Category: Economy

About Those Bush Tax Cuts

David Dayen reminds us why it’s important that the rich not get new tax cuts when the Bush-era ones expire at the end of the year:

Mind you, it’s amazing that we have to wait on pins and needles wondering if the Democratic President will support ending tax cuts for the rich – one of the standard promises he made for two years on the campaign trail. Those tax cuts, and I hope Obama mentions this today in Cleveland, did absolutely nothing of value for the economy in their ten-year history, coinciding with wage stagnation and pathetic job growth, the weakest of the postwar era. If they led to anything at all, it’s the mind-boggling inequality and wage stratification, which has turned the middle class into an endangered species and set up an economy that almost can’t succeed. It’s offensive that anyone calling themselves Democrats would think twice about extending these tax breaks, given all the damage they’ve caused.

At a time when neither the administration nor Democratic leaders in Congress seems willing to challenge the Republican premise that only tax cuts can stimulate the economy, it isn’t surprising that this is a big issue that progressives are forced to take a wait and see attitude towards. But it’d be nice if core Democratic principles and campaign promises did survive as core planks of governance.

Populism: It’s September, So It’s OK

President Obama is calling for tax cuts to families earning less than $250,000 a year, but saying he will not support any tax cuts for the rich. This is good. Blue Dogs and New Dems have been calling for tax cuts for the rich (it goes without saying, so have Republicans). It’s something of a surprise to see the President out in front on this; the Conventional Wisdom is that it is to use Republicans blocking working class tax cuts because the richest Americans are left out as an election issue. Funny how populism is finally deemed OK after Democrats’ election chances have been run into the ground due to legislative and messaging choices that have pointedly avoided populism. I’d really like someone to explain to me why populism is acceptable as a backstop to electoral losses, but isn’t acceptable the other twenty-two months of a congressional session.

All that said, this is obviously the right course of action from a policy standpoint and from a politics standpoint. More, please.

Lessons, Learned?

Krugman:

The actual lessons of 2009-2010, then, are that scare stories about stimulus are wrong, and that stimulus works when it is applied. But it wasn’t applied on a sufficient scale. And we need another round.

That certainly is the lesson. But has anyone who wasn’t saying in 2009 that the planned stimulus was going to be too small learned this lesson? Or is it just that the stimulus pessimists have been confirmed right, but, still no one in power is listening to them?

Westen on Populism

Drew Westen has a big piece in Alternet about the current political climate and the anger fueling populist backlash. First, I think this is spot-on:

The “Obama Doctrine” should have been that Americans who want to work and have the ability to contribute to our productivity as a nation should have the right to work, and that if the private sector can’t meet the demand for jobs, we have plenty of roads and bridges to fix, new energy sources to develop and manufacture, and schools to build and renovate so our kids and workers returning for training can compete in the 21st century global economy.

And Westen’s natural follow-up is right on too (and useful for determining why so many progressive activists are feeling dissatisfied with the administration’s course of action):

But it’s too late for that. The administration opted for an alternative doctrine, which Larry Summers enunciated on This Week several months ago: that unemployment is going to remain high for the foreseeable future and eventually come down — as if there’s nothing we can do about it — and that they will push here and there for small symbolic measures whose symbolism tends to escape people who are out of work. It’s hard to be excited by symbolism when your children are hungry or the bank is repossessing your home — although you didn’t do anything to deserve it — while the people who did are once again making out like bandits.

Westen describes the current mood in America as populist anger, something that I agree with. I disagree that this anger from the left is because of missed opportunities – sure, that may be part of it with activist Democrats. No, I think the populist anger from the left stems from the fact that the economy remains broken, people don’t have jobs and are suffering because of it.

There’s a lot in Westen’s analysis of the timeline of the Obama administration and choices made. In many ways, Westen provides a comprehensive narrative of that is tossed around in progressive circles of missed opportunities and the progressive critique of what it means, particularly in terms of depressing the base and diminishing electoral prospects in 2010. I do think one paragraph is particularly worthy of quotation:

The underlying psychological assumption of these moves is that if you mix policies from the right and left in equal parts, you win the center. In fact, no one has ever won the center that way. It appears weak, opportunistic, and incoherent to the average swing voter, which is particularly problematic at a time when people in the center desperately want to know that their leaders have a vision and a coherent plan for what to do (which is why both FDR and Ronald Reagan were so effective in moving voters in the center). It doesn’t win any votes on the right. But it does have one predictable effect: It sucks the motivation out of your base, who feel demoralized and betrayed (if they’re part of the “professional left”) or less likely to vote (if they’re average voters who don’t follow politics carefully but just don’t feel very enthusiastic anymore, even if they don’t really know why).

