Sarah Palin’s latest attempt to resurrect the Republican Party was sprinkled with the most unpatriotic advice one could find from someone who drapes themselves in the United States uniform and the flag.
First, the Party of “HELL, NO!” I’m assuming besides saying “hell no” to health care reform, which thank goodness is now law, that they will say “hell no” to financial regulatory reform, and “hell no” to attempting to stimulate the economy with more job creation legislation like tax cuts to same businesses for hiring out of work workers, and additional investments in our infrastructure ripe with withering roads, bridges, schools, libraries, state and local buildings. I’m assuming they will be saying “hell no” to retrofitting all government owned buildings with energy efficient devices that might lower our need for Middle East oil and create hundreds of thousands of new jobs. They will surely be saying “hell no” to tax incentives to develop solar, wind and new battery technology for additional sources of energy. They weren’t satisfied with being just the party of NO…Bobby Jindal, Sarah Palin, and John McCain (most surprising of all) want to be the party of “Hell No!” Their words…not mine!
Then the next little gem out of, the “half term” governor of Alaska, Sarah Pallin’s mouth was we’re American’s…we don’t apologize. All of you and any of your friends who happen to read this blog need to ask yourselves…is that what your families taught you…never apologize? Did your mother, father, grandmother, grandfather, aunts and uncles really tell you never to apologize? Probably not! Most of use grew up in families that when we misbehaved our mother’s marched us over to the offended party with our ear lobes in her hand while she waited and we told the person we wronged that we “APOLOGIZED” for what we’ve done. It’s an act of humility. And Sarah, the mental midget that she is, needs to explain to us why this is not an American value. It certainly makes me wonder exactly what kind of a “Christian” household Sarah grew up in and now lauds…refuses to apologize. Since when did arrogance become a virtue?
The Party of “Hell No” is not the country of “old fashioned” values they purport to be. When I was young my parents taught me that apologizing was the “right” thing to do. But, apparently today…it’s just the “left” thing to do!
A final dig at the Alaskan Governor who’s most well known characteristic is that she is a quitter…being a half term Governor as her crowning moment. She has described her most fond motto as “don’t retreat…RELOAD!” But, what really qualifies her as dumb is that she insists even as she expels this motto that it’s not a call to violence. YES IT IS! Words matter Sarah! You are certainly dumb enough to believe that “reload” is just innocuous…but, it’s not Sarah. There are people dumb enough to hang on your every word who believe it is just a demonstration of their second amendment rights to bring a loaded weapon to a political event attended by the President of the United States looking for a chance to fire that weapon. You’ve instructed them to reload. And, to think these people are the bastions of Christianity (at least as they see it). If you really want a biblical example you might try “turn the other cheek” rather that “reload.”
If you really want to see a totalitarian government, just elect the Tea Party to power. These people don’t believe in liberty or democracy…they want to tell you what you can and can’t do. And, speaking of death panels…if you can’t afford to pay for health benefits you will die under their heavy hand.
Friday, April 9, 2010
Wednesday, March 24, 2010
EVERYTHING YOU NEVER WANTED TO KNOW ABOUT DEBTS AND DEFICITS
I’m not accustomed to promoting spending beyond your means. Like most Americans, I borrowed when I needed to and always considered my ability to repay my obligations. So, it’s naturally compelling when I hear the patriotic calls from conservatives for the United States Government to conduct their financial affairs similar to the way our citizens conduct their personal financial affairs. It all seems reasonable…right? Not really.
Make no mistake…there are times when the government should seek to go heavier on borrowing and other times when the government should go stronger on savings. One such opportunity was missed in the first decade of the 21st century. When the year two thousand rolled around the United States government was spending about $300 billion less than they were taking in. Republicans gained control of the White House, Senate, and House of Representatives. They promptly cut taxes to the richest two percent of the country reversing what could have been a $3 trillion dollar surplus over the next ten years reducing what was a $5 trillion debt, and turned it into an additional $1.2 trillion of debt. Then, they lurched into an unnecessary war against the weakest of adversaries creating an additional $1 trillion of debt and the loss of 4000 additional precious souls of our military and hundreds of thousands of Iraqi’s. Those are the years we should have been saving…but, we were spending frivolously.
Now…things are different. Twentieth-century British economist, John Maynard Keynes argued in 1930 that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore, advocated active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle. The theories forming the basis of Keynesian economics were presented in The General Theory of Employment, Interest and Money, published in 1936. He advocated interventionist economic policy, by which governments would use fiscal and monetary measures to mitigate the adverse effects of business cycles, economic recessions, and depressions. His ideas are the basis for the school of thought known as Keynesian economics. Simply put, Keynes believed, and was proven right by means of the recovery from the Great Depression, when he advocated the government should spend money to stimulate the economy when the private sector doesn’t, or can’t.
Recently the New York Times in their editorial of February 7, 2010, the Nation magazine in their March 22, 2010 issue, and Time magazine in its March 15, 2010 edition has expounded on the debt and deficit. The Nation and Time articles were particularly interesting in that they were composed by James K Galbraith, economist and professor at the University of Texas, and Zachary Karabell, president of River Twice Research. Mr. Galbraith is the son of John Kenneth "Ken" Galbraith, who was a Canadian-American economist. He was a Keynesian and an institutionalist, a leading proponent of 20th-century American liberalism and progressivism. Yeah…and his son teaches at the University of Texas…fact is stranger than fiction.
The aggregation of these writings advocates the following conclusions. Mr Karabell writes that “the numbers are undoubtedly daunting, with projections of total gross debt reaching 100% of U.S. gross domestic product (GDP) this year or next and surging every year thereafter. But, the debt is probably not as much of a problem as the anxiety we have worked up about the debt.” The amount the country pays to service the national debt isn’t particularly onerous. Interest payments in 2010, (expected to be $500 billion), are not much different in inflation-adjusted terms from what servicing cost 20 years ago, especially to GDP. The same is true for household debt, which has shot up astronomically in dollars but consumes about the same percentage of household income to service as it did in the 1990’s. Said differently, we’re paying about the same percentage of our income to service debt as we did 20 years ago.
The reason we can afford such large debts is that interest rates are so low. At the beginning of 2000, it cost the U.S. government more than 6.5% to borrow money. It now cost less the 2.5%. Relative to the size of the economy, the debt isn’t particularly high by global standards. Of course, we have to be concerned that one day those rates could go up.
