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Tuesday, January 20, 2015

One sentence that perfectly explains why the middle class has to care about inequality

Bernie Sanders opens a new front in the battle for the future of the Democratic Party

Bernie Sanders opens a new front in the battle for the future of the Democratic Party

Updated by on January 10, 2015, 11:00 a.m. ET

President Obama's biggest problem in the Senate is obviously its new Republican majority, but opposition from the left wing of the Democratic caucus appears to be growing too. Most prominently, Sen. Elizabeth Warren (D-MA) has clashed with the White House on a key Treasury Department position and the CRomnibus spending package. But new budget committee ranking member Sen. Bernie Sanders (I-VT) is poised to break dramatically from traditional Democratic views on budgeting, from Obama to Clinton to Walter Mondale and beyond.

His big move: naming University of Missouri - Kansas City professor Stephanie Kelton as his chief economist. Kelton is not exactly a household name, but to those who follow economic policy debates closely, tapping her is a dramatic sign.

For years, the main disagreement between Democratic and Republican budget negotiators was about how to balance the budget — what to cut, what to tax, how fast to implement it — but not whether to balance it. Even most liberal economists agree that, in the medium-run, it's better to have less government debt rather than more. Kelton denies that premise. She thinks that, in many cases, government surpluses are actively destructive and balancing the budget is very dangerous. For example, Kelton thinks the Clinton surpluses are nothing to brag about and they actually inflicted economic damage lasting over a decade.

A drastic theoretical break

bill clinton

 Did Bill Clinton's surpluses really hurt the economy? (Sean Gallup/Getty Images)

Usually, when Democrats hire economists, they hire nice, respectable Keynesians, who use mainstream economic models and often agree with conservative economists on a lot of theoretical matters while drawing different policy conclusions from them. For example, Greg Mankiw, who served as George W. Bush's top economic advisor, and Christina Romer, who served as Obama's, were both influential in developing New Keynesianism, a macroeconomic theory that emerged in the 1980s and arguably dominates the field today. What really set Romer and Mankiw apart was policy, not economic theory.

Kelton disagrees with Romer and Mankiw on economic theory. In fact, she disagrees with just about every economist Bush or Obama ever hired about economic theory. Kelton is among the most influential advocates of Modern Monetary Theory (MMT), a heterodox left-leaning movement within economics that rejects New Keynesianism and other mainstream macroeconomic theories.
MMT emphasizes the fact that countries that print their own money can never really "run out of money." They can just print more. The reason we have taxes, then, is not to pay for stuff, but to keep people using the government's preferred currency rather than, say, Bitcoin. In some rare cases, consumer demand gets too high, so sellers raise prices and inflation ensues. Then, you need to raise taxes to cool the economy down. But the theory holds that this eventuality is pretty rare. James Galbraith, another MMT-influenced economist, once told me that the last time it happened was in World War I.

The main takeaway from this is that you really don't need to balance the budget over any time horizon, and attempts to do so will hurt the economy. That's what Kelton argues happened after the Clinton surpluses of the late 1990s / early 2000s. Any dollar of government surplus must show up as private debt, she reasons. And the private sectors just can't run up debt like that indefinitely. "Eventually, something will give," Kelton once wrote to Business Insider. "And when it does, the private sector will retrench, the economy will contract, and the government's budget will move back into deficit."

A minority view


abbott harper

This has changed since the recession hit, but for years both Australia and Canada (whose prime ministers Tony Abbott and Stephen Harper, respectively, are pictured) ran budget surpluses without incident. (Chris Hyde/Getty Images)

Plenty of people criticize Obama's economic policies (or Clinton's) from the left, but this is very much a minority view in economics — even among liberals. Paul Krugman, for example, has argued that MMT gets this all wrong. You still need people to buy government bonds, and if the interest rates on those get too high, then paying for it all might be hard to do without triggering runaway inflation. "Once we’re no longer in a liquidity trap, running large deficits without access to bond markets is a recipe for very high inflation, perhaps even hyperinflation," Krugman writes. Joe Gagnon, an economist at the Peterson Institute, also notes that Australia and Canada ran surpluses for years without suffering economically as a consequence. (You can see MMT responses to these points here and here.)

Before recently, mainstream economists and policymakers could comfortably ignore MMT. Galbraith told me that when, on a panel for an April 2000 event at the White House, he argued that the US's new budget surplus would harm the economy, the hundreds of economists in attendance laughed in his face. That's all changed. The financial crisis created a huge appetite for new economic thinking, and MMT helped meet it. Now, people like Krugman are expected to at least grapple with its claims. Kelton's elevation to the budget committee is another important step in mainstreaming the theory, and making it safe for left-wing Democrats to embrace.

If you want to learn more about MMT, I wrote a long profile of the movement back in 2012 that explains the basics. But theory aside, in concrete political terms this is a sign that Sanders is likely to reject the consensus-oriented approach of his predecessor, Patty Murray, and produce big spending budget frameworks that many members of his own caucus — as well as the White House economic team — would reject. That's going to be a headache for an administration that would like to count on a unified group of Democrats as it heads into inevitable battles with the Republicans.

Unethical Predatory Practices Imposed on U.S.

Unethical Predatory Practices Imposed on U.S.


The United States is in open competition with the same countries from which we buy our goods and finance our government. These countries supply our consumption while simultaneously competing fiercely against our companies in international markets. Nations like India, Japan and China, along with trade blocs like the European Union, rail against “protectionism” in the U.S. because they do not want to have their unfettered access to our market tampered with.

The United States is told that it must oblige to its commitment to “free trade,” not because it is in our best interest, but because it is in our foreign creditors’ best interest. They want the current system to continue unimpeded. Foreign exporters finance our government so the U.S. can continue functioning, and then they make all of their money back through the goods we buy from them. The U.S. government then pays back its finance charges and over time foreign financiers virtually double their investments. The United States is told that it must keep up its end of the “free trade” bargain. Meanwhile other countries skirt the rules, using hostile practices to put our companies out of business and capture sectors of the market.

