Category: Economy

Austerity

There are much more appalling examples of wasteful military spending, but I have to imagine $300,000 for a go-kart racing track in Guantanamo Bay is going to be held up as an example akin to thousand dollar wrenches for some time. I don’t expect anyone to be asking members of the military to practice austerity while stationed overseas. But someone is going to have to explain a go-kart track.

And just so I’m clear, working families need to feel the impact of this recession through austerity.  State governments need to cut the salaries and void contracts of state employees, ensuring that those workers in particular must resort to austerity to survive. But the Pentagon budget is totally off-limits in discussions as to how we reduce the all-important deficit.  Got it.

We’re Not Greece

Sam Seder has a great video, calling bullshit on the conservative fears that the US is going to be the next Greece to leverage reduction of deficit spending. In the economy we are in, with 10% unemployment, the best way to get things on track is with a steady diet of stimulating federal dollars. But conservatives just don’t want to see the government spend money helping people who aren’t Wall Street tycoons or insurance CEOs.  The stalking horse for conservative opposition to stimulating expenditures is the deficit. You’d think that if the deficit was a major concern for the markets and for people who make money in the finance industry, that they would be reacting accordingly, driving up the US government’s bond rates and betting against the dollar.

But you’d be wrong. Paul Krugman noted on Monday that conservatives are pushing for austerity and measures to calm the markets from fears of inflation, there is no inflation and no fear of inflation in the markets.  And in yesterday’s Washington Post, there was a long expose on the gap between DC Conventional Wisdom that says the debt is going to turn the US into Greece shortly, while bond traders are heavily investing in the US government. Neil Irwin writes, “they can’t both be right.” And as is so often the case, Conventional Wisdom is wrong.

So why the massive shift in Washington from concern about fixing the economy through job growth (last year) to doomsday proclamations about the growth of the deficit (now)? Brad DeLong addresses this question:

But whenever I wander the halls of Washington these days, I can’t help but think that something else is going on—that a deep and wide gulf has grown between the economic hardships of Americans and the seeming incomprehension, or indifference, of courtiers in the imperial city.

Have decades of widening wealth inequality created a chattering class of reporters, pundits and lobbyists who’ve lost their connection to mainstream America? Has the collapse of the union movement removed not only labor’s political muscle but its beating heart from the consciousness of the powerful? Has this recession, which has reduced hiring more than it has increased layoffs, left the kind of people who converse with the powerful in Washington secure in their jobs and thus communicating calm while the unemployed are engulfed in panic? Are we passively watching an unrepresented underclass of the long-term unemployed created before our eyes?

Digby answers DeLong:

To coin a patented DeLong phrase — Simple Answers To Simple Questions: Yes.

At the bottom line, it seems that Washington, particularly Republicans, but also conservative and “moderate” Democrats, are no longer seeing the financial difficulties of working Americans. At a moment of economic crisis, they are looking past the challenges Americans are facing and towards policy prescriptions that will slow recovery and not help unemployment. This is going to hurt people. It’s going to prolong the unemployment crisis. And American families will suffer as long as Washington isn’t serious about creating jobs and growing the economy.

I’ve often said that if there is a disconnect between how you would want your elected officials to behave and how they actually behave, it’s most likely that they are not behaving how you would want because they don’t believe in the same things you believe in. What’s becoming clear is that decision-makers are, in bipartisan fashion, showing that they do not believe there is a jobs crisis and they do not believe that the government has a major role to play stimulating the economy to create new jobs.

And if you think things are bad now, wait until there is a push to cut Social Security again.

Deficit Hawks Should Be Honest

Of course it isn’t shocking that the deficit hawks that want to cut Social Security don’t give two wits about the damage the BP oil spill causes to future generations and the costs that today’s actions are incurring for them. Sarcastic cynicism aside, Dean Baker is right when he writes, “[deficit hawks] just want to cut Social Security and the other programs that allow ordinary working people to enjoy a decent standard of living.” There isn’t anything larger than a hatred of participating in a society that has a social safety net built by the entire nation. On one level, there isn’t anything wrong with having ideological differences with American social safety net policy. But the deficit hawks should be honest about these differences. They aren’t concerned with future generations – they just don’t want there to be Social Security, neither now nor in the future.

Witchcraft

James Galbraith has a great quote on the limited debate going on in Washington about the need for a deficit commission:

“The frame of the debate is between those who think the witches have taken over the entire community and the whole lot of them should be burned and those who think there are only a few witches and burning just a few of them would be enough to appease the demons,” said James Galbraith, the Lloyd M. Bentsen Jr. Chair in Government at the University of Texas. “There are a few of us operating safely removed from the bonfires who maintain there is no such thing as witchcraft.”

There are lots of opinions out there, but to my knowledge the deficit commission doesn’t include anyone in Galbraith’s position of saying there is no crisis and thus no need for a response.

