted on open, transparent exchanges, just like ordinary stocks and bonds.
Better derivatives regulations could help protect against fraud. If Goldman Sachs' sketchy subprime deal had been subject to market scrutiny on an exchange, it's very unlikely that any investor would have bought into it. Goldman Sachs almost got away with it because the deal was secretive and beyond the scope of most regulatory oversight.
Protect whistleblowers
The Goldman case also raises significant questions about the government's enforcement of existing financial fraud laws. Bradley Birkenfeld, a banker for Swiss financial giant UBS, helped the Department of Justice bring the largest tax fraud case in history against his company, which was helping rich Americans hide money from the IRS in offshore bank accounts.
For his cooperation, Birkenfeld was rewarded with a four-year prison sentence, even though nobody else at UBS-nobody-has been sentenced to prison over the scam. As Juan Gonzalez and Amy Goodman emphasize for Democracy Now!, Birkenfeld's imprisonment could have something to with who exactly is hiding money with UBS.
Gonzalez discusses an interview with Birkenfeld, in which the former banker notes that the bank had a special office to handle the accounts of "politically exposed persons"- American politicians. Moreover, the top brass at UBS includes key advisors to top politicians in both parties. This is exactly the kind of influence smuggling that breaking up the banks would help fix. UBS is a multi-trillion-dollar institution with no less than 27 U.S. subsidiaries.
But protecting Birkenfeld would accomplish still more-by jailing him, the Justice Department is actively discouraging others from coming forward, and making it more difficult for regulators to enforce the law.
Greenspan's failure
It's abundantly clear that almost every major regulatory agency charged with curtailing financial excess failed to prevent the Crash of 2008. But that failure doesn't mean that effective regulation is impossible-it only shows that the regulators in power failed. The top bank regulator in the U.S., John Dugan, was a former bank lobbyist.
As Christopher Hayes demonstrates for The Nation, former Federal Reserve Chairman Alan Greenspan has never had any interest in regulation whatsoever. After the crash, Greenspan insisted that nobody could have seen it coming. But as Hayes notes, many people did-Greenspan simply didn't listen to them. These days, Greenspan is revising his story, claiming that he did in fact see the crisis coming, but that nobody could have prevented it. That is simply not credible.
Hayes draws a useful parallel Hurricane Katrina, a problem sparked by a natural event that became a catastrophe when regulators failed to take the necessary precautions. The lesson from both Katrina and the financial crash is not that government always screws up-we have plenty of examples of government preventing floods and economic calamity. The lesson we should learn is that people who don't believe in government will never do a good job governing. As Hayes notes:
If Greenspan couldn't figure things out, that doesn't mean others can't. In fact, developing systems for doing just that is called-quite simply-progress, and Alan Greenspan continues to be one of its enemies.
That is exactly the task that now presents itself before Congress: Developing a system to prevent and constrain economic destruction wielded by Wall Street. The U.S. had a system that did exactly this for more than fifty years. For the last thrity years, it has been systematically dismantled. How well Congress lives up to that challenge will define much of our economic future for decades to come.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
On Friday, we learned that the U.S. unemployment rate officially broke 10% for the first time since the early Reagan years. This is about as bad as it gets for a modern, developed economy. No economic force takes a heavier toll on a society than rampant joblessness, and few personal setbacks take a deeper psychological toll than being out of a job for months on end. If Congress and President Obama don't do something to create jobs fast, both are going to pay a hefty political price when next year's mid-term elections roll around.
So how bad is it? In October, the economy shed 190,000 jobs and the unemployment rate jumped from 9.8% to 10.2%. That percentage is the most optimistic reading of the labor market in Friday's report. If you take people who want full-time jobs but are settling for part-time work, then add those who have simply given up on finding a job, the rate is a massive 17.5%.
The problem is not that either Obama or Congress have failed to act on the problem, but rather that they have not done enough. When Congress was moving on Obama's $787 billion economic stimulus package back in February, we were shedding upwards of 700,000 jobs a month. So the stimulus package has worked-it's probably helped keep unemployment from jumping to 12% or 13%. But this is cold comfort to the nation's 15.7 million unemployed, 5.6 million of whom have been out of a job for more than six months.