Many are concerned with the amount of borrowing from China. I, personally, think there is another argument to this worry. As, I’ve written before in this blog…when you owe the bank $100,000 they own you…when you owe the bank $100 million you own them. The same thing can be said for China. They are in the same boat with us, like it or not. Even with the U.S. economy weak, the dollar remains one of the few truly safe havens, and that means interest rates could stay low for a long time, which in turn means that our debts, however big, can be managed. And, for those of you who have heard the recent threats that the rating agencies might down-grade U.S. Treasuries from their current rate of Aaa…well, China can’t exactly stand for that either. Though eliminating deficits might seem wise, it could actually be fatal to future prosperity. We have to invest and spend to build a future, to help re-create a workforce, and for now debt is a means to that end, provided the Administration and Congress shows it can effectively channel that money.
Half of the debt of trillions of dollars is owed by the federal government to itself, and a quarter more is owed to the American public…a bit of a surprising fact. As incredible as this is…the debt the government owes itself can simply be rolled over endlessly. As long as the dollar remains central to the global system, and there is little chance of that changing in the next decade, the government will have the latitude to borrow more than most other countries.
America’s indebtedness would be sustainable and even healthy if the underlying economy were vibrant, innovative and strong and if federal and state governments could channel those moneys productively and quickly. The problem isn’t how much debt we’re carrying today; it’s whether the economy of tomorrow will be able to justify it. And, as I have previously written, it’s widely recognized that if we could reduce the unemployment rate to 4% the deficit would completely disappear. America isn’t investing enough in its future. We are failing to mobilize resources to improve our health care and infrastructure and stay competitive in global economy that is more clamorous than ever. Hopefully, with the signing of health care legislation on March 23, 2010 (now a very famous day in history and one we should all mark down) perhaps we’ve begun to address the healthcare solution.
James Galbraith goes further…he is concerned with what might happen if a deficit reduction attitude infects the recession’s recovery position we now find ourselves in. He believes a big deficit-reduction program would destroy the economy that remains after the Great Recession. To cut current deficits without rebuilding the private credit system is a sure path to stagnation and probably a second recession. This, Galbriath is surely correct about. Until financial regulatory reform takes place all the same factors remain in place for another crushing financial meltdown…the next one being worst than the last. As sure as the sun will come up tomorrow the financial titans who bought us down in 2007 and 2008 will bring us down again. I work with these people every day. They are as clueless today as they were in 2006. They do not get it!!!
We need to re-establish strong growth and high employment. There are two ways to get the increase in total spending that we call “economic growth.” One way is for government to spend. The other is for banks to lend. That’s basically all there is. Governments and banks are the two entities with the ability to create something from nothing. If total spending power is to grow, one or the other of these two great financial institutions has to be involved.
Here are the undisputable facts of Galbraith’s argument. DEFICITS PUT MONEY IN PRIVATE POCKETS. They own that cash free and clear and they can spend it however they see fit. But, bankers don’t like budget deficits because they compete with bank loans as a source of growth. When banks loan you money it’s not free and clear because you have an obligation to pay THEM first…principal and INTEREST. Wall Street labors hard to confuse the issues. They never thought to warn you about the financial crisis they were creating. These same financial geniuses are warning of the impending bankruptcy of Social Security, Medicare, even the United States itself. Remember, the rating agencies who were publically anointing sub-prime mortgage securities as Aaa securities are now warning that the United States might lose the same rating.
This is where Galbraith takes on a notion that is in contradiction to how we manage our personal debt. The notion that the burdens of public debts will impose burdens on our grandchildren. All of this forms part of one of the great misinformation campaigns of all time. It may seem like homely wisdom, especially, to say that “just like the family, the government can’t live beyond its means.” But, Galbraith insists, “it’s not.” In these matters the public and private sector differ on a very basic point. Your family needs income in order to pay its debts. Your government does not. With government, the risk of nonpayment does not exist. Government does not need to have cash on hand. It is possible that government may spend imprudently. Too much spending may lead to inflation, usually by depreciation of currency…but, with the world in recession there is not an immediate risk. No government can be forced to default on debts in a currency it controls. Public defaults happen only when governments don’t control the currency in which they owe debts.
Galbraith insists public debt is not a burden on future generations. Public debt does not ever have to be repaid. Governments do not die…except in war or revolution, and when that happens, their debts are moot. In the entire history of the United States public debt has increased on all but about six short occasions, with each surplus followed by a recession. These debts are the foundation of economic growth. Bonds owed by the government yield net income to the private sector, unlike all purely private debts which merely transfer income from one part of the private sector to another. Social Security and Medicare are government programs that cannot go bankrupt and cannot fail to meet their obligations unless Congress decides.
Public deficits and private lending are reciprocal. Increased private lending generates new tax revenue and smaller deficits, which is what happened in the 1990’s. A credit collapse kills the tax base and generates more spending, which is what’s happening now, and big deficits are the accounting counterpart of the massive decline, last year, in private bank loans. If we could revive lending we should do it up to a point. Decentralized and competitive banks have much more flexibility. A good banking system, run by capable people with good business judgment who know their clients is good for the economy. However, right now we don’t have functioning big banks. We have “too big to fail,” incompetently run banks. Galbraith believes that all the deficit hysteria is intended to divert attention from dysfunctions of private banking, and is helpful in distracting us from doing meaningful financial reform.
Finally, The New York Times brings a meaningful conclusion. The Times states, “the cold hard economic truth is this; at a time of high unemployment and fragile growth, the last thing which government should do is to slash spending. That will only drive the economy into deeper trouble.” “Spending without taxing is a recipe for huge deficits and running big deficits when the economy is expanding only sets the country up for bigger deficits when the economy contracts.” And, “once a deep recession takes hold, slashing government spending is not going to solve the problem. It only makes is worse.”
The Times offers the following as evidence of stimulus spending by the government having a position effect on a contracting economy. “The stimulus package slowed job losses and helped spur activity – in the third quarter of 2009, the economy grew at an annual rate of 2.2%, and the initial fourth-quarter reading was 5.7%, a rebound few thought possible.”
I’ve said this before but it is worth repeating. Being a deficit hawk in a time of severe economic contraction is like be a water conservationist while your house is on fire. There are times to manage your debt as an individual, and as a country. But, the characteristics are different for us as individuals as opposed to us as a government.
These collective writings from the editors of the New York Times, Zackary Karabell, and James Galbraith are a compelling argument against those conservatives who have seen the light since Barrack Obama was elected. The conservatives might have a point…but, they have it all backwards.