Other countries limit and restrict the amount of American-made goods flowing into their markets. The United States puts up no such regulations, and is thus flooded with foreign-made goods. The WTO, NAFTA, and other “free trade” agreements favor the foreign producers in this equation, and the United States is not one of them. We are told by these international trade regimes that we cannot and should not protect our own economy. Through “free trade” the U.S. must open itself up to all foreign interests.

Our government has eroded its own regulations regarding capital infusions, mergers and acquisitions, and foreign-takeovers. To make matters worse, all successful American companies are for sale on an open stock market. As a result the United States has lost thousands of companies to foreign takeovers in the past 30 years, and stands to lose even more as the economic crisis deepens. The same cannot be said of other countries, where takeovers are closely regulated and major industrial champions rarely – if ever – get purchased by an interest overseas.

It is inevitable our foreign competitors have economically conquered us. Our fate is sealed. Most Americans do not realize the gravity of the situation because so much of the media attention is directed in favor of the “free trade” system that has bankrupted us. Scholars, politicians, professionals, and others from all walks of life have been indoctrinated into the idea that “free trade” is the best and only way to do business. Our political leaders believe in the whimsical idea, and those that do not preach the fallacies of “free trade” are bought and paid for by major corporate interests and foreign lobbies.

With this arrangement we are inexorably heading into the 21st century as an American colony at full speed. Our experiment with economic freedom, one which has gone on since 1776, is doomed at this rate. It was great while it lasted.

As an economically conquered nation we have no ability to resist this economic and political pressure. Our factories are shuttered and our industries are unproductive. This country imports consumer goods which could and should otherwise be made at home. It exports its wealth, strength, and prestige in exchange.

With no internal capabilities remaining and no strength, we are happy that our colonial masters even give us a job. There are thousands of foreign-owned, American-registered companies in the United States. Many of the automobile factories which presently supply our car market are foreign-owned. Our state, local, and federal governments continue to offer tax breaks and subsidies to these foreign companies in exchange for a few American jobs even after this practice drove our own automakers to the point of dissolution.

In the near future we may find our living standard diminished and our prospects for growth and economic independence dampened. Without any homegrown industries to drive a comeback we will be forced to be content with our diminishing status. While formerly living in the lap of luxury we allowed the greatest economy on earth to fall apart by living on imports and foreign-financed debt. The “me first” mentality which drove this country has pushed us into a crisis from which we will not return, if we do not start fixing our problems now.

The Class Conflict is Driven by Predation

Elegant Technology

Elegant Technology

Chapter Three

Are Producers a Class?

What is the proper way to define a class? 

First, prove the existence of a group with boundaries; 

Second, explain what the members of the group have in common. 

The features of cultural commonalty will be explained in chapter four, but first there is this little problem of showing that producers constitute a class.

Class analysis is often based on income, but because a producer-predator analysis postulates that there are rich and poor members of producers and predators, the difference is fundamental yet esoteric.

Certain social scientists believe that membership in a class is determined by an individual's class awareness. This seems a reasonable requirement except the problems it creates in a country such as the United States where the notions of class and class interest have not been discussed in public for 40 years. Class notions are so unusual in American political discussions that the brief appearance of "class" politics in Jesse Jackson's, 1988 campaign made even his supporters uncomfortable.

The producers' existence is validated by the common intuition. We know that producers exist because we can see what they have built. A building implies a builder. Similarly, we know predators exist because we can see people taking by force or fraud something that belongs to someone else. The main defining criteria is their differing strategies for survival. In a real sense, producers and predators are occupational rather than monetary definitions.

Establishing the existence of producers and predators is simple enough, but as we shall see, many people are not clear examples of either one. Modern social scientists classify most occupations of advanced industrialization as service occupations.

The existence of service occupations does not destroy the producer-predator duality. Service, after all, implies an allegiance to another person or agenda. For most of recorded history, "service" was merely another name for producers. Societies were pretty simple--there were those who ruled and those who served.

Because service often implies loyalty, it has become a tradition for those who would consider themselves a part of the service sector to identify with the ruling values of predators. Disruption to this social order did not occur until producing servants became economically important enough to forge a separate agenda and value set.

Figure : 3.1

The chapter illustrations are animated at:

Pre-Industrial Revolution
Upper (those who rule--predators)
Lower (those who serve--producers)

There were layers of stratification within each group, but one thing was absolutely clear: the lowest member of the ruling classes was above the highest member of the serving classes.

The industrial revolution ended this neat arrangement. For the first time, producers achieved real power, but because industrialization, especially in England, was grafted onto feudal stock, the social arrangements were only slightly modified. Rich and powerful producers acted much like the worst of the old predators. This was the world as Marx described it.

Figure: 3.2

Early Industrialization
(esp. England)
Marx's Worldview

Marx's petit bourgeoisie were the servants who did the dirty business of predation--not to be confused with the servants who cleaned the stalls. These latter were still lumped together with the producing peasants, builders, and mechanics to form the proletariat.

The late nineteenth-century American Populist writers were not as critical of business enterprise as Marx. Going into business, after all, was the main element of the American dream. Though there was not much evidence, the populists believed that producers could become successful and still maintain their producer attitudes. It was possible to reach the top without cheating anyone.

Figure: 3:3

The chapter illustrations are animated at:


Socio-Economic Distribution
Late 19th--Early 20th Century esp. USA

This graph is meant to show that, though a few producers had become rich, most were to be found at the bottom of the social order in any meaningful sense. The gap is meant to represent the emerging awareness of a separate agenda. Populists, Marxists, and progressives of all stripes agreed to and organized around the notions of difference.