There are a lot of relatively fundamental critiques of this administration, but this strikes me as one of the core ones – the penchant to be post-partisan and find agreement in the ideological lacuna that is the American center. Sure, it makes David Broder happy to see the White House try and strike an incoherent balance, but it just isn’t a political method which understands what voters want, which policies work, and how actions akin to ideology present themselves to the country. Strength wins, not alchemy.

Westen provides a serious playbook for the administration and Democratic leaders to use to describe how we got to where we are economically and who is to blame for it. Not enough of this is being done currently and as a result, Democrats are missing an opportunity to harness populist anger against Republicans and for better governance. There are still massive economic needs – job creation, state funding, green energy development, infrastructure repair, etc – and ample opportunity for Democrats to do things to address these problems, blame Republicans for opposing the success of the American economy, and actually get things on track. All it takes is building a narrative about who is to blame for today’s problems and who doesn’t want them to be fixed, while establishing Democrats in contrast to this. It’s time to do something.

It’s easy to read Westen’s account of the first year and a half of the Obama administration and be depressed. But this is prescriptive analysis. He provides a clear path forward for the administration to both achieve great things and have continued electoral success. Whether or not the administration is interested in pursuing Westen’s recommendations is obviously another question. But being where we are now is not determinative of future failures, but for the extent that the administration is unwilling to change course. Looking at the economy and at the political peril Democrats are facing electorally, it’s hard to imagine a situation where the President doesn’t start acting like his shoes were on fire.

Nonetheless, that unimaginable situation is the one we continue to find ourselves in. The time for change is now. Westen provides a good playbook. I hope the administration uses it.

Sort of Odd?

Adam Serwer, writing at Greg Sargent’s place, writes:

It’s sort of odd that in an election where Democrats are doing badly because they failed to do more to revive the economy, they’re foundering for a message while facing opponents who are promising to do even less.

It is something more than sort of odd. It’s a demonstration of a truly massive failure to seize their opportunity, fix the economy, and make the Tea Party (or, even better, the Republican Party) electorally insignificant. And as a result, it’s likely that voters will end up voting in a party who only promises to make their lives and this economy worse. Yes, this is more than sort of odd.

Bad Bai

Matt Bai is back and playing his best Adam Nagourney role of concern trolling Democratic politics and policies. This time his target is Social Security and, not shockingly, Bai adopts conservative deficit hawk talking points which are devoid of any basis in reality in order to make the case that any Democrats who oppose Social Security cuts are nuts. Dean Baker takes Bai to task over his assertion that Treasury Bills are “often referred to as i.o.u.’s”:

This is of course absurd. The business pages of major newspapers are full of references to Treasury bonds all the time. The bonds are never referred to as “i.o.u.’s.” The article then includes the bizarre assertion about government bonds that the only way for the government to make good on the bonds it has outstanding: “is to issue mountains of new debt or to take the money from elsewhere in the federal budget, or perhaps impose significant tax increases — none of which seem like especially practical options for the long term.”

Bai’s opinion, it is radically at odds with perceptions in financial markets. These markets view it as almost inconceiable that the government will not honor its bonds, which is why the interest rate on long-term bonds is near its lowest level in the last 60 years.

Bai also describes the process of the government selling bonds in this absurd manner:

So this is sort of like saying that you’re rich because your friend has promised to give you 10 million bucks just as soon as he wins the lottery.

No, selling trust fund bonds is more like you gave your friend $10 million and he’s promised to pay you back $10 million, plus interest.

Scarecrow at FireDogLake (as well as Dean Baker above) both have problems that the Times ran Bai’s piece as news, when it’s clear he’s editorializing and advancing political opinions that aren’t based in reality. Scarecrow writes:

This is the big con, folks, maybe the biggest con in an era of big cons, and it’s all designed to take money paid by middle class and seniors and put aside for their retirements, and use it as a cover for tax cuts for the richest people in America. Matt Bai just told us he is a dupe in that con, but what excuse do the New York Times editors have?