Make no mistake…there are times when the government should seek to go heavier on borrowing and other times when the government should go stronger on savings. One such opportunity was missed in the first decade of the 21st century. When the year two thousand rolled around the United States government was spending about $300 billion less than they were taking in. Republicans gained control of the White House, Senate, and House of Representatives. They promptly cut taxes to the richest two percent of the country reversing what could have been a $3 trillion dollar surplus over the next ten years reducing what was a $5 trillion debt, and turned it into an additional $1.2 trillion of debt. Then, they lurched into an unnecessary war against the weakest of adversaries creating an additional $1 trillion of debt and the loss of 4000 additional precious souls of our military and hundreds of thousands of Iraqi’s. Those are the years we should have been saving…but, we were spending frivolously.
Now…things are different. Twentieth-century British economist, John Maynard Keynes argued in 1930 that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore, advocated active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle. The theories forming the basis of Keynesian economics were presented in The General Theory of Employment, Interest and Money, published in 1936. He advocated interventionist economic policy, by which governments would use fiscal and monetary measures to mitigate the adverse effects of business cycles, economic recessions, and depressions. His ideas are the basis for the school of thought known as Keynesian economics. Simply put, Keynes believed, and was proven right by means of the recovery from the Great Depression, when he advocated the government should spend money to stimulate the economy when the private sector doesn’t, or can’t.
Recently the New York Times in their editorial of February 7, 2010, the Nation magazine in their March 22, 2010 issue, and Time magazine in its March 15, 2010 edition has expounded on the debt and deficit. The Nation and Time articles were particularly interesting in that they were composed by James K Galbraith, economist and professor at the University of Texas, and Zachary Karabell, president of River Twice Research. Mr. Galbraith is the son of John Kenneth "Ken" Galbraith, who was a Canadian-American economist. He was a Keynesian and an institutionalist, a leading proponent of 20th-century American liberalism and progressivism. Yeah…and his son teaches at the University of Texas…fact is stranger than fiction.
The aggregation of these writings advocates the following conclusions. Mr Karabell writes that “the numbers are undoubtedly daunting, with projections of total gross debt reaching 100% of U.S. gross domestic product (GDP) this year or next and surging every year thereafter. But, the debt is probably not as much of a problem as the anxiety we have worked up about the debt.” The amount the country pays to service the national debt isn’t particularly onerous. Interest payments in 2010, (expected to be $500 billion), are not much different in inflation-adjusted terms from what servicing cost 20 years ago, especially to GDP. The same is true for household debt, which has shot up astronomically in dollars but consumes about the same percentage of household income to service as it did in the 1990’s. Said differently, we’re paying about the same percentage of our income to service debt as we did 20 years ago.
The reason we can afford such large debts is that interest rates are so low. At the beginning of 2000, it cost the U.S. government more than 6.5% to borrow money. It now cost less the 2.5%. Relative to the size of the economy, the debt isn’t particularly high by global standards. Of course, we have to be concerned that one day those rates could go up.
Many are concerned with the amount of borrowing from China. I, personally, think there is another argument to this worry. As, I’ve written before in this blog…when you owe the bank $100,000 they own you…when you owe the bank $100 million you own them. The same thing can be said for China. They are in the same boat with us, like it or not. Even with the U.S. economy weak, the dollar remains one of the few truly safe havens, and that means interest rates could stay low for a long time, which in turn means that our debts, however big, can be managed. And, for those of you who have heard the recent threats that the rating agencies might down-grade U.S. Treasuries from their current rate of Aaa…well, China can’t exactly stand for that either. Though eliminating deficits might seem wise, it could actually be fatal to future prosperity. We have to invest and spend to build a future, to help re-create a workforce, and for now debt is a means to that end, provided the Administration and Congress shows it can effectively channel that money.
Half of the debt of trillions of dollars is owed by the federal government to itself, and a quarter more is owed to the American public…a bit of a surprising fact. As incredible as this is…the debt the government owes itself can simply be rolled over endlessly. As long as the dollar remains central to the global system, and there is little chance of that changing in the next decade, the government will have the latitude to borrow more than most other countries.
America’s indebtedness would be sustainable and even healthy if the underlying economy were vibrant, innovative and strong and if federal and state governments could channel those moneys productively and quickly. The problem isn’t how much debt we’re carrying today; it’s whether the economy of tomorrow will be able to justify it. And, as I have previously written, it’s widely recognized that if we could reduce the unemployment rate to 4% the deficit would completely disappear. America isn’t investing enough in its future. We are failing to mobilize resources to improve our health care and infrastructure and stay competitive in global economy that is more clamorous than ever. Hopefully, with the signing of health care legislation on March 23, 2010 (now a very famous day in history and one we should all mark down) perhaps we’ve begun to address the healthcare solution.
James Galbraith goes further…he is concerned with what might happen if a deficit reduction attitude infects the recession’s recovery position we now find ourselves in. He believes a big deficit-reduction program would destroy the economy that remains after the Great Recession. To cut current deficits without rebuilding the private credit system is a sure path to stagnation and probably a second recession. This, Galbriath is surely correct about. Until financial regulatory reform takes place all the same factors remain in place for another crushing financial meltdown…the next one being worst than the last. As sure as the sun will come up tomorrow the financial titans who bought us down in 2007 and 2008 will bring us down again. I work with these people every day. They are as clueless today as they were in 2006. They do not get it!!!
We need to re-establish strong growth and high employment. There are two ways to get the increase in total spending that we call “economic growth.” One way is for government to spend. The other is for banks to lend. That’s basically all there is. Governments and banks are the two entities with the ability to create something from nothing. If total spending power is to grow, one or the other of these two great financial institutions has to be involved.
Here are the undisputable facts of Galbraith’s argument. DEFICITS PUT MONEY IN PRIVATE POCKETS. They own that cash free and clear and they can spend it however they see fit. But, bankers don’t like budget deficits because they compete with bank loans as a source of growth. When banks loan you money it’s not free and clear because you have an obligation to pay THEM first…principal and INTEREST. Wall Street labors hard to confuse the issues. They never thought to warn you about the financial crisis they were creating. These same financial geniuses are warning of the impending bankruptcy of Social Security, Medicare, even the United States itself. Remember, the rating agencies who were publically anointing sub-prime mortgage securities as Aaa securities are now warning that the United States might lose the same rating.