As Robert Reich notes for Salon, Obama's economic advisers dramatically underestimated how bad things would get when they crafted the stimulus package. As a result, the package was too small and unemployment has remained high. Obama needs to go back to Congress and demand more economic relief funding. Republicans will continue to whine about government spending to excuse their obstructionism, of course, and conservative Democrats will probably start sweating, too-Sen. Ben Nelson (D-NE) helped cut back the original stimulus bill in February to help boost his "centrist" credentials. This of course had nothing to do with economics or policy. Government spending is what saves the economy in a recession. In a downturn as severe as this one, it takes a lot of spending to turn things around.
But as Reich notes, Nelson and his cohorts will have a lot more to worry about in the 2010 elections if the economy doesn't actually improve over the next year. And few economists think it will. The Congressional Budget Office, which is run by a conservative economist named Douglas Elmendorf, projects an average unemployment rate of over 10% in 2010. That's worse than this year. Democrats from swing districts need to support economic relief packages. Continued economic malaise will severely hurt them at the polls.
Congress finally took some action on joblessness on Thursday, voting to extend unemployment benefits for an additional 14 weeks. If we want the economy to recover, we need people to spend money, but if people aren't working, they don't have any money to spend. So the government cuts people checks to help them get by and stimulate a demand for goods and services. Even most conservative economists thinks this is a good idea.
But as Kevin Drum notes for Mother Jones, the soundness of the policy did nothing to prevent Republicans from fighting the effort to extend benefits tooth-and-nail. The bill had to overcome three-that's right, three-filibusters in the Senate from Republicans, who held up the bill for weeks for no apparent reason. In a blog post for The Washington Monthly, Steve Benen explains the economic cost of this obstructionism: In the weeks of delay, 200,000 people looking for work stopped receiving benefits.
But extending unemployment benefits will not solve our economic woes. The total program is just $2.4 billion, a drop in the bucket compared to the trillions of dollars the government put up to salvage Wall Street. $2.4 billion is not enough to reverse the unemployment trend. Cutting the checks certainly helps, but as Matthew Rothschild emphasizes for The Progressive, we need an economic policy that actually puts people back to work. We've known for months that the stimulus was too small and watched the labor market continue to deteriorate. We need more than tweaks at the economic margins, we need a robust job creation plan.
As Stephen Franklin notes for Working In These Times, we already know that the recession has created a significant jump in the nation's poverty rate. According to official government statistics, the rate climbed from 12.5% to 13.2% in 2008, the largest increase since 1991. But the National Academy of Science thinks the government statistics are misleading, as they account for rising costs associated with medical care, transportation, child care and different regional living standards, as Franklin notes. Taking these factors into account, the National Academy of Sciences calculates the actual poverty rate to be 15.8%. That's an additional 7 million people living in poverty, for a total of over 47 million. That's more than the entire population of the New York, Los Angeles, Chicago, and Philadelphia metropolitan areas combined. What's worse, we don't have poverty statistics for this year, when the most severe economic damage was been dealt.
Workers are facing tough economic prospects around the world. Writing for The Nation, Kristina Rizga details Latvia's economic turmoil. Just like the US, overexcited bankers in Latvia inflated a massive real estate bubble that took down the entire economy when it burst. But with the bubble burst, much of the country is now out of a job and stuck with a mortgage worth far less than what they paid for it. It's almost exactly the same story we've seen at home.
No domestic economic problem is more pressing than our epic levels of unemployment. We need another round of stimulus to get people working again. If not, we'll see the same public unrest here as in Eastern Europe.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
I have a good friend in southern California who is gay, helps out with some local causes, but not a politico activist by any stretch. He e-mailed me recently because he has some extra money to spend this fall, and needed some advice on whether he should go to Maine to help defend the recently-passed marriage equality legislation, or fly to DC to participate in the National Equality March, an LGBT rights march on The Mall this fall. On the one hand, he is still upset over Prop 8 and said he wanted to make sure the same result doesn't go down in Maine. On the other, he heard the March was extremely poorly organized (it is) and needed all the help they could get, and there were concerns about turnout given that it's being organized in five months' time and a glaring lack of national media coverage around it.
