Category: Economy

Elizabeth Warren on Class Warfare, Public Goods


Professor Elizabeth Warren:

I hear all this, you know, “Well, this is class warfare, this is whatever.”—No!

There is nobody in this country who got rich on his own. Nobody.

You built a factory out there—good for you! But I want to be clear.

You moved your goods to market on the roads the rest of us paid for.

You hired workers the rest of us paid to educate.

You were safe in your factory because of police forces and fire forces that the rest of us paid for.

You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.

Now look, you built a factory and it turned into something terrific, or a great idea—God bless. Keep a big hunk of it.

But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

Brilliant stuff.

Economist on Class War

Speaking of class warfare, a blogger at The Economist has a pretty remarkable-in-its-boldness post on Barack Obama and his assertion that he isn’t perpetrating class warfare with his tax plans.

In a speech in Storm Lake, Iowa, Mr Obama pitched his proposals to more heavily tax high earners as a counterbalance to high levels of economic inequality:

Our tax policy has been skewed toward the top 1 percent and away from the middle class, working class in this country. Reversing that would make a significant difference. That’s not trivial. That’s not around the edges.

Mr Obama claims to be on the side of the working and middle-classes, but I would submit that this sort of tax policy is in fact trivial. It’s electoral public relations. The edges are precisely what this sort of thing is around. Our economy is riddled with a multitude of deeply-embedded structural flaws that allow the well-connected to enrich themselves at the expense of the rest of us, but nobody will do anything about it. There is a class war in this country, a war between the subsidy barons, the regulatory arbitrageurs, the patent monopolists and the rest of us. Mr Obama is a class warrior. The trouble is he’s on the wrong side.

Well, there you go. The blogger, W.W., goes on to conclude that both major parties are not on our side – a fairly sensible conclusion that it seems more and more people are coming to.

Franken on Class Warfare

I’ve actually been trying to find this quote for a long time and it’s finally come across my transom. Al Franken in Lies: and the lying liars who tell them : a fair and balanced look at the Right.

“Any time that a liberal points out that the wealthy are disproportionately benefiting from Bush’s tax policies, Republicans shout, “class warfare!”
In her book A Distant Mirror: The Calamitous Fourteenth Century, Barbara Tuchman writes about a peasant revolt in 1358 that began in the village of St. Leu and spread throughout the Oise Valley. At one estate, the serfs sacked the manor house, killed the knight, and roasted him on a spit in front of his wife and kids. Then, after ten or twelve peasants violated the lady, with the children still watching, they forced her to eat the roasted flesh of her dead husband and then killed her.

That is class warfare.

Arguing over the optimum marginal tax rate for the top one percent is not.”

Heh, indeedy.

Of course there are things which we see today – the busting of unions, the slow destruction of Social Security, Medicare and Medicaid – which are undoubtedly class warfare. They’re just being waged by elites on the poor, working, and middle classes. Using public treasuries to bail out Wall Street executives, while turning around and demanding austerity to pay for it is class warfare. The lost services will cost people their lives, even if it isn’t as dramatic as what Franken quotes above.

And if that doesn’t work – if the phrase class warfare is so loaded that it needs to be preserved, as Franken has tried to do, then we can at least say that what wealthy elites are doing and continue to try to do is the forced transfer of wealth from the lower classes to the upper class. Class warfare is a good shorthand for that, but if you have to hold the line, try it in longer form.

A few deficit plan thoughts

In no particular order…

It could have been much worse. That it isn’t is a good thing.

Obama is going after Republicans around taxes for the rich. It’s a political issue, though, and it’s not clear that the policy outcome behind it will ever stack up to the rhetoric used to advocate it.

The idea that liberals are celebrating that a Democratic President didn’t choose to gut Medicare, Medicaid and Social Security shows just how far away the Obama administration has been from what many liberals hoped he would be.

The President said this morning that his plan will consist of 2:1 spending cuts to revenue increases. This is the same level of austerity that the British government deployed, to horrible effects. The likelihood is that since this is merely the starting offer from the President, the final result will be worse. Add in that, per Obama, there has already been $1 trillion in spending cuts, we’re really at around 3:1.

I like that the President is fighting Republicans. But that’s just part of the equation. The more important part is fighting for good policy outcomes and putting political pressure on conservatives who oppose them. Jonathan Cohn thinks the cost reductions in Medicare don’t amount to actual benefit cuts and from what I can see, he’s mostly right.

The plan includes a provision which would allow creditors to make collection calls to debtors on their cell phones. This has the remarkable synergy of bailing out both banks and telecoms at the same time, who will surely collect hundreds of dollars per debtor in new mobile phone billing.

More details will come out, so I may have more reactions later.