This is where Galbraith takes on a notion that is in contradiction to how we manage our personal debt. The notion that the burdens of public debts will impose burdens on our grandchildren. All of this forms part of one of the great misinformation campaigns of all time. It may seem like homely wisdom, especially, to say that “just like the family, the government can’t live beyond its means.” But, Galbraith insists, “it’s not.” In these matters the public and private sector differ on a very basic point. Your family needs income in order to pay its debts. Your government does not. With government, the risk of nonpayment does not exist. Government does not need to have cash on hand. It is possible that government may spend imprudently. Too much spending may lead to inflation, usually by depreciation of currency…but, with the world in recession there is not an immediate risk. No government can be forced to default on debts in a currency it controls. Public defaults happen only when governments don’t control the currency in which they owe debts.
Galbraith insists public debt is not a burden on future generations. Public debt does not ever have to be repaid. Governments do not die…except in war or revolution, and when that happens, their debts are moot. In the entire history of the United States public debt has increased on all but about six short occasions, with each surplus followed by a recession. These debts are the foundation of economic growth. Bonds owed by the government yield net income to the private sector, unlike all purely private debts which merely transfer income from one part of the private sector to another. Social Security and Medicare are government programs that cannot go bankrupt and cannot fail to meet their obligations unless Congress decides.
Public deficits and private lending are reciprocal. Increased private lending generates new tax revenue and smaller deficits, which is what happened in the 1990’s. A credit collapse kills the tax base and generates more spending, which is what’s happening now, and big deficits are the accounting counterpart of the massive decline, last year, in private bank loans. If we could revive lending we should do it up to a point. Decentralized and competitive banks have much more flexibility. A good banking system, run by capable people with good business judgment who know their clients is good for the economy. However, right now we don’t have functioning big banks. We have “too big to fail,” incompetently run banks. Galbraith believes that all the deficit hysteria is intended to divert attention from dysfunctions of private banking, and is helpful in distracting us from doing meaningful financial reform.
Finally, The New York Times brings a meaningful conclusion. The Times states, “the cold hard economic truth is this; at a time of high unemployment and fragile growth, the last thing which government should do is to slash spending. That will only drive the economy into deeper trouble.” “Spending without taxing is a recipe for huge deficits and running big deficits when the economy is expanding only sets the country up for bigger deficits when the economy contracts.” And, “once a deep recession takes hold, slashing government spending is not going to solve the problem. It only makes is worse.”
The Times offers the following as evidence of stimulus spending by the government having a position effect on a contracting economy. “The stimulus package slowed job losses and helped spur activity – in the third quarter of 2009, the economy grew at an annual rate of 2.2%, and the initial fourth-quarter reading was 5.7%, a rebound few thought possible.”
I’ve said this before but it is worth repeating. Being a deficit hawk in a time of severe economic contraction is like be a water conservationist while your house is on fire. There are times to manage your debt as an individual, and as a country. But, the characteristics are different for us as individuals as opposed to us as a government.
These collective writings from the editors of the New York Times, Zackary Karabell, and James Galbraith are a compelling argument against those conservatives who have seen the light since Barrack Obama was elected. The conservatives might have a point…but, they have it all backwards.
Sunday, March 7, 2010
WHY BIPARTISANSHIP WAS A GOOD IDEA
“No good deed goes unpunished!” This very appropriate “Murphy’s Law” is the perfect characterization of what the President has stepped in the middle of in his noble attempt to attempt working with the Republicans. The Left is sure it’s a waste of time…in fact; they thought it was a waste of time before the President ever mentioned it. As it turns out, they are probably correct. The Right…well, they never appreciated the effort. The Right demonstrated bad faith from the very beginning of the President’s effort. So, was it worth it?
Of course it was. First, the President looks all the better for attempting to work with the conservatives. Had the President simply used working with the right as a campaign stunt…he would have been excoriated by the right, and marginalized by the media. Even though his Republican counterparts never gave working together a chance, the President has never closed the door. By showing unending patience with the Right, the President has taken the high ground and shut off any possibility of the high ground ever being recaptured by the Right.
This President likes something we as the public really don’t understand. Some have described the President as being seduced by bipartisanship. But, it’s clear to me this President places a high value on both sides of every argument being heard. This is a good place to be in. Seduction is what occurs when we only listen to one side. Good ideas do not know political ideology. They come from people who have considered alternatives and chosen a particular path because of the advantages versus the disadvantages.
Have the President’s efforts been a wasted? No doubt they have. But, do we respect him all the more for trying? If we don’t…we should. And, the President should keep trying. It makes him look larger and his argument look better. As for those who turn their back on his never ending “olive branches”…well, they look small and ignorant.
For those of us on the left, we need to develop some patience.
Of course it was. First, the President looks all the better for attempting to work with the conservatives. Had the President simply used working with the right as a campaign stunt…he would have been excoriated by the right, and marginalized by the media. Even though his Republican counterparts never gave working together a chance, the President has never closed the door. By showing unending patience with the Right, the President has taken the high ground and shut off any possibility of the high ground ever being recaptured by the Right.
This President likes something we as the public really don’t understand. Some have described the President as being seduced by bipartisanship. But, it’s clear to me this President places a high value on both sides of every argument being heard. This is a good place to be in. Seduction is what occurs when we only listen to one side. Good ideas do not know political ideology. They come from people who have considered alternatives and chosen a particular path because of the advantages versus the disadvantages.
Have the President’s efforts been a wasted? No doubt they have. But, do we respect him all the more for trying? If we don’t…we should. And, the President should keep trying. It makes him look larger and his argument look better. As for those who turn their back on his never ending “olive branches”…well, they look small and ignorant.
For those of us on the left, we need to develop some patience.
SOLUTIONS COME FROM LEFT AND RIGHT
I have, for some time now, tried to convince my friends on the right that we shouldn’t glorify capitalism as ALL good, nor demonize socialism as ALL bad. That fact is that there are good points from both systems and, in fact, our “American Society” is a blend of the two. Athough, we have never come to recognize that. I grew up in the fifties and I loved Mickey Mantle. I still think he may have been the greatest baseball player…ever. One of my favorite things about Mickey was that he was a “switch hitter.” He could hit from the right or the left with great efficiency. He used this special ability to take advantage of his skills and opposing pitchers. You see, left handed hitters have a better vantage point for hitting against right handed pitchers, and right handed batters have a better vantage point for hitting against left handed pitchers. Left handed hitters aren’t all bad, and right handed hitters aren’t all good. To be able to take the most advantage switch hitters hit from the left and the right.