His question brought up a point I want to make about a problem I have noticed among progressive leaders.
There are other multiple fronts opening on LGBT rights this fall. As I wrote last night, Referendum 71 is now going to be on the ballot in less than two months' time in Washington State, stripping LGBT couples of pending rights regarding sick leave to care for a partner, adoption rights, and more. In New Jersey, Gov. Corzine is one of a few gubernatorial candidates I can remember who talks on the stump about marriage equality and his pledge to sign a bill, which finally has enough support in both houses of the legislature to pass. He talks about it even when he was down by double digits earlier this year. He is down 10 points in the Quinnipiac poll this morning. That is a major fight.
Here in DC, a local homophobe major domo is filing this morning to collect signatures to put a ban on marriage equality on the DC ballot for next year. On top of that, despite 12/13 of the DC Council members supporting marriage equality, along with Mayor Fenty, we still face a fight to make sure Congress doesn't overturn the law we pass. In California, activists may go back to the ballot in 2010 on marriage. For these two fights, we have to start pumping resources in now.
I keep being told that there are enough resources for both. I participate in weekly calls on Maine online strategy, and one participant in the call starting discussing plans for a significant event to help raise money online, and possibly doing offline events, too. I expressed concerns that trying to make an online-only event into house parties and other offline events would conflict with health care rallies between now and Labor Day, and that among probably 80% of my straight allies, their attention was so focused on health care. It would be hard to raise serious money without their commitment, and their time is limited. The participant proceeded to lecture me that there are enough resources for both, and people "should be" paying equal attention to both health care and marriage equality in Maine.
A few weeks ago, Robert Reich called for a march on health care on September 13 (a date he got by glancing briefly at his calendar) before being told it was absurd to think it would be successful in just a few weeks' time. But not before he was deluged with supportive e-mails, someone set up a website, a Facebook group, and a member of Congress announced support for it.
When the National Equality March was announced for October 11th, nearly every single LGBT organizational leader, activist and commentator I knew- national, state, or otherwise- said it would divert resources from serious battles coming up this fall. We were told that our movement can walk and chew gum at the same time. Well, as my colleague Steven Goldstein, who runs NJ's Garden State Equality, likes to say, "Well, you have to have money to buy enough gum for every state where there's a current or imminent battle, and our movement does not - and it forces you to make choices."
I encountered this on a real basis. I was forced to leave early from a health care messaging discussion last Wednesday night to make the Maine call. My friend only has money for a roundtrip flight to Maine and rental car or a flight to DC and hotel room. We are being spread thin, which is the right's strategy, and not every state is getting the resources it needs.
I am not saying this to reiterate how bad an idea I think the National Equality March is (a whole separate topic). I am saying this because progressive activists- straight or LGBT- have to stop and think before opening their mouth and assuming that in a recession, when people are losing their jobs, progressive foundations are closing or cutting their grants, non-profits are suffering, and people generally have less money and time to give, that there is some bottomless pool of resources. There isn't. We are being stretched intentionally, and face across-the-board losses because of it.
Now that trillions of taxpayer dollars have been pumped through the financial system, Wall Street giants JPMorgan and Goldman Sachs are reporting record profits-and giving out record bonuses. Goldman is planning to pay out $11.4 billion in compensation "earned" with our money. Even worse, attempts to regulate reckless financiers or empower ordinary workers are still being stymied by influential corporate lobbyists.
How did Goldman score the biggest quarterly profit in its history? Matt Taibbi explains in an interview with GritTV's Laura Flanders. The $10 billion in direct capital that Goldman received from taxpayers under the Troubled Asset Relief Program (TARP) is actually one of the minor offenses. The company also converted corporate charters to become eligible for guarantees, and issued a whopping $28 billion in debt guaranteed by the government.