Not Done Yet

I find it really hard to believe that the final chapters have been written on the Lehman Brothers collapse, especially with regard to holding their executives and Board accountable for the firm’s actions in the lead-up. But it’s looking increasingly like the New York Fed and the SEC played a serious role in allowing Lehman to essentially lie to the public and their shareholders about their balance sheet and the quality of their holdings.

As I write this, the Federal Court of Appeals has ruled the Fed must disclose documents that show which specific firms would have collapsed without the bailout of Lehman.

Put these things together and it’s clear there is much more to learn about how the financial collapse of 2008 happened, what the SEC and Fed knew, when they knew it, and how they may have facilitated broad efforts by Lehman to mislead the public about what was really going on with their books.

At some point, I’m just left thinking, “Who from the SEC and the Fed needs to face federal charges for fraud or negligence?”

Obama’s Bizarre Moves to the Right

Earlier this morning, I tweeted: “Someone needs to tell Obama that he’s allowed to break McCain’s campaign promises.”

John McCain proposed an excise tax on health care benefits as a means of paying for health care reform legislation. Obama campaigned against this. And yet, the current health care legislation in the Senate and the version supported by the President include taxes on health care benefits. In some cases, this tax may hit CEOs’ plans that include coverage for plastic surgery. But most of the time, the excise tax will hurt working, middle class Americans who have collectively bargained for health care benefits in lieu of wages. Coincidentally, Obama also pledged no tax increases on the American middle class.

To put this a different way, Obama is going to look a lot like George H.W. Bush who campaigned on a pledge of no new taxes (if you read his lips), but did increase taxes anyway.

John McCain also campaigned on a federal spending freeze in response to the economic crisis. Obama, wisely, opposed McCain’s proposed spending freeze.  And now we see Obama proposing a three year spending freeze on discretionary spending. Naturally it will be more limited in scope than what McCain proposed, but that doesn’t make the idea any better.

Stopping federal spending growth during an economic crisis is a tried and true recipe for prolonged economic crisis. The most natural comparison and the one that Obama will most likely seen his move drawn to is Herbert Hoover. But Jed Lewison points out that FDR made the same mistake — and it is universally regarded as a mistake — of cutting federal stimulus programs and thus crashing the US economy again.

I don’t know why Obama thinks pulling out John McCain’s playbook is a good idea. Nor do I get why Obama and his administration think replaying the moves of George H.W. Bush and Herbert Hoover, two one-term Republican presidents, is a good idea. Because from where I sit, these moves make zero sense from either a policy sense or a political sense. And if I look really closely, it looks like Obama is triangulating against the Democratic base in an effort to prove that liberal ideas, Democratic ideas are bad during times of crisis. And thus a three year spending freeze doesn’t look that different from a three year freeze on the Obama administration identifying itself as Democratic.

What Digby Said

Digby, writing on the penchant for some on the left to take a BURN IT TO THE GROUND attitude about politics and the policy course in Washington, has this to say about “those of you who are inclined to spend hours in my comment section throwing around snotty remarks drenched in puerile cynicism about how it is sillyto even bother, when everything and everyone is hopelessly corrupt.”

It’s indisputably true that the political system is run by wealthy plutocrats and much of what passes for democracy is kabuki. Same as it ever was, I’m afraid. But that’s not exactly the point. It’s still worth participating, doing what you can, containing the damage, stopping the bleeding, fighting the fight — for its own sake. After all, history shows that humans have managed, somehow, to actually make progress over time. You just can’t know what will make the difference.

If you don’t think that’s worth anything, however, you do have a choice. The obvious alternative, as PinNC wrote in TBOGG’s comments, is this:

If you really think that the political system is broken beyond repair, you have a blueprint from the 1770s to help you out.

Pick up your muskets, kids, or STFU.

Anyone who spends time hanging out with me in person knows that I can be as bitter, cynical and despondent as they come about the state of American politics and the fecklessness of Democrats, especially when it comes to helping enact progressive legislation. But I agree with Digby, this is too important to turn away from participation. If the current methods of influencing elected officials aren’t proving effective, then we have to try new models of organizing. Just like we did when we started organizing online and grew the netroots.

All is not lost, we may just have a different set of targets of our ire than during the Bush years. But don’t waste time mourning, organize!

Sirota on Bernanke

David Sirota has a very good post on the interesting coalition of votes that is emerging against the re-confirmation of Ben Bernanke as Federal Reserve Chairman on the Senate Banking Committee. He thinks Chairman Chris Dodd “shouldn’t be impossibly movable to “no,” but probably is,” citing Dodd’s historic ties to the banking and finance industry when it comes to fundraising.

It’s very hard to properly capture Dodd’s place on the Wall St vs Main St spectrum. While he’s from Connecticut and has clearly had close ties to banking when it comes to campaign support, he also was the strongest opponent of the Bankruptcy Bill in the Senate and created the Family and Medical Leave Act, the most important piece of social policy since LBJ. Many people presume that because he is from Connecticut and on this committee,  he must be in the pocket of the finance industry. But it just doesn’t stand up. Dodd has shown an incredible ability to take money from this industry and still vote his conscience and author progressive legislation.