Just as a switch hitter has those advantages…governments can take the same advantage by using the most advantageous points of view from the left and right too. Robert Pollin is a professor of economics from the University of Massachusetts and recently wrote an article for the Nation magazine, in the March 8, 2010 issue, with come suggestions for creating 18 million jobs in the next three years. A rather ambitious goal, but one we need to reach for if we want to right our ship. I’m quite sure he didn’t include every good idea out there…but, he does emphasize the need for the solutions to come from the left and the right, from private industry and government. The truth is they both create jobs.
One solution, in my opinion, is a more socialized perspective for health care. One disadvantage our private industry experiences with foreign competition is that health care is provided by governments in Japan, Germany, France, and China. Here in the United States every private business is competing with competitors abroad that have this huge advantage on them. It allows our competitors to provide a better value for the goods they sell to us because the cost of health care is not added to the wholesale cost of the foreign products we compete against. So, streamlining the healthcare system in our country by moving to a government run system would reap huge benefits for our capitalistic businesses. Of course, this can’t be accomplished in one fell swoop. It will require a prolonged transition period. Beginning with a government run “public option” health care choice would be a good first step. It seems obvious during the transition period this will surely bring the cost of health care down. The argument from the conservatives is that we can’t afford universal health care. They say we’ve got to control our spending and the only way to bring the “Great Recession” to a close is to curtail spending and reduce the federal deficit.
However, Mr. Pollin points out in his article that if we can bring the unemployment rate down to 4% that our troublesome national annual deficit will be extinguished. Our deficit will be a problem for us going forward and one that will not go away until we get back to employing people…lots of them. Right now about 15 million people are unemployed, and if we include the underemployed there are about 25 million people out of a workforce of 153 million workers. The only way to cure this unemployment tragedy is to release both public and private resources.
Banking reform is another important ingredient to curing the recession. Banks are currently sitting on about $850 billion in reserves, this just at the Federal Reserve. That money needs to be at work in the economy. Banks should be able to reduce those reserves to $200 billion without any adverse impact in Mr. Pollins estimation. You seen as late as 2007 banks only had $21 billion in cash reserves. This clearly explains the overreaction banks have had to the current crisis. We need that $650 billion loaned out at a reasonable rate to support both large and small businesses. I recently had lunch with one of my friends in the banking business who was lamenting about their own bank’s loan management rather than working out reasonable rates with troubled borrowers. Instead the banks management had been increasing the commercial loan rate to 8% and more for troubled borrowers. This is totally unreasonable and will do more harm than good in the long run. This kind of banking practice just keeps borrowers in trouble rather than helps them get back on track. This activity will also harm the bank in the long run…because it will keep the loan from returning to a current payment status and the bank will eventually have to charge off more and more principal from the loans that they handle in this irresponsible manner. There is not a need in this environment for commercial loans to be beyond 5% to 6%. Mr Pollin believes the Fed should push the business borrowing rates down to 3% to 4%. Anything beyond those rates is simply price gouging.
As money is released into the economy from the public and private sectors more jobs will be created and each 1% drop in the unemployment rate will generate an additional $90 billion in government revenues or reduced spending obligation according to Mr. Pollin. When jobs are lost the government loses revenue and is subject to additional spending to support the unemployed. Because when people get jobs they begin to support themselves (reducing the need for unemployment pay and food stamps) and they begin paying taxes.
Another way we can really help ourselves is to get serious about energy conservation. If you go back and review the 1980 recession most of the cause was linked to inflation. During that past economic contraction OPEC and the oil companies doubled the price of oil in a time period of just two years (1979 & 1980). To release ourselves from the clutches of Middle East oil prices will not only help us reduce greenhouse gases, it will pay another benefit in making the need for military intervention less likely to be necessary. The end to Middle East military action would reduce our national spending by $300 billion. But the real benefit to energy conservation is at least two fold. First, it creates jobs…lots of them. Secondly, the energy saving puts more money in the pocket of consumers. The more customers you have and the more money they’re willing to spend the more money everyone makes. According to Mr. Pollin, there are about 24 billion square feet of public building (hospital, schools, & government offices). Retrofitting these offices with new energy conservation measures would cost about $150 billion. “If we assume this program is implemented over three years, at $50 billion per year, this would generate about 800,000 jobs PER YEAR over three years. These actions are an efficient source of job creation, since all the work must be done within local communities, and a large proportion of the budgets go to hiring workers, as opposed to buying equipment, land and energy.” That’s just the public side of retrofitting. The private side could offer even more of a catalyst for energy efficient retrofitting. Mr. Pollin estimates “the potential market for private retrofits for commercial and residential buildings is in the range of $650 billion. If even 20% of these buildings were retrofitted by the end of 2012, it would create another 800,000 jobs PER YEAR.” Not to mention the potential for job creation in building wind turbines, newly designed batteries for the renewable energies, electric cars, solar panels for both industry and residential use. The growing market for conservation and new green energies should put construction workers, and new technology workers back to work in droves. And the creation of jobs has a compounding effect…more people working requires more jobs to support their ancillary needs. This means more grocery store jobs, more department store jobs, more realtors, insurance agents, and more constructions jobs.
The creation of additional jobs by infrastructure building will create even more jobs while improving our roads, bridges, schools, and parks. The federal government shouldn’t be shy about helping state governments either. State governments, county governments, and municipalities make up about $2 TRILLION in annual spending…14% of the GDP according to Mr. Pollin. This occurs through purchasing and generating jobs…approximately 30 million jobs are either directly or indirectly related the state and city governments.
As you can see…there is plenty that both public spending and private spending can do to help us return to more normal economic times. Certainly tax incentives could be helpful…but, there is a significant lag to creating jobs with tax initiatives. In the meantime, we won’t get better unless we help ourselves. Deficit hawks have their place. In fact, it would have been nice to have them at the turn of the century. It would have been nice to have had a full throated debate about going to war in Iraq and imprudent tax cuts for the very rich. But, as I’ve mentioned before on this blog…being a deficit hawk during this time of deep recession is a bit like being a water conservationist while your house is on fire. Our first objective needs to be to get the unemployment down from the current rate of 9.7% to 4%. Once we achieved this we will be in an advantageous position to make spending corrections.
All this said…health care cannot be separated from our financial fate. We have got to cover everyone, and hold cost down. If you haven’t noticed…insurance companies are the problem not the solution. They add absolutely no value to the healthcare of our country and its people. They take 30% of the dollars paid into the companies in the way of premiums and spend it on lavish salaries for their executives, wasted expense on thousands of staff to serve no purpose other than denying claims, and then ridiculous profits. For that 30% that they take off the top…we get nothing. Not one person is treated, nor life saved. Medicare and Medicaid both have operating expenses of less than 3%. Doctors will also tell you that they have to spend unfruitful time, energy, and money on their staffs as well…to fight the insurance companies. This issue cannot be separated from our fiscal well being and it’s foolish to claim we can’t afford to fix the problem. The fact is…we can’t afford NOT to fix the problem.