The world got its first populist-producer billionaire in Henry Ford. Social progressives were enchanted. Ford seemed to have found the magic formula. He made his fortune producing something, paid his workers well, hired racial minorities, and embraced the 8-hour day. Better yet, when he made his fortune, he spent it on improving his product, opening a museum glorifying the history of the producing classes, and promoting causes like the end of World War I. John Reed, the American Marxist buried in the Kremlin wall, was convinced for a time that Ford's production theories and Marx's social theories would result in a Utopia.

By the same token, Ford's capitalist comrades were horrified. In spite of his incredible wealth and power, Ford was shunned by the wealthy and powerful for his ideas. As shown in the chart, the predators still held power and chose to make the 1920s miserable for both Ford and the class he championed. The idealism at Ford Motor lost its luster when the firm began to lose money.

In the end, Ford was to become a tightfisted, union-busting tyrant. Even so, important producer legacies remain:
Producers have their own business-management-leadership style that is successful--there is no need to emulate the predators;
Clean fortunes are possible--class conflict need not be between the rich and poor but between the producers--who believe everyone can be rich in every meaningful sense; and the predators--who believe only a few can be really rich.

The producers now had an economic agenda with a proven track record. This led to political success. It can be argued that, in the period between 1945 and 1970, the producer agenda dominated the political economy of the industrial states and the thinking of most of the rest.

Power, in all its forms, in the later stages of industrialization is far too fragmented to enable one to state clearly that the producers are absolutely ascendant. (It seems as if most modern social science is dedicated to proving that no one has any power anymore. In a sense they are correct. No one seems to have real power because many persons and groups seem to have some. If a social scientist chooses to ignore the possibility of producer power, the fragmentation of power looks even more bewildering.)

In fact, a chart of power--both economic and political--might look something like this.

Figure 3.4

Economic Distribution
(by occupational type)

This graph is probably misleading even if accurate. The newly significant service sector is, in reality, a convenient, but confusing, classification device because garbage collectors, bankers, and kings can be so classified.

With a huge service sector that can include bankers and royalty, there remain genuine predators. At the top are persons whose income is derived from ground rent or bonds, military rulers, and the like. At the bottom are the petty thieves.

Figure: 3.5

The chapter illustrations are animated at:


Social Distribution
(by interest group)

There may be three basic occupational types but there remain only two agendas. Those who would serve are forced to choose between those who would produce and those who will not. It is possible for royalty and bankers, persons once considered the essence of predation, to serve the interests of producers. Kings and princes can be regularly seen pushing the products of their native countries worldwide. Bankers who live modest lives while promoting the economies of their communities are a regular fixture of the American Midwest.

Such are exceptions. Most bankers are predators, think as predators, and if not, serve the interests of predators. It is rare for any royalty (or anyone else living off inherited wealth for that matter) to justify income with real service.

An interesting picture emerges. It turns out that industrial societies do not need many real producers because they are so efficient. A single farmer can produce enough food to feed several hundred people. A punch press operator can make more parts in one year than he can consume in a century.

Producers find few natural allies in the service sector. The exception concerns those associated with industrial maintenance. The difference between building an automobile and repairing one is very small. If the goal is not merely an automobile but an automobile that runs, they are economically identical since an automobile that is inoperative has no (or negative) value.

Socially, maintenance and production people share an important similarity--both must understand and use tools. If the fundamental difference is between producers who use tools, and the predators who use weapons, then maintenance people are, in fact, Real Producers though they are usually classified as service workers.

If maintenance allies itself naturally with production, the rest of the service industries pose more problems for producer recruitment to their agenda. It seems the only certain way to create producers is to put tools in their hands and teach them to use them well.

Producers have appealed to the lower classes of the service sector through notions of class solidarity. This has not worked well. Trade unions look down on industrial unions and have joined forces only out of dire necessity. Producers can be awful snobs.

The upper classes of the service sector produce a whole different set of problems for producer recruitment. Because upper class members of the service sector are unlikely to use tools to produce anything, the predisposition of history is toward the predator agenda.
Even this picture is pretty primitive. As societies have become more complex, more sophisticated representations are neceassary. Late 20th Century industrialized societies are at least three-dimensional;

Fig. 3.6

In purely economic terms, whether a person is rich or poor, politically conservative or progressive is of minor importance compared to whether he or she produces goods or services that materially benefit the community i.e. make the economic "pie" expand.

Class Conflict

The rise to prominence and power of the producing classes would tend to mitigate, one would suppose, the conflicts of class. In fact, something of the sort has happened. Serious scholars have portrayed the United States as a classless society. Ninety-five percent of the Japanese think of themselves as members of the middle class.

People do not talk of America as a classless society any longer, but class conflict has grown exceedingly complex since the issue was last raised. Any simplistic description of class conflict in terms of rich versus poor is probably doomed to fail because it is irrelevant.

The fact that both major interest groups contain upper, middle, and lower economic classes does not end battles between these groups but, in fact, provides a wider assortment of possibilities for conflict. The conflicts are of four major types: predator against producer, predator against predator, producer against producer, and producer against predator.

Predators against Producers

This is the oldest conflict. One who does not produce food and shelter for oneself must get someone else to do it. The predators have been extremely inventive over the years. Their methods have included slavery, imperialism, usury, ground rents, tithes, and taxation.

Of course, since the very upper predator crust does not do anything productive at all, servants who share the predator mentality have always surrounded them to do the actual work of profit taking, tax gathering, and rent collection. The real work of predation has been done by sheriffs, IRS agents, lawyers, judges, and an army of bureaucrats. Overseeing all this activity is the clergy (or other moral leaders) whose job it is to see that everyone agrees this is the best possible arrangement.