President Buffett & His Trojan Ideas

It was recently announced that President Obama is going to be seeking a new top tax bracket for millionaires. As Aravosis mentioned, it is “politically quite smart to put the Republicans on the defensive regarding tax increases on the wealthy.” A higher tax rate on the people who can most afford is the best way to increase revenues and reduce the deficit.

Unfortunately, as has recently been the case with President Obama, ostensibly good ideas (push for job creation, pay for job creation with tax hikes on the rich and corporations, tax millionaires), are mediated by being pairing to very conservative ideas (cut Medicare & Medicaid, prolong payroll tax cuts). While I think this is a good general direction for Obama to go in, specifics matter. As a progressive, I’m looking not for better optics from President Obama, but better policy solutions that help more people.

While Warren Buffett is certainly a well-regarded figure in the world of finance and an ostensibly less evil Master Of The Universe than we usually get, I still have real problems with the outsourcing of idea creation from the White House to Warren Buffett.

He will call it the “Buffett Rule,” a nod to billionaire investor Warren Buffett, who has criticized a system that allows the rich to pay a smaller portion of their income in taxes than middle- and working-class Americans because wages are taxed at a higher rate than investment income.
…
It is unclear how much the new tax rate for millionaires would raise, but it would impact only 0.3 percent of taxpayers, a White House official said.

Like Warren Buffett, the President will not be making a specific proposal for what the new rate on millionaires will be. Will it be Reagan’s 50% rate? Eisenhower’s 91% rate? We don’t know, though I would guess it’s more likely to be in the 35-40% range.

Like Warren Buffett, the President is pushing for cuts to Medicare and Medicaid:

The proposal is expected to include hundreds of billions of dollars in cuts to Medicare, Medicaid and defense programs, as well as a call on Congress to overhaul the Tax Code.

Like Warren Buffett, the President has called for the Super Congress to exceed their $1.5 trillion mandate for cuts and wants to see hundreds of billions of dollars more taken out of the deficit.

Beyond taking very clear cues from Warren Buffett as to what policy path he should advocate for as President, the administration seems to be grossly overestimating the level of support taxing millionaires will garner while simultaneously advocating for cuts to Medicaid and Medicare.

Democrats have balked at the idea of accepting cuts to entitlement programs without forcing Republicans to agree to new tax revenue. The proposal is certain to energize the progressive base, which has wanted Obama to draw sharper contrast with Republicans for defending tax breaks for the wealthy.

I find it very troubling that the administration will provide specific ways that they plan on cutting hundreds of billions of dollars from two of the three major social support programs, while refusing to say specifically how much they want to tax millionaires, and yet they still expect this to be a plan which “energize[s] the progressive base.” Given today’s current political realities, a plan to cut Medicare and Medicaid is almost certain to have a shot at coming into law, while a new tax bracket for millionaires is almost certain to never become law.

I’ve been waiting for President Obama to start pushing towards job creation and forcing the rich to pay more in taxes for a long while. I’m glad that he’s doing these things now. I just am not at all enamored by the decision to pair these genuinely liberal policy objectives with deficit reduction, cuts to our greatest social support programs, and austerity. These don’t have to be paired together and when the climate suggests that the conservative ideas will be actualized while the liberal ideas are tossed aside, the liberal ideas just become a Trojan Horse for conservativism. Not only does that energize me, but it makes me disinclined to support this platform at all.

Update:

Oh well, Robert Reich thinks the President is going to impose a millionaire tax rate around 20%. If that proves true, this is beyond a joke, it’s an assault on Medicare and Medicaid via a feckless attempt to get the rich to chip in.

Update II:

The Wall Street Journal is now reporting that President Obama will not propose raising the Medicare eligibility age. That’s good news and hopefully it’s accurate. We’ll see tomorrow.

Taibbi on UBS trader

http://current.com/e/93449571/en_US

Above is Matt Taibbi talking with David Shuster on Countdown. But his blog post on the subject is a deeper take. This part in particular strikes me as incredibly important.

In the financial press you’re called a “rogue trader” if you’re some overperspired 28 year-old newbie who bypasses internal audits and quality control to make a disastrous trade that could sink the company. But if you’re a well-groomed 60 year-old CEO who uses his authority to ignore quality control and internal audits in order to make disastrous trades that could sink the company, you get a bailout, a bonus, and heroic treatment in an Andrew Ross Sorkin book.

In other words, “rogue traders” are treated like bad accidents and condemned everywhere from the front pages to Ewan McGregor films. But rogue companies are protected at every level of the regulatory structure and continually empowered by dergulatory legislation giving them access to our bank accounts.

Lehman Brothers & the Ongoing Financial Crisis

Matt Stoller, writing at New Deal 2.0, on the third anniversary of Lehman Brothers’ bankruptcy.