If we use the best of capitalism and socialism we can be the better for it. After all…this is America, the greatest country on the face of the earth, the sole remaining superpower and the richest of all countries. We can hit from the right and the left. It’s silly not to fully utilize our societal skills.
Just as a switch hitter has those advantages…governments can take the same advantage by using the most advantageous points of view from the left and right too. Robert Pollin is a professor of economics from the University of Massachusetts and recently wrote an article for the Nation magazine, in the March 8, 2010 issue, with come suggestions for creating 18 million jobs in the next three years. A rather ambitious goal, but one we need to reach for if we want to right our ship. I’m quite sure he didn’t include every good idea out there…but, he does emphasize the need for the solutions to come from the left and the right, from private industry and government. The truth is they both create jobs.
One solution, in my opinion, is a more socialized perspective for health care. One disadvantage our private industry experiences with foreign competition is that health care is provided by governments in Japan, Germany, France, and China. Here in the United States every private business is competing with competitors abroad that have this huge advantage on them. It allows our competitors to provide a better value for the goods they sell to us because the cost of health care is not added to the wholesale cost of the foreign products we compete against. So, streamlining the healthcare system in our country by moving to a government run system would reap huge benefits for our capitalistic businesses. Of course, this can’t be accomplished in one fell swoop. It will require a prolonged transition period. Beginning with a government run “public option” health care choice would be a good first step. It seems obvious during the transition period this will surely bring the cost of health care down. The argument from the conservatives is that we can’t afford universal health care. They say we’ve got to control our spending and the only way to bring the “Great Recession” to a close is to curtail spending and reduce the federal deficit.
However, Mr. Pollin points out in his article that if we can bring the unemployment rate down to 4% that our troublesome national annual deficit will be extinguished. Our deficit will be a problem for us going forward and one that will not go away until we get back to employing people…lots of them. Right now about 15 million people are unemployed, and if we include the underemployed there are about 25 million people out of a workforce of 153 million workers. The only way to cure this unemployment tragedy is to release both public and private resources.
Banking reform is another important ingredient to curing the recession. Banks are currently sitting on about $850 billion in reserves, this just at the Federal Reserve. That money needs to be at work in the economy. Banks should be able to reduce those reserves to $200 billion without any adverse impact in Mr. Pollins estimation. You seen as late as 2007 banks only had $21 billion in cash reserves. This clearly explains the overreaction banks have had to the current crisis. We need that $650 billion loaned out at a reasonable rate to support both large and small businesses. I recently had lunch with one of my friends in the banking business who was lamenting about their own bank’s loan management rather than working out reasonable rates with troubled borrowers. Instead the banks management had been increasing the commercial loan rate to 8% and more for troubled borrowers. This is totally unreasonable and will do more harm than good in the long run. This kind of banking practice just keeps borrowers in trouble rather than helps them get back on track. This activity will also harm the bank in the long run…because it will keep the loan from returning to a current payment status and the bank will eventually have to charge off more and more principal from the loans that they handle in this irresponsible manner. There is not a need in this environment for commercial loans to be beyond 5% to 6%. Mr Pollin believes the Fed should push the business borrowing rates down to 3% to 4%. Anything beyond those rates is simply price gouging.
As money is released into the economy from the public and private sectors more jobs will be created and each 1% drop in the unemployment rate will generate an additional $90 billion in government revenues or reduced spending obligation according to Mr. Pollin. When jobs are lost the government loses revenue and is subject to additional spending to support the unemployed. Because when people get jobs they begin to support themselves (reducing the need for unemployment pay and food stamps) and they begin paying taxes.
Another way we can really help ourselves is to get serious about energy conservation. If you go back and review the 1980 recession most of the cause was linked to inflation. During that past economic contraction OPEC and the oil companies doubled the price of oil in a time period of just two years (1979 & 1980). To release ourselves from the clutches of Middle East oil prices will not only help us reduce greenhouse gases, it will pay another benefit in making the need for military intervention less likely to be necessary. The end to Middle East military action would reduce our national spending by $300 billion. But the real benefit to energy conservation is at least two fold. First, it creates jobs…lots of them. Secondly, the energy saving puts more money in the pocket of consumers. The more customers you have and the more money they’re willing to spend the more money everyone makes. According to Mr. Pollin, there are about 24 billion square feet of public building (hospital, schools, & government offices). Retrofitting these offices with new energy conservation measures would cost about $150 billion. “If we assume this program is implemented over three years, at $50 billion per year, this would generate about 800,000 jobs PER YEAR over three years. These actions are an efficient source of job creation, since all the work must be done within local communities, and a large proportion of the budgets go to hiring workers, as opposed to buying equipment, land and energy.” That’s just the public side of retrofitting. The private side could offer even more of a catalyst for energy efficient retrofitting. Mr. Pollin estimates “the potential market for private retrofits for commercial and residential buildings is in the range of $650 billion. If even 20% of these buildings were retrofitted by the end of 2012, it would create another 800,000 jobs PER YEAR.” Not to mention the potential for job creation in building wind turbines, newly designed batteries for the renewable energies, electric cars, solar panels for both industry and residential use. The growing market for conservation and new green energies should put construction workers, and new technology workers back to work in droves. And the creation of jobs has a compounding effect…more people working requires more jobs to support their ancillary needs. This means more grocery store jobs, more department store jobs, more realtors, insurance agents, and more constructions jobs.
The creation of additional jobs by infrastructure building will create even more jobs while improving our roads, bridges, schools, and parks. The federal government shouldn’t be shy about helping state governments either. State governments, county governments, and municipalities make up about $2 TRILLION in annual spending…14% of the GDP according to Mr. Pollin. This occurs through purchasing and generating jobs…approximately 30 million jobs are either directly or indirectly related the state and city governments.
As you can see…there is plenty that both public spending and private spending can do to help us return to more normal economic times. Certainly tax incentives could be helpful…but, there is a significant lag to creating jobs with tax initiatives. In the meantime, we won’t get better unless we help ourselves. Deficit hawks have their place. In fact, it would have been nice to have them at the turn of the century. It would have been nice to have had a full throated debate about going to war in Iraq and imprudent tax cuts for the very rich. But, as I’ve mentioned before on this blog…being a deficit hawk during this time of deep recession is a bit like being a water conservationist while your house is on fire. Our first objective needs to be to get the unemployment down from the current rate of 9.7% to 4%. Once we achieved this we will be in an advantageous position to make spending corrections.