Predators against Predators

This conflict is usually called war. History books are filled with the lurid accounts of these conflicts to which nothing can be added here. Within a given society, predator-predator conflicts are rare because loyalty is a big predator virtue while treason is a big predator sin. As a result, while tales of revolution and coups d'etat are common, historically they are quite rare. There are also recorded instances of bankers ruining kings, but these are even more rare.

Producers against Producers

Though widely misunderstood, producer-producer conflicts are common. They usually center around the issues of automation. The sophisticated tools associated with industrialization enable anyone with access to this tooling to copy exactly any product. The producer with the best original design and the best tooling will eliminate those producers with inferior products.

In the beginning of the industrial revolution, these producer-producer conflicts boiled over in social revolt as artisans were displaced by factories. The Luddite movement saw these displaced artisans smash sophisticated factory tools. The Luddite movement generated little sympathy. Few consumers were likely to complain about cheap factory-produced goods that were clearly superior to the more expensive goods produced by artisans. What really finished the Luddite impulse, however, was the realization that industrialization would also produce cheap, but sophisticated, tools. These tools would allow the small producer to fill the gaps in production left, deliberately or otherwise, by the large producer.

Small producers seek niches for their efforts for very good reason. Direct competition with a large, established producer is extremely difficult. A large producer has production experience, established ties to suppliers, known marketing outlets, and access to finance. Unless the technology of the small producer is far superior, there is no chance in a direct competition.

There are examples of new producers displacing old ones--such as when the $5 quartz crystal-microchip watch proved to be more accurate than the $5000 mechanical watch produced by the Swiss. Even today, the Swiss, with a four-hundred year head start in watchmaking, have not fully recovered from the competition of an upstart. Such examples are not rare.

Producers against Predators

When one thinks of attacks of producers on predators, strikes, boycotts, and sabotage are what come to mind. And in fact, these are about the only options available to lower class producers.

Upper class producers have an option that they have frequently exercised: simply make things so very complicated that only those who made them know how they work. This has been the strategy of choice as producers have sought to increase their power. It has been highly effective. The world that producers have created by the end of the twentieth century is so complex that it is a rare predator who has even the vaguest notion how the world works.

Even the specialist servants of predation have a hard time understanding the smallest slice of the world they pretend to govern, regulate, or defraud. Producers go out of their way to make matters difficult (the most interesting little producer secret is that every extant process of production can be explained to any reasonably alert 9-year-old.) What makes a producer a genius is the ability to solve problems that have not been solved before. Once found, a good solution is "obvious." Even so, the predators and their servants exhibit an odd trait that makes this process of obfuscation easy.

Preservation of Archaic Traits

Predators do not know much about producers (and their work) for an interesting reason that goes beyond the producer's tendency to make his work obscure. In many respects, predators do not know about the work of producers because they believe it to be beneath their dignity to know. They are fashionably ignorant.

The automobile provides a perfect example of a subject about which ignorance is quite fashionable indeed.

It is almost impossible to overstate the importance of the automobile on industrial society. It affects everything from city planning to sex. It is economically very important with millions of jobs at stake. Its impact on the environment in the form of resource depletion, air and water pollution, and the production of toxins is enormous.

Resource requirements affect international relationships. Rhodium, necessary for the production of catalytic converters used to fight air pollution, can only be found in commercial quantities in the Russia and South Africa. To fight air pollution, the United States has been forced to deal with one government or the other on a normal commercial basis. The choice of South Africa was for years the subject of a loud political debate and an object lesson in Cold War insanity.

One might assume that a subject of this import would demand widespread knowledge. In fact it has, but an odd phenomenon has occurred--those most likely to make major judgments on the future of the automobile are the ones with the least knowledge. Government transportation officials, environmentalists, car critics, and the like regularly make public pronouncements in which they mispronounce basic automotive terms, confuse facts, and generally give the impression they know absolutely nothing about the real automobiles that people drive.

More oddly, they seem genuinely pleased with their ignorance--treating it as if it were a badge of social stature. They even claim that their ignorance of the nuts and bolts of a subject allows them to arrive at more objective policy decisions. Now it is a fact that automotive policy decisions can be well formulated without knowing how a transmission operates. It is also a fact that such people regularly make preposterous decisions because they do not understand the subject.

Even if a person were to arrive at a policy-making group with genuine automotive knowledge, that person would be tempted to hide this knowledge for fear of being labeled a motorhead. In the august company where such policies are formed, the motorhead would be found guilty of a cultural crime--knowing what only the servants are supposed to know.

Producers know this social rule well. They have learned that scientific and technological issues are not to be discussed in polite company. As Veblen pointed out, the ability to do anything useful is suspect. Thorough knowledge of a subject demonstrates ability and experience, precisely the sorts of thing "important" members of society cannot have.

Ironically, people are not born fashionably ignorant--they pay good money to become that way. This cost is usually involved in getting a "liberal" education.

The Danger of Preserved Predatory Traits


The greatest problems facing the industrial states do not stem from conflict, but rather from a rough sort of cooperation. Such cooperation is not voluntary but is rooted in the oldest of the power arrangements: predator power is cultural, economic, military, and political while producer power stems from a mastery over physical processes.

In spite of its seeming obsolescence, predator power is still very real. In the United States, predator values dominate the cultural forums. There are many reasons but one is significant. The National Security Act of 1947 put the United States on a perpetual wartime footing--a fact which dominates economic decisions, distorts political institutions, censors newspaper reporting, and muddles the educational processes. The Soviet Union, the putative object of this war, was forced by this action to choose a similar set of values which have caused similar problems. Because of their commitment to the predatory values of militarism, these two nations were often called superpowers. They have also been called the "Klutzes of the North" by Gore Vidal for their persistent problems with production.