I don’t think it’s surprising that a reporter who likes punching hippies is punching hippies on our key issue. But there is a real question about how some of this bunk slipped its way past the Times’ editors.

Of Cows & Simpson

Keith Olbermann had a great segment last night on Social Security Deficit Commission co-chair Alan Simpson and his bizarre email rant attacking a Social Security and its beneficiaries as “a milk cow with 310 million tits.” Simpson has since offered a non-apology apology and the White House has said they will keep him on the panel.

I actually think that this is an OK outcome for those of us that don’t want to see Social Security cut. Simpson is a crank and clearly not a respectable character. But the more relevant side of this incident is that it reveals Simpson and the commission writ large as being incapable of thinking thoughtfully about the range of opinions on Social Security.  Eric Laursen points out some of the things beyond character that Simpson’s comments are instructive of the prejudices he brings into the commission:

So while they perhaps wouldn’t use quite the same language, it’s reasonable to suspect that many or even most of Simpson’s colleagues share the attitudes about Social Security that are reflected in his comments. The commission’s most important meetings are held in secret. It would be nice to know the substance of their discussions, but also the tone: Do they see Social Security recipients as human beings, or as leeches? Do they regard the program itself as a worthy enterprise, or as a multi-million-headed beast, sucking the taxpayer dry?

Do they have any sense of what life would be like for most Americans without old-age or survivors’ benefits?

It’s likely that were Simpson ousted, he would be replaced with someone who shared the very same opinions of Social Security, the misguided and ideologically driven assumption that it added to the deficit (it does not), and these prejudices would be masked by a demeanor less offensive than Simpson’s. That is, at least with Simpson we have a wolf in wolf’s clothing. A replacement might be a wolf in sheep’s clothing.

As Laursen points out, the best way to ensure that Simpson’s prejudices are not dominant ones in the commission is for the commission to hold all of their meetings open to the public and the press. This should be happening anyway, but Simpson’s repeated outbursts make a shift towards openness critical. Otherwise it’s hard to conclude that the Fix is not already In.

HAMPed

David Dayen continues to do incredible reporting on HAMP and how it isn’t working for most people who try to use it. What’s particularly important with this piece is that it is built around an individual account of the experience of a homeowner trying to use HAMP to avoid foreclosure. Talking about the success or failure of the mechanisms of a large program is abstract, but Dayen’s reporting here makes the challenges of the program very accessible. One of the biggest challenges consumers have is understanding the financial machinations that surround them – from their mortgage to their credit cards to small business loans. Indeed, our financial crisis was contributed to greatly because systemic complexity lead many Wall Street firms to fail to understand what exactly it was that they were doing.

HAMP should have given consumers an advantage in dealing with banks to keep their underwater homes by simplifying the process and giving clear pathways for a consumer to get cram down or other changes to their mortgage that allowed them make payments and stay in their home. But what we see in articles like Dayen’s is that the process was not more transparent for consumers, which created existentiell levels of uncertainty persist for people who enter the program. This is a really big problem.

Krugman vs Bond Gods

In today’s column, Paul Krugman asks:

So here’s the question I find myself asking: What will it take to break the hold of this cruel cult on the minds of the policy elite? When, if ever, will we get back to the job of rebuilding the economy?

I wish it was likely that sanity came with the flick of a switch and the government fully dedicated itself to stimulating the economy by funding projects for Main Street America and creating jobs for working class Americans. But I don’t think we’ll be able to magically turn off the determinative fear of the Invisible Bond Gods.

Instead, as I tweeted last night to Krugman, I think a more likely scenario for breaking the hold is this: The economy doesn’t get any better by November 2012 and a Republican candidate defeats President Obama. With control of the White House, the GOP pushes for more austerity measures, provides no stimulus, and the American economy is pushed into a deeper recession. Democrats then win back the White House in 2016 by openly campaigning on creating jobs through large federal government stimulus spending. At that point, political and economic necessities would make it impossible for the Invisible Bond Gods to maintain a stranglehold on economic policy makers.

I really hope this isn’t the course we go on, as it promises at minimum six years of unthinkable economic pain inflicted on 90% of America. But given the complacency in DC about 9.5+% unemployment, I find it hard to believe sudden change is likely. We could be in for a long haul here, people, and the only potential upside is that the longer we all suffer, the more likely it is that someone with power will actually wake up to the need to take bold action and help working Americans.