I don’t know that his recent legislation on credit cards, debit cards, and housing is so easy to pigeonhole as coming from electoral vulnerability as Sirota says it is. It certainly is an easy story to tell. But it has never struck me as true, given what I know about Chris Dodd and his voting history on these issues.

Cutting Pay, Wall St. vs Main St.

Joe Nocera of the New York Times has an article today on Obama administration pay czar Kenneth Feinberg’s efforts to rein in top executive pay at banks bailed out by the American taxpayer. You know, a story on the novel subject of accountability and transparency in American business, something that cuts as close to fiction as possible for the journalists tasked with covering Wall Street. Nocera’s piece is a column, not a straight piece of reporting. But in either case, I don’t think this paragraph would be differently written:

And the American International Group is contractually obliged to make bonus payments of nearly $200 million in March 2010. The company has promised to try to reduce that amount by 30 percent. But once again, there is nothing Mr. Feinberg can do because those bonuses were already written into contracts — and there is a high likelihood that the bonuses will create another furor in Congress, just as they did earlier this year. [Emphasis added]

It’s really remarkable how inviolable contracts with Wall Street executive are. Contracts, when written between big banks and investment firms, cannot be broken. To break these contracts would undermine the basic foundations of America and would likely immediately turn the US into a communist country. Or something.

Contrast this with the contracts between automakers and members of the United Auto Workers. Let’s look back and see what Nocera was saying when GM was looking at bankruptcy a year ago.

For instance, it is critical for General Motors to be able to break its contracts with both its unions and its dealers. It needs to dramatically reduce its legacy benefits, perhaps even eliminating health care benefits for union retirees. It needs to close plants. It needs to pay its workers what Toyota workers are paid in the United States — and not a penny more. It needs to reduce the number of brands it sells — which means closing down thousands of dealerships, which is difficult to do because of state laws that protect car dealers. When General Motors shut down Oldsmobile, it cost the company more than $1 billion to buy out the Oldsmobile dealerships across the country. If it slims down its dealerships from 7,000 to a more appropriate 1,500, it will cost many times that amount. [Emphasis added]

Not only was it imperative for Nocera that GM not honor their contract with the union, Nocera was also arguing that GM must find ways to go against laws in states that protect car dealerships. Voiding contracts was not enough, he was arguing for voiding laws!

Another example of a prominent member of the press using two different standards for assessing the sanctity of the contracts of union auto workers and Wall Street executives is Ruth Marcus. Ruth Marcus of the Washington Post went to great lengths to defend AIGs bonuses and contracts while simultaneously chiding unions to renegotiate — and if they didn’t like the deal they got, they could just stop coming in to work. The autoworkers were not only required to renegotiate their previously negotiated contracts, but any protestations by their workers or supporters that these contracts be honored was met by disgust by the pro-business press.

The hypocrisy of  how the contracts of Wall Street executives are being treated versus those of union workers is simply stunning. All I want to see in an economic crisis is fairness. If contracts are inviolable, they are inviolable for everyone, regardless of whether they are between blue collar workers in factories, white collar workers in office complexes, or the multi-millionaire executives on Wall Street. If the economic crisis demands that auto workers take a haircut on their pay, benefits, and pensions, Wall Street executives must be held to the same standard. Conversely, if the contracts between big banks and investment firms and their top executives simply cannot be changed, then it’s time to go back and honor the contracts between the auto industry and organized labor. It’s that simple.

Bob Herbert Is Shrill

Apparently the lack of ideas to drive job creation is something of a buggaboo for Herbert.

A massive long-term campaign to rebuild the nation’s infrastructure — which would put large numbers of people to work establishing the essential industrial platform for a truly 21st-century American economy — has not seriously been considered. Large-scale public-works programs that would reach deep into the inner cities and out to hard-pressed suburban and rural areas have been dismissed as the residue of an ancient, unsophisticated era.

We seem to be waiting for some mythical rebound to come rolling in, magically equipped with robust job creation, a long-term bull market and paradise regained for consumers.

It ain’t happening. …

The Obama administration seems hamstrung by the unemployment crisis. No big ideas have emerged. No dramatically creative initiatives. While devoting enormous amounts of energy to health care, and trying now to decide what to do about Afghanistan, the president has not even conveyed the sense of urgency that the crisis in employment warrants.

Urgency is most certainly needed, but beyond urgency — which, last time it was present about a year ago resulted in a massive bailout for Wall Street speculators who created the financial crisis — we need a commitment to infrastructure and to creating real jobs on real projects that improve the quality of life in America. Trying to do this on the cheap, with money going to the private sector but no public works, will not create jobs nor will it solve the looming infrastructure crisis of a country that runs on systems that are nearly 100 years old or more.