Unwilling to challenge predator power or its values directly, producers historically have found themselves in the unfortunate position of increasing the powers they seek to thwart. Producers have made war more deadly with their weapons, authoritarianism more pervasive with big-brother computers and surveillance technologies, and demagogues more influential with television. If this were not enough, the producer's failure to challenge the notions of wealth, monetary policy, and usury has multiplied the predatory aspects of their own industrial enterprise. To succeed under such assumptions, a producer is forced to violate nature even as he is exploited. As a result, the main crises of industrialization is the environmental crises.

The predators disavow any responsibility for their role in the industrial rape of the planet and their response is as old as history. Return, they say, to the Garden of Eden. Go backward to a time when the producers did not present such ghastly problems. Roll back the social gains of the producers and the problems they have caused will disappear.

There is no retreat from producer problems. Industrial-environmental problems have already been created and they would not vanish even if the producers and industrialization were to disappear overnight. There is no Garden of Eden solution. Producers are responsible for the magnitude of our environmental problems. Only they understand their scope. Only they can create a solution for problems that already exist.

The implications of this reality are enormous. It means that rather than a return to predator values that have so characterized the 1980s worldwide, producer influence must be extended further into the cultural, economic, and political arenas--arenas where producers traditionally have feared to tread.

Monday, January 19, 2015

Paul Krugman on the Real Reason Reality Doesn't Make the Slightest Dent in the Right-wing Brain


What's behind this rabid denial of facts and evidence?


Photo Credit: via YouTube
It's really terrible when reality intrudes on your extremist world view.  And yet that's what keeps happening to right-wingers and Republicans. The latest reality to intrude on their ideological parade is that 2014 was the warmest year on record. It's official, Paul Krugman writes in his column Monday. And yet, it will not make the slightest difference to the climate-change deniers in Congress and elsewhere, who have proven themselves time and time again to be impervious to facts.
Evidence doesn’t matter for the “debate” over climate policy, where I put scare quotes around “debate” because, given the obvious irrelevance of logic and evidence, it’s not really a debate in any normal sense. And this situation is by no means unique. Indeed, at this point it’s hard to think of a major policy dispute where facts actually do matter; it’s unshakable dogma, across the board. And the real question is why.
There is other news that will not matter, Krugman points out before getting to the deeper question of why. There is the irrefutable evidence that Kansas' right-wing governor Sam Brownback's experiment with supply-side economics is a dismal failure. But this and other supply-side catastrophes has not eradicated that scourge. "If evidence mattered, supply-side economics would have faded into obscurity decades ago," Krugman writes. "Instead, it has only strengthened its grip on the Republican Party."

The unexpected success of health reform—unexpected even to its supporters—is another example. Not only has it resulted in a huge increase in the number of people who have health insurance, "Now we have evidence that the number of Americans experiencing financial distress due to medical expenses is also dropping fast," Krugman points out.

Good news! Government is helping people. Now there is a goal we can all agree with.

Therein lies the rub. Why do even clear government successes (like containing Ebola) only result in more rage?

The reason is that conservatives, who should really be renamed reactionaries, do not want government to succeed. Krugman:
Well, it strikes me that the immovable position in each of these cases is bound up with rejecting any role for government that serves the public interest. If you don’t want the government to impose controls or fees on polluters, you want to deny that there is any reason to limit emissions. If you don’t want the combination of regulation, mandates and subsidies that is needed to extend coverage to the uninsured, you want to deny that expanding coverage is even possible. And claims about the magical powers of tax cuts are often little more than a mask for the real agenda of crippling government by starving it of revenue.
And why this hatred of government in the public interest? Well, the political scientist Corey Robin argues that most self-proclaimed conservatives are actually reactionaries. That is, they’re defenders of traditional hierarchy — the kind of hierarchy that is threatened by any expansion of government, even (or perhaps especially) when that expansion makes the lives of ordinary citizens better and more secure. I’m partial to that story, partly because it helps explain why climate science and health economics inspire so much rage.

Sadly for all of us, we are living in an era when facts, evidence and morality don't seem to matter at all. Which is not to say that we should not keep fighting.

Sunday, January 18, 2015

What Happens When Conservative Ideologues Get to Run Their Own States

News & Politics

Failures of GOP economics at the state level have electoral implications for Republicans nationwide.


Photo Credit: U.S. Army Corps of Engineers

It would be hard to blame liberal-minded Americans for feeling a sense of despair as we begin a new year. The Republican Party is ascendant and reinvigorated after its smashing victories in 2014 at nearly every level of government. The NYPD is in near open revolt against one of America's most progressive mayors while police departments around the country seem immune to basic reforms.

But in spite of conservatism's seeming upswing, there are signs at a statewide level that its ideology is coming apart at the seams. Even conservatives are starting to take notice and worry.

First and foremost is the laughingstock that extremist Republican Sam Brownback has made of Kansas. Brownback slashed social welfare spending and implemented steep regressive income tax cuts, promising that his Laffer curve-based supply-side economic experiment would bring jobs and prosperity to Kansas while increasing government revenue.

In fact, the opposite has happened. Revenue projections in Kansas are in freefall, and the economic growth benefiting the rest of the country--including economically similar areas in surrounding states--has bypassed the Sunflower State. Just in the last week Kansans received another flurry of bad news:
revenue projections are even worse than the disastrous figures projected last month, forcing even deeper cuts to education and other services. But that won't be possible, as a panel of judges has ruled that Kansas is already shortchanging K-12 education. In desperation, Brownback has proposed further reductions in state funding to its already woefully underfunded public employee pension system, a move that is meeting with stiff resistance even from his fellow Republicans.

As a result, Kansas Republicans are confronting the previously unthinkable possibility that the tax cuts may need to be repealed. Brownback's own budget director has said that "everything is on the table, including the tax policy." It has been many years since a Republican-dominated state government has publicly considered the need to reverse course on low-tax economic policy.