Banks were foundering last Fall, and very few investors were willing to supply them with emergency capital. So the FDIC guaranteed their debt, which allowed banks to raise funds at extremely low interest rates. The FDIC guarantee means that taxpayers will get stuck with the bill if the company defaults. If you can raise money at absurdly low rates, its very easy to turn over huge profits, as both Goldman and JPMorgan did.
There are other outrages: We still don't know how much money the Federal Reserve loaned Goldman through its emergency lending facilities. The government's bailout of AIG served as a huge windfall for the company, funneling at least $12.9 billion in taxpayer largesse directly to Goldman Sachs.
"AIG owed Goldman about $20 billion, and if AIG had gone through a normal bankruptcy, Goldman probably would have gone out of business. Instead, they got paid 100 cents on the dollar for every dollar that AIG owed them," says Taibbi, author of a blistering take-down of the investment banking giant in the most recent issue of Rolling Stone.
In Salon, former Clinton Secretary of Labor Robert Reich says that this year's big bank failures have resulted in a heavier concentration of financial influence in the few surviving firms, namely Goldman Sachs and JPMorgan. We have taken the "too big to fail" problem and made it bigger. JPMorgan acquired rival Bear Stearns for a pittance last March with billions of dollars in government guarantees. The company also picked up national banking giant Washington Mutual last fall. That means more risk in our economy and a greater concentration of lobbying power in our political system.
"We've ended up with two giants that now have most of the casino to themselves, are playing with poker chips backed by taxpayers, and have a big say in what the rules of the game are to be," Reich writes.
Adam Schlesinger of Air America took to Wall Street to compile a hodgepodge of one-on-one interviews with bailout critics and condescending financiers. Schlesinger underscores the absurdity of Goldman's pending bonuses by posting his own checking account balance ($13.75). The point of this massive bailout was to make the economy function for ordinary people. Instead, we've made sure that it benefits extremely wealthy bankers.
The government so completely resists doing anything about this staggering inequality, as Eyal Press writes for The Nation. There are two ways to approach the inequality problem. We can rein in the recklessness at the top by imposing serious regulations, and empower those at the bottom by giving them greater negotiating leverage with their employers (i.e., promoting unionization). While the bonus money flows on Wall Street, the Employee Free Choice Act (EFCA), a key bill to empowering unions, was just stripped of a crucial provision that would have made it easier for workers to organize, as David Moberg reports for In These Times.
As EFCA is gutted, bills proposing regulations for the financial sector are moving at a snail's pace-even after two years of economic turmoil. Last week, Congressional leaders from both parties nominated members for a new panel, the Financial Crisis Inquiry Commission, to investigate the causes of the financial crisis. The investigation seems doomed to failure by its very design. Zachary Roth details the committee's various shortcomings for Talking Points Memo. Of the panelists, six were nominated by the Democratic leadership, while four were nominated by the Republican leadership. If all four Republican nominees vote to block a subpoena, the committee cannot issue it, and without broad subpoena power, the entire exercise is futile.
Roth also emphasizes the excessively political nature of the appointees, particularly on the Republican side, which named former Rep. Bill Thomas, R-Calif., as Vice Chair. The Democratic picks are generally uninspiring, except for Brooksley Born, who fought to regulate derivatives in the 1990s as head of the Commodity Futures Trading Commission. But the Democrats have nobody anywhere near as frightening as Rep. Thomas, a vicious partisan who specialized in ushering money to special interests during his tenure as Chairman of the House Ways and Means Committee.
Mary Kane of The Washington Independent explains the troubling record of another Republican commission appointee, Peter Wallison of the American Enterprise Institute (AEI), a conservative think tank. The various conspiracy theories Wallison peddled include a robustly debunked belief that a decades-old anti-discrimination law is responsible for the mortgage meltdown. The law in question, known as the Community Reinvestment Act (CRA), dates back to 1977, and Wallison's conspiracy theory has been rejected by nearly everyone in the financial commentariat, including regulators appointed by George W. Bush.