Why should anyone think that Lehman won’t happen again? Elites have learned nothing. This was obvious during the crisis itself, when Nouriel Roubini noted the stark difference between public and private conversations:

And while policy makers and regulators now claim that everything is on the table in terms of reforming a faulty financial system they stress in private that their preferred approach would be one of “self-regulation” and reforms undertaken by private financial institutions rather than new rules and regulation imposed by authorities.

Many people are frustrated that the response to the crisis hasn’t been stronger. But it was always obvious that the goal of the crisis measures was to get the financial elites back to ordinary business as quickly as possible. In that context, the most reasonable question in the world is, why wouldn’t Lehman happen again? We don’t have a persuasive answer to that question. And until we do, we’re still in crisis.

I think this is exactly right and we’re seeing it play out on a daily basis. Rather than enact policies that lift people up and rebuild the conditions necessary to create consumer demand, politicians in the US are pushing for austerity that enriches wealthy elites. Rather than make banks take losses in Europe, the citizens of Greece, Spain, Portugal, Italy, the UK and Ireland are being forced to suffer. It’s all about maintaining normalcy for financial elites, who are at most asked to spend some time thinking about how they might police themselves or make minor changes to reduce the chances of needing massive public bailouts in the future. As this is essentially a bridge to far for the finance industry, nothing is actually changed, we remain in crisis, and the chances of another major bank collapsing are as real as they were on 9/14/08.

UBS trader arrested for billions in unauthorized losses

Apparently a UBS trader lost $2 billion in unauthorized trades and lost a ton of money for the Swiss bank. When UBS found out, they sought to have him arrested and brought to justice.

UBS uncovered the trading losses on Wednesday and called the London police and financial regulators at 1 a.m. on Thursday. Mr. Adoboli was arrested at 3:30 a.m. on suspicion of fraud by abuse of position. Mr. Adoboli retained the law firm Kingsley & Apley to represent him, but a spokeswoman declined to comment on the case.

Hold on while I do the math. OK, I think I got it. It took London police two and a half hours to arrest someone for defrauding the big bank. By contrast, three years after the financial collapse, not a single bank executive has been sent to jail for defrauding homeowners and institutional investors. It’s almost enough to make one think that there are two tiers of justice regarding the banks and fraud.

Carville: Obama should prosecute banksters

Via John Aravosis, Democratic uber-strategist James Carville thinks President Obama should start panicking, fire lots of advisers, make a consistently strong case “like a Democrat,” and, most importantly in my book, start prosecuting Wall Street crooks. Carville writes:

Indict people. There are certain people in American finance who haven’t been held responsible for utterly ruining the economic fabric of our country. Demand from the attorney general a clear status of the state of investigation concerning these extraordinary injustices imposed upon the American people. I know Attorney General Eric Holder is a close friend of yours, but if his explanations aren’t good, fire him too. Demand answers to why no one has been indicted.

Mr. President, people are livid. Tell people that you, too, are angry and sickened by the irresponsible actions on Wall Street that caused so much suffering. Do not accept excuses. Demand action now.

I think this is exactly right. Holding Wall Street accountable would be a dramatic sign to the public that the President is on their side and, importantly from an electoral standpoint, on their side in a way the Republicans are not. Of course the continued choice to not prosecute banksters is very clear in its meaning as well.

Obama backing off Big Three cuts?

Maybe, according to the Wall Street Journal:

“As the president has consistently said, he does not believe that Social Security is a driver of our near- and medium-term deficits,” White House spokeswoman Amy Brundage said in a statement.

Changing the inflation formula so Social Security benefits grow more slowly and raising the Medicare eligibility age were ideas Mr. Obama had been willing to accept this summer, when he was trying to strike a deficit-reduction deal with House Speaker John Boehner (R., Ohio).
…
Instead of raising the Medicare eligibility age, the White House is considering recommending cuts to providers and possibly increasing premiums for wealthier recipients, people familiar with the discussions say. It’s also possible the president would propose changing the inflation calculation for other government programs, which currently use the same measure as Social Security does. The White House declined to comment on those discussions.

One of the problems with the President validating the idea that Medicare, Medicaid, and Social Security need to be “saved” through cuts is that it opens the door for very different meanings as to how savings can be achieved. I’m sure there are ways to reduce waste in Medicare and Medicaid that won’t affect the delivery of care. But that’s a very different conversation than one about raising the age people qualify for this care. Opening the door to cuts puts everything on the table and allows Republicans to use the exact same frame as Obama to push ideas which will make more Americans rely on private insurance longer and at higher cost.

I really hope the President doesn’t go down the path of cuts to the Big Three social support programs. But I’m not going to take the word of a White House spokesperson as gospel, as only a few months ago the President himself was calling for the exact same cuts that were reported on yesterday. The proof will be in the proposal the President actually makes to Congress and the text of legislation that he asks them to pass.