The failure of Brownback's experiment is also being replicated in New Jersey, where governor Chris Christie slashed pensions, cut taxes for the rich, laid off public employees and gave away $2 billion of tax incentives, only to watch New Jersey rank next-to-last in job growth. Christie's obvious fiscal mismanagement in New Jersey has been a major reason for his slide in early polling of potential Republican presidential contenders.

GOP legislators in other states have taken notice. Writing at Politico, Rachael Blade captured the nervousness of conservative legislators around the country. Indiana's Senate Majority leader said, "It’s a cautionary tale on a national scale...we have to ensure the stability of a revenue stream to provide basic services that our citizens expect." Legislators and their aides from Ohio to Arizona have gone on the record with similar statements.

One remarkable result of the failed supply-side experiments is that many Republicans' belief in the Laffer curve has been severely shaken. A lobbyist for the infamous conservative policy group ALEC told GOP legislators they should admit "not all tax cuts pay for themselves." An unnamed Arizona Republican legislator was even more blunt: "We have never said decreasing taxes would increase state revenue." These are earth-shaking admissions. Conservatives have been asserting ever since Reagan's first presidential campaign that lower taxes would not only grow the economy, they would ultimately increase government revenues as well. It's difficult to campaign for tax breaks for billionaires if you're also blithely asserting that teachers will be laid off to pay for them. Retreating from the Laffer curve deception will make it much harder for Republicans to pass regressive tax cuts in the future without paying a steep political price.
The failures of Republican economics in Kansas and New Jersey also have worrying electoral implications for Republicans across the country as progressives use them as object lessons and warning signs of what could happen their own states--and the country--if conservative economic ideologues are allowed to gain too much power.

But conservatism's ship isn't just running aground on the shoals of sharp tax and budget cuts. It's also beginning to drown in a sea of cheap oil. Saudi Arabia's strategy of creating a supply glut to remove secondary players from the energy market is having cascading global effects. Vladimir Putin finds himself managing a national economic crisis caused in part by over-reliance on fossil fuel exports. Domestically, states like Texas and Alaska that have put most of their revenue eggs in the oil basket will likely see steep fiscal and employment declines as low prices punish them for failing to better diversify their economies.

Nor are other conservative states immune from the damage: natural gas prices suffered their first annual decline in several years, and many believe that low prices will continue to prevent growth in new supply. The decline in the price of oil will only serve to further undercut natural gas prices for a long time to come. That doesn't just come as good news to fracking opponents: it's also bad news for states reliant on natural gas extraction for large parts of their economy.
States with better social safety nets, more diverse economies and higher wages would be able to better withstand the oil and gas revenue shocks by making temporary, efficient cuts. But states like Texas have built their economic "miracles" much the same way Ireland did: by building on the quicksand of debased wages, slashed pensions, stripped government services, and corporate tax abatements. Once the lucrative energy money declines, legislators will have little ability to make necessary adjustments.

All of this comes at a time when the electoral college is looking like increasingly hostile territory for Republican presidential hopefuls in 2016. Republican strategist Chris Ladd noted to some fanfare that despite the GOP's strong showing in 2014, Democrats only solidified their hold on what he calls the "Blue Wall": states comprising 257 of the 270 electoral votes needed to win the presidency. Even accounting for the differences between general and midterm elections, Democratic senators were elected, on average, by larger margins than their Republican counterparts. In other words, Democrats control most of the biggest (and most economically powerful) states, and tend to win them by overwhelming margins. Meanwhile, all Republican candidates are badly lagging likely Democratic frontrunner Hillary Clinton in current horserace polling.

In order to have a shot at capturing the White House conservative hopefuls face a choice of either trying to appeal to the majority of the country, or hewing a narrow path to the nomination by winning over the conservative base. Tellingly, Republicans with actual experience in state governance are trying to walk back from the more unpalatable aspects of the Republican economic agenda. Jeb Bush has recused himself from potentially damaging corporate board associations, and Scott Walker is pushing back against the Republican legislature in Wisconsin, attempting to avoid bruising battles over income tax cuts and elimination of worker protections that would unmask him to the broader American public as a far-right ideologue.

There is no question that the American Right still feels emboldened by its success in 2014 and will attempt to make the most of its power over the next two years in Congress. But a closer look at what is happening in the states shows that conservatism is still very much on the ropes. Economic and social realities are exposing the failure of the conservative agenda on a variety of fronts, and Republicans are still being forced to confront those failures and deal with the consequences.

Wednesday, January 7, 2015

GOP Rule Change in Congress Signals New Dawn for 'Voodoo Economics'

Published on Wednesday, January 07, 2015 

GOP Rule Change in Congress Signals New Dawn for 'Voodoo Economics'


'Few economic theories have been as thoroughly tested in the real world as supply-side economics, and so notoriously failed.'

Republican Speaker of the House John Boehner wields the gavel for the first time after being re-elected as the Speaker of the House of Representatives at the start of the 114th Congress on Jan. 6, 2015. Among the GOP's first act was imposing a new rule on non-partisan agencies to institute new prediction models that will be more favorable to trickle-down economic policies. (Photo: Jim Bourg /Reuters)  Republican Speaker of the House John Boehner wields the gavel for the first time after being re-elected as the Speaker of the House of Representatives at the start of the 114th Congress on Jan. 6, 2015. Among the GOP's first act was imposing a new rule on non-partisan agencies to institute new prediction models that will be more favorable to trickle-down economic policies. (Photo: Jim Bourg /Reuters) A seemingly arcane rule change passed by the House of Representatives on Tuesday night signals that a new wave of tax cuts for the wealthy and what has long been criticized as "voodoo economics" will again be in vogue as the new Republican-controlled Congress sets the agenda in the new session.