The Community Reinvestment Act requires banks to make loans to communities where they collect deposits. If you accept deposits at a branch in a poor neighborhood, you have to offer responsible loans in the same community. The idea is to expand access to affordable credit in the inner cities, while the subprime crisis is heavily concentrated in the suburbs. CRA loans have to be affordable, which means high-interest subprime loans do not count. CRA does not require banks to lower their lending standards, because any recipients have to be credit-worthy. Only 6% of high-interest mortgages were made by companies subject to CRA regulations, and lest we forget, this law was passed in 1977, while financial crisis erupted in 2007.
Instead of appointing toothless commissions, we should be making sure the financial oligarchs do things that are good for the rest of us. Congress should be writing regulations to curb risk in the financial system as fast as bankers are paying themselves bonuses. They're our representatives, after all, and it's our money.
Two weeks ago, I wrote a diary, "The Recovery Myth", warning about the risks of ignoring longer-term economic prospects for short term upticks. This diary continues that theme (and is fully in tune with Mike's recent diary, "We Need a Jobs Package, Not a Stimulus Package").
A rising tide of voices are warning that optimism over a coming recovery--the promise of "green shoots"--is looking increasingly questionable. Typical of these are Dean Baker's "The Green Shoots Are Dead", hence my diary title. The subhead to his article explains:
The latest jobless figures show America's economy is stuck in the doldrums. The US urgently needs a new stimulus injection
Krugman argues along similar lines in his July 9 column, "The Stimulus Trap"
As soon as the Obama administration-in-waiting announced its stimulus plan - this was before Inauguration Day - some of us worried that the plan would prove inadequate. And we also worried that it might be hard, as a political matter, to come back for another round.
Unfortunately, those worries have proved justified. The bad employment report for June made it clear that the stimulus was, indeed, too small. But it also damaged the credibility of the administration's economic stewardship. There's now a real risk that President Obama will find himself caught in a political-economic trap.
The so-called "green shoots" of recovery are turning brown in the scorching summer sun. In fact, the whole debate about when and how a recovery will begin is wrongly framed....
In a recession this deep, recovery doesn't depend on investors. It depends on consumers who, after all, are 70 percent of the U.S. economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery....
This economy can't get back on track because the track we were on for years -- featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere -- simply cannot be sustained.
Meanwhile, Bonddad is on a counter-contrarian kick at DKos, writing "The Economic Free Fall is Over", which I believe is instructively mistaken. It's true in one sense, but it misses the point in a larger one (after all, FDR reversed the downward plunge of the GDP within his first two years, but unemployment remained crushing until WWII came along). More on all of these viewpoints--and more viewpoints as well--on the flip.
The real scandal of AIG isn't just that American taxpayers have so far committed $170 billion to the giant insurer because it is thought to be too big to fail -- the most money ever funneled to a single company by a government since the dawn of capitalism -- nor even that AIG's notoriously failing executives, at the very unit responsible for the catastrophic credit-default swaps at the very center of the debacle -- are planning to give themselves $100 million in bonuses. It's that even at this late date, even in a new administration dedicated to doing it all differently, Americans still have so little say over what is happening with our money.
Robert Reich was the most overtly progressive member of Bill Clinton's cabinet. By all appearances, he's also really smart and really nice. Unfortunately, sometimes the two work against each other. Such was the case on Inauguration day, when his post at TPM, "Obama's First Choice", advanced the argument that, although the stimulus needs to be large (his own view is $900+ billion), the price tag "scares" Republicans and Blue Dogs, and that it " may be the smartest politics and smartest economics" to go for the broadest support, even if the result is "a smaller stimulus package - one that may not be enough to jump-start the economy."
Reich explains:
Why would he ever choose the second strategy? Because his goal is not just to get the biggest stimulus package he can squeeze through Congress. It's to get a Congress that's mostly united behind whatever stimulus package emerges. This would ensure that Republicans and blue-dog Democrats take some ownership of the package, and therefore responsibility for making it work.