All this said…health care cannot be separated from our financial fate. We have got to cover everyone, and hold cost down. If you haven’t noticed…insurance companies are the problem not the solution. They add absolutely no value to the healthcare of our country and its people. They take 30% of the dollars paid into the companies in the way of premiums and spend it on lavish salaries for their executives, wasted expense on thousands of staff to serve no purpose other than denying claims, and then ridiculous profits. For that 30% that they take off the top…we get nothing. Not one person is treated, nor life saved. Medicare and Medicaid both have operating expenses of less than 3%. Doctors will also tell you that they have to spend unfruitful time, energy, and money on their staffs as well…to fight the insurance companies. This issue cannot be separated from our fiscal well being and it’s foolish to claim we can’t afford to fix the problem. The fact is…we can’t afford NOT to fix the problem.
If we use the best of capitalism and socialism we can be the better for it. After all…this is America, the greatest country on the face of the earth, the sole remaining superpower and the richest of all countries. We can hit from the right and the left. It’s silly not to fully utilize our societal skills.
Thursday, February 18, 2010
CLIMATE CHANGE
Since those of us with roots in Oklahoma and Texas must deal with the insanity of elected representatives who would have fit more aptly in the 15th Century rather than the 21st, we must deal with the notorious blathering of the notion of “climate change being a hoax” (by Senator James Inhofe) or the necessity of the Governor of Texas to sue the Environmental Protection Agency for regulating carbon emissions. Last November, the emails of several top climate scientists were hacked and published. Climate deniers seized upon a handful of quotes as evidence that man-made global warming is actually in doubt in the scientific community. However, several independent investigations have concluded that the emails in no way casts doubt on the overwhelming, decades-long scientific research and the reality of climate change.
In case your friends who have an allergy to intellect and scientific research, I provide the accumulation below for you to offer our friends in denial. And, one additional thing…let’s just say the deniers are correct…wouldn’t it still make sense to develop cleaner sources of energy because we have to breath the air we pollute. Maybe you should suggest to your friends who doubt the damage done by greenhouse emissions that you would be better convinced if they would just hook up a plastic tube to one of their carbon emitting cars and breathe that air directly into their lungs for a week or two. I’m just guessing none of them will be bending over to wrap their lips around the exhaust pipe of their car to prove the point to you. This said…wouldn’t that be great if all the talent of FOX (so called) News and Rush Limbaugh would prove this point to us. Just think…Fox and the Excellence in Broadcast Network (Rush’s broadcast flagship) could just pump car exhaust right into the studios for the next year. Shoot, if they’d do that I be really convinced they believed what they said.
Now…here’s the claims and the responses to those claims.
#1 CLAIM: Scientists have manipulated data.
Skeptics have been pointing to an email from scientist Phil Jones where he said he used a "trick" with his data. As climate expert Bob Ward writes, "Scientists say 'trick' not just to mean deception. They mean it as a clever way of doing something -- a short cut can be a trick." RealClimate also explained that "the 'trick' is just to plot the instrumental records along with reconstruction so that the context of the recent warming is clear. Scientists often use the term 'trick' to refer to ... 'a good way to deal with a problem', rather than something that is 'secret', and so there is nothing problematic in this at all."
#2 CLAIM: Scientists had private doubts about whether the world really is heating up.
TRUTH: Combing through over a decade of personal correspondence, which is then taken out of context can seem to prove just about anything. Skeptics have been pointing to one email from Kevin Trenberth, in which he said, "The fact is that we can't account for the lack of warming at the moment and it is a travesty that we can't." However, this is clear example of cherry picking quotes. Trenberth was referring to hat there was an "incomplete explanation" of the short-term variability of temperatures, but concludes that "global warming is unequivocally happening."
#3 CLAIM: These scientists worked to suppress evidence and deleted emails.
TRUTH: Thousands of emails from over 13 years were stolen, and edited, and have been taken out of context for those with a political agenda. As blogger Jeff Masters writes,
"Even if every bit of mud slung at these scientists were true, the body of scientific work supporting the theory of human-caused climate change—which spans hundreds of thousands of scientific papers written by tens of thousands of scientists in dozens of different scientific disciplines—is too vast to be budged by the flaws in the works of the three or four scientists being subject to the fiercest attacks."
As climate czar Carol Browner says, "I'm sticking with the 2,500 scientists [of the Intergovernmental Panel on Climate Change.] These people have been studying this issue for a very long time and agree this problem is real."
#4 CLAIM: Scientists have been working to remove skeptical peers from the climate discussion.
TRUTH: Organization politics, disagreement and strife are hardly foreign ideas in university, research and scientific communities. As the blog run by climate scientists Real Climate writes, "Since emails are normally intended to be private, people writing them are, shall we say, somewhat freer in expressing themselves than they would in a public statement." Again, this does not remotely prove any sort of cover-up, and the critiques of these papers were made and debated by scientists PUBLICLY, but perhaps less bluntly than they were stated in the emails. (Here's what the "infamous" line about keeping people out and peer review was ACCTUALLY about.)
#5 CLAIM: These emails are the final nail in the coffin for the idea that humans cause global warming.
TRUTH: If the denier's wildest claims were true that are bantered around throughout the Internet, wouldn't nearly 15 years of emails ACTUALLY SHOW some of these insipid rumors to be true?
More from Real Climate: "More interesting is what is not contained in the emails. There is no evidence of any worldwide conspiracy, no mention of George Soros nefariously funding climate research, no grand plan to ‘get rid of the MWP’, no admission that global warming is a hoax, no evidence of the falsifying of data, and no ‘marching orders’ from our socialist/communist/vegetarian overlords. The truly paranoid will put this down to the hackers also being in on the plot though."
#6 CLAIM: This reignites the debate about if global warming is real.
TRUTH: There is strong consensus in scientific community that global warming is real and is caused by humans. The top scientists in the world have just released a new report on the realities of global warming. Kevin Grandia summarizes some of the key points about emissions, melting ice sheets, and rising sea levels. The emails don't change any of this reality.