Along with a host of other rules changes that will govern procedural issues in the House over the next two years, at issue here is a rule that will force both the Congressional Budget Office (CBO) and the Congressional Joint Committe on Taxation (JCT), the two nonpartisan groups tasked with scoring the economic impacts of proposed legislation, to use projection models that include what is called "dynamic scoring."

According to current lawmakers opposed to the change, the impact could be devastating. That view is also shared by outside economists and progressives who say that demanding the CBO to make expansive and unsupported predictions about the possible macroeconomic implications of new laws is akin to "cooking the books" and a proven failure when it comes to obtaining accurate, unbiased analysis on behalf of the American people.

Voicing objection ahead of the rule change on Tuesday, Rep. Chris Van Hollen (D-Maryland) and Rep. Louise Slaughter (D-NY) wrote an op-ed in Politico in which they argued that recent decades have clearly shown that the GOP's "trickle down" economic policies have failed. "But instead of changing their approach to budgeting," the pair wrote, "Republicans want to change the evidence." They continued:
It may be tempting to dismiss this change as just an accounting issue. But they are rigging the rules in favor of windfall tax breaks to the very wealthy and big corporations who can hire high-priced, well-funded lobbyists—once again choosing to leave behind working families. Their plan would further distort the nation’s fiscal outlook by applying this scoring model only to tax cuts—not the economic impact of investments in education, healthcare, infrastructure, and other areas. That means that the value of tax cuts to the economy would be exaggerated, and the value of investments in the middle class would be undercut. 
Though the Senate has yet to vote on new rules for its new session, expectations are that it will impose matching rules on the CBO and the tax committee. In a statement released just ahead of the rule change in the House, Sen. Bernie Sanders (I-Vt.) called the move a dangerous "gimmick" and vowed to fight the effort in the Senate.
"They call it ‘dynamic scoring.’ In fact, it’s a gimmick to help justify more tax cuts for the wealthy and profitable corporations. It’s what the first President Bush called voodoo economics—and he was right," Sanders said. "The purpose of dynamic scoring is to conceal—not reveal—how Republican policies will affect the economy."

As former Secretary of Labor and professor of public policy at UC Berkeley Robert Reich explained recently:
Dynamic scoring is the magical-mystery math Republicans have been pushing since they came up with supply-side “trickle-down” economics.
It’s based on the belief that cutting taxes unleashes economic growth and thereby produces additional government revenue. Supposedly the added revenue more than makes up for what’s lost when Congress hands out the tax cuts.
Dynamic scoring would make it easier to enact tax cuts for the wealthy and corporations, because the tax cuts wouldn’t look as if they increased the budget deficit. [...]
Few economic theories have been as thoroughly tested in the real world as supply-side economics, and so notoriously failed.
In a recent op-ed for the New York Times voicing his opposition to dynamic scoring, Edward D. Kleinbard, a law professor at the University of Southern California and a former chief of staff of the JCT, said the Republican Party's interest in the controversial model "is not the result of a million-economist march on Washington," but rather, "comes from political factions convinced that tax cuts are the panacea for all economic ills." The GOP, he continued, will "use dynamic scoring to justify a tax cut that, under conventional score-keeping, loses revenue."

Sen. Sanders, however, says you don't need a new measuring stick to show what happens when you cut taxes for the wealthy and powerful. "What history shows," Sanders said, "is that when you give tax breaks to the rich and large corporations, the rich get richer, corporate profits climb and the federal deficit soars. In these difficult times, we need realistic economic projections, not discredited theories, not voodoo economics.”

Monday, January 5, 2015

The Finance Industry Is Gorging Itself on Your Future—The Trend Lines Will Blow You Away


Increasing debt and runaway inequality are of a piece. That's because debt at compound interest rates is extremely powerful. Borrow a little today, and in time, you could be destitute. To get a feel for its power, imagine you borrowed just one nickel at 5% interest when Christ was born. You would now owe the tidy sum of $225,438,991,066,856,000,000,000,000,000,000,000,000,000—more money than ever existed in the history of the world. Which is to say, those who wield the power of debt, wields enormous economic power.

In our society we've given that power to private financial corporations, and they've done a masterful job in pushing us to the brink of debt peonage. The problem extends far beyond the much ballyhooed federal government debt. The power of debt extends to nearly every aspect of modern life. Our homes, schools, roads, bridges, highways, utilities, corporations and virtually every product and good produced and sold depend on debt. By some estimates as much as 30 cents of every dollar we spend goes to cover interest payments on the debt accrued to make all that we buy. (For example of the $6.5 of private enterprise income in 2012, 36.8% went to interest payments.)

With our banking system in private hands, the simple truth is that as the debt levels accelerate, so does runaway inequality. Therefore key to controlling runaway inequality is to dramatically curtail the power of high finance.

But as a society we have done the opposite. For nearly a half century between the New Deal and the 1970s, Wall Street was tightly controlled. Taxes on the wealthy were high, worker wages were rising, and debt levels on consumers, companies and government were low. After finance was deregulated (circa 1980) private and public debt exploded, wages stalled, taxes on the rich fell and inequality soared.

Financialism Transforms the Modern Corporation

Until about 1980, corporations ran up very little debt (see chart below). Their earnings were more than sufficient to cover reinvestment in new plant and equipment, research and development and improvements in employee wages and benefits. This "retain and reinvest" corporate ethos took place in an era when high finance was strictly regulated by government. Banks were limited in size, geography and function. Speculation was kept to a minimum as was the rampant buying and selling of corporations by what we now call private equity firms and hedge funds.

These controls, however, were radically upended by an unholy alliance of academics, financial elites and pro-Wall Street politicians. As finance became more and more deregulated, the massive growth of corporate debt followed.
In theory all that new borrowed money should have helped corporations and their employees prosper through more reinvestment in its workforce and product development. But those were not the goals of the new financial engineering. Instead, "retain and reinvest" was replaced by "downsize and distribute." The new debt often was used to buy up corporations. The acquired corporations were then saddled with the new debt and forced to use its revenue streams to pay it off.