If they feel ownership and responsibility, Obama could return to them later if more money is needed, and probably get their backing. Just as important, he starts to build bipartisan support for other things that have to be done in the next few months - keeping the U.S. auto industry afloat, reducing mortgage foreclosures, and devising new regulations of Wall Street. And he lays the foundation for a more united Congress capable of tackling a new health-care system, a new system for reducing carbon emissions, and reform of Social Security and Medicare.
I have just one question: what has Reich been smoking? Republicans and blue-dog Democrats feel "ownership and responsibility"?
1.2 million jobs were lost over the past three months.
The workweek dropped to 33.5 hours, "the shortest number of hours since the Department of Labor began keeping records on hours worked, back in 1964."
A substantial number of people are too discouraged to even look for work.
He pegs the actual percentage of people who need work at 11 percent. I would throw in the prison population of 2 million or so, which gets us to around 12 or 13 percent.
During the nadir of the Great Depression, the unemployment rate was 25 percent. This is more of a mini-depression than a great one.
There's been a tremendous discussion going on here with regards to potential VP choices for Barack Obama. While many of the more conventional names have been thrown out there, including Kathleen Sebelius, Janet Napolitano, Wesley Clark, Chris Dodd, Bill Richardson, Joe Biden, Jim Webb, Sherrod Brown, there has been less discussion of other individuals less prominent in national Democratic politics but might be a better fit for an Obama campaign, and (hopefully) an Obama presidency. After all, is there any better way to demonstrating a commitment to change than reaching beyond other Senators and Governors, and into the back bench of the House and out into the military, academia and other backgrounds?
Robert Reich goes after Clinton viciously for her attacks on Obama's health care plan.
I'm equally concerned about her attack on his health care plan. She says his would insure fewer people than hers. I've compared the two plans in detail. Both of them are big advances over what we have now. But in my view Obama's would insure more people, not fewer, than HRC's. That's because Obama's puts more money up front and contains sufficient subsidies to insure everyone who's likely to need help - including all children and young adults up to 25 years old. Hers requires that everyone insure themselves. Yet we know from experience with mandated auto insurance - and we're learning from what's happening in Massachusetts where health insurance is now being mandated - that mandates still leave out a lot of people at the lower end who can't afford to insure themselves even when they're required to do so. HRC doesn't indicate how she'd enforce her mandate, and I can't find enough money in HRC's plan to help all those who won't be able to afford to buy it. I'm also impressed by the up-front investments in information technology in O's plan, and the reinsurance mechanism for coping with the costs of catastrophic illness. HRC is far less specific on both counts. In short: They're both advances, but O's is the better of the two. HRC has no grounds for alleging that O's would leave out 15 million people.
Yesterday, HRC suggested O lacks courage. "There's a big difference between our courage and our convictions, what we believe and what we're willing to fight for," she told reporters in Iowa, saying Iowa voters will have a choice "between someone who talks the talk, and somebody who's walked the walk." Then asked whether she intended to raise questions about O's character, she said: "It's beginning to look a lot like that."
I just don't get it. If there's anyone in the race whose history shows unique courage and character, it's Barack Obama. HRC's campaign, by contrast, is singularly lacking in conviction about anything. Her pollster, Mark Penn, has advised her to take no bold positions and continuously seek the political center, which is exactly what she's been doing.
All is fair in love, war, and politics. But this series of slurs doesn't serve HRC well. It will turn off voters in Iowa, as in the rest of the country. If she's worried her polls are dropping, this is not the way to build them back up.
Regarding Social Security, Reich echoes A Tiny Revolution's point about Clinton, pointing out that a bipartisan commission on Social Security will most likely lead to a regressive tax raise or a benefits cut. Now, I don't agree with his praise of Obama on that front, as the crisis language is neither helpful nor true.
But it's nice to see Robert Reich and Paul Krugman going at it, indirectly. Time for the Pearl Jam and flannel....
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