The way CEOs were paid also changed. As compensation became increasingly dependent on stock options, CEOs used corporate earnings to buy up company shares in order to boost their price and enrich themselves.

To pay back these mounting loans, corporations squeezed their own workers. They downsized, moved abroad, cut wages and benefits and replaced full-time workers with temps. CEOs were transformed into financial engineers who sought more and more ways to enrich themselves through debt, while forcing their companies and workers to pay the price. So corporate capitalism morphed into what should be called financialism.

The Invention of the Indebted Consumer

Throughout recorded history, societies have feared instability caused by the imbalanced relationships between lenders and borrowers. Knowing how easily creditors could dominate debtors, many of the oldest legal codes focused on the mediating those relationships. (The first known written laws, Hammurabi Codes, 1780 BCE, set maximum interest rates on various transactions.) To further promote stability, most civilizations evolved powerful customs and informal moral codes to discourage personal debt. For most of American history, for example, going into debt was associated with unwholesome gamblers, gangsters and struggling businesses.

Our righteous attitudes on avoiding debt, however, crashed into the needs of mass production. The ever-growing cornucopia of goods produced by modern capitalist production, also required the mass production of the "consumer." Through the advent of mass advertising, and later through government supported mortgages, consumers were urged to buy on credit in order to match demand to the enormous supply of goods produced.

However, just as with corporate debt, household debt was extremely modest until the last vestiges of financial control evaporated. Before 1990, the average consumer limited household debt to about 40% of disposable income (income we can spend after we pay our taxes). But after modern financial engineering invaded the housing and credit card markets (making it possible even for dead people to obtain mortgages) household debt soared to nearly 160% of household income.

The more households paid to service their growing debt, the more money flowed into the financial sector. Rising inequality followed.

Debt Peonage for Students

Student debt became the next territory for Wall Street to occupy. Once again, this required upending successful past practices. From WWII through the mid-'70s, public higher education was virtually free, led first by the GI Bill of Rights and then by the robust California and New York tuition-free higher educational systems. As the chart below shows, until the late 1980s, there was virtually no student loan debt at all. But as money for the public sector dried up (largely due to tax breaks for the rich) public financial support for higher education lagged behind tuition costs. Wall Street filled the breach and student debt mushroomed.

Government Debt Is Bad for Whom?

Finally we turn to government debt, a topic always super-charged with ideological fervor. But no matter where you stand on the role of government and how it should be financed, one basic fact should be acknowledged: Throughout the ages, the wealthy would rather loan the government money than pay taxes. The reason is simple. When the wealthy loan money to governments (historically to fight wars) they stand to make more money in return. Not so if they are taxed.
In the modern era, this is even more true since government debt instruments pay interest that often is tax deducible. The rich benefit by loaning money to government and having the rest of us pay it back through our taxes, not theirs.
It follows, therefore, as financial interests and the wealthy increase their power over the economy and politics, we should expect federal, state and local government debt also to rise. Again, this was not the case for most of the post-WWII period when Wall Street was tightly controlled. During that era, taxes on the rich were high and public debt levels were low. But after the deregulation of Wall Street, public debt mushroomed, just like corporate, household and student debt.

Heading Toward Debt Peonage?

We are certainly beholden to Wall Street. By 2006, 40% of all US corporate profits went to Wall Street —up from 7% in 1980. And over $21 trillion is now hidden in offshore tax havens– and moves there via Wall Street. Furthermore, the top three banks dominate the entire financial system. These oligopolists have made it clear to all, they are far, far too big to fail, jail or curtail.

What will happen when this debt pyramid comes tumbling down again? As financial expert Ellen Brown points out, after the next crash we should expect a new kind of bailout. It's called a bail-in, and it already has become part of European planning. Instead of giving billions to the banks, the government will ask the banks to take it from their depositors—namely us.

Escaping Debtors Prison?

With ever-rising public and private debt, we seemed trapped. After all a cornerstone civilization is that debts must be repaid or bankruptcy declared.(Countries like ours that can print their own money, however, can never go bankrupt.) As the economy grows, it is likely that federal debt as a percent of the entire federal budget will decline. But with stalled personal incomes, households may be struggling with debt indefinitely. But there is another way out.

It's starts with recognizing that the root of the problem is not just the quantity of debt per se, but rather who really controls and profits by it. Private banks do not have to be masters of the economic universe. Instead, we could model our financial system after public banks, like the Bank of North Dakota. If we had 50 state banks, instead of just one, the income-distorting power of increasing debt could be curtailed, andthere would be much more money in the public treasury. In North Dakota, the state bank returned record profits nine years in a row, with $81.6 million flowing into the state coffers in 2012. It provides support for infrastructure projects. It insists that when it loans money to businesses, jobs must be created in North Dakota. It helps ease the burdens of student loans...and it doesn't gamble in financial markets.

But, there's a catch that Wall Street detests: The CEO of the Bank of North Dakota makes per year what a top Wall Street banker makes in one hour! So, if we want to really do something about runaway inequality, we will need public bankers who are more than willing to work for about $250,000 a year, instead of $50 million.

We are learning painfully each and every day that reregulating Wall Street does not work. Reforms have been tepid at best. Banks get fined, and then fined again, for every financial sin imaginable—money laundering for gangsters and rogue states, ripping of servicemen and women by financing payday loan sharks, colluding to fix interest rates, insider trading, controlling commodity markets, and illegal financial gambling. Yet the same executives and the same institutions prevail as if these crimes are just the normal cost of doing business.

Change becomes much more possible if and when we are able to transform every discussion about debt into a debate about creating public banks to replace Wall Street's financial stranglehold.