In case your friends who have an allergy to intellect and scientific research, I provide the accumulation below for you to offer our friends in denial. And, one additional thing…let’s just say the deniers are correct…wouldn’t it still make sense to develop cleaner sources of energy because we have to breath the air we pollute. Maybe you should suggest to your friends who doubt the damage done by greenhouse emissions that you would be better convinced if they would just hook up a plastic tube to one of their carbon emitting cars and breathe that air directly into their lungs for a week or two. I’m just guessing none of them will be bending over to wrap their lips around the exhaust pipe of their car to prove the point to you. This said…wouldn’t that be great if all the talent of FOX (so called) News and Rush Limbaugh would prove this point to us. Just think…Fox and the Excellence in Broadcast Network (Rush’s broadcast flagship) could just pump car exhaust right into the studios for the next year. Shoot, if they’d do that I be really convinced they believed what they said.
Now…here’s the claims and the responses to those claims.
#1 CLAIM: Scientists have manipulated data.
Skeptics have been pointing to an email from scientist Phil Jones where he said he used a "trick" with his data. As climate expert Bob Ward writes, "Scientists say 'trick' not just to mean deception. They mean it as a clever way of doing something -- a short cut can be a trick." RealClimate also explained that "the 'trick' is just to plot the instrumental records along with reconstruction so that the context of the recent warming is clear. Scientists often use the term 'trick' to refer to ... 'a good way to deal with a problem', rather than something that is 'secret', and so there is nothing problematic in this at all."
#2 CLAIM: Scientists had private doubts about whether the world really is heating up.
TRUTH: Combing through over a decade of personal correspondence, which is then taken out of context can seem to prove just about anything. Skeptics have been pointing to one email from Kevin Trenberth, in which he said, "The fact is that we can't account for the lack of warming at the moment and it is a travesty that we can't." However, this is clear example of cherry picking quotes. Trenberth was referring to hat there was an "incomplete explanation" of the short-term variability of temperatures, but concludes that "global warming is unequivocally happening."
#3 CLAIM: These scientists worked to suppress evidence and deleted emails.
TRUTH: Thousands of emails from over 13 years were stolen, and edited, and have been taken out of context for those with a political agenda. As blogger Jeff Masters writes,
"Even if every bit of mud slung at these scientists were true, the body of scientific work supporting the theory of human-caused climate change—which spans hundreds of thousands of scientific papers written by tens of thousands of scientists in dozens of different scientific disciplines—is too vast to be budged by the flaws in the works of the three or four scientists being subject to the fiercest attacks."
As climate czar Carol Browner says, "I'm sticking with the 2,500 scientists [of the Intergovernmental Panel on Climate Change.] These people have been studying this issue for a very long time and agree this problem is real."
#4 CLAIM: Scientists have been working to remove skeptical peers from the climate discussion.
TRUTH: Organization politics, disagreement and strife are hardly foreign ideas in university, research and scientific communities. As the blog run by climate scientists Real Climate writes, "Since emails are normally intended to be private, people writing them are, shall we say, somewhat freer in expressing themselves than they would in a public statement." Again, this does not remotely prove any sort of cover-up, and the critiques of these papers were made and debated by scientists PUBLICLY, but perhaps less bluntly than they were stated in the emails. (Here's what the "infamous" line about keeping people out and peer review was ACCTUALLY about.)
#5 CLAIM: These emails are the final nail in the coffin for the idea that humans cause global warming.
TRUTH: If the denier's wildest claims were true that are bantered around throughout the Internet, wouldn't nearly 15 years of emails ACTUALLY SHOW some of these insipid rumors to be true?
More from Real Climate: "More interesting is what is not contained in the emails. There is no evidence of any worldwide conspiracy, no mention of George Soros nefariously funding climate research, no grand plan to ‘get rid of the MWP’, no admission that global warming is a hoax, no evidence of the falsifying of data, and no ‘marching orders’ from our socialist/communist/vegetarian overlords. The truly paranoid will put this down to the hackers also being in on the plot though."
#6 CLAIM: This reignites the debate about if global warming is real.
TRUTH: There is strong consensus in scientific community that global warming is real and is caused by humans. The top scientists in the world have just released a new report on the realities of global warming. Kevin Grandia summarizes some of the key points about emissions, melting ice sheets, and rising sea levels. The emails don't change any of this reality.
Sunday, February 7, 2010
A MUST READ FROM THE NEW YORK TIMES
I wouldn’t normally reprint an entire editorial, or article of any kind on this blog. But, Sunday’s New York Times Editorial I think is a must read for anyone who really wants to understand the recession along with the political difficulty of addressing our economic destination going forward. I agree with everything in the article, save the suggestion at the end of the editorial.
This suggestion seems harsh to me to the most fragile among us…the very oldest beneficiaries of social security. I don’t think our society should tolerate a penalty for living long. However, other than that suggestion by the times I think this is a lengthy article…but, a short primer for economics.
February 7, 2010
Editorial
The Truth About the Deficit
When the White House released its new budget last week, including more spending to create desperately needed jobs, Republican leaders in Congress denounced President Obama for driving up the deficit and demanded that the Democrats halt their “reckless” ways.
The deficit numbers — a projected $1.3 trillion in fiscal 2011 alone — are breathtaking. What is even more breathtaking is the Republicans’ cynical refusal to acknowledge that the country would never have gotten into so deep a hole if President George W. Bush and the Republican-led Congress had not spent years slashing taxes — mainly on the wealthy — and spending with far too little restraint. Unfortunately, the problem does not stop there.
The Republican amnesia and posturing are playing well on the hustings, where Americans are deeply anxious about the economy and fearful of losing their jobs and homes. Far too many Democratic lawmakers are losing their nerve.
Americans should be anxious, for reasons including the huge deficit. But the cold economic truth is this: At a time of high unemployment and fragile growth, the last thing the government should do is to slash spending. That will only drive the economy into deeper trouble.
None of this means that the politicians — from either party — are off the hook. They will soon need to make hard decisions about how to reduce the deficit. But more posturing and sniping is not going to make the economy better or solve the deficit problem. President Obama has called on the Republicans to join a bipartisan commission to help make those tough decisions, but they have been resistant to the proposal.
•
We fear the demagoguing is not going to stop, especially with Congressional elections this November. As the budget debate plays out, here are some basic facts about the deficit that Americans need to consider:
HOW DID WE GET HERE? When President Bush took office in 2001, the federal budget had been in the black for three years, and continued surpluses were projected for a decade to come.
By the time Mr. Bush left office in early 2009, the government had run big deficits for seven straight years, and the economy was on the brink of another Great Depression. On Jan. 7, 2009 — two weeks before Mr. Obama was inaugurated — the Congressional Budget Office issued new budget estimates showing a fiscal year 2009 deficit of well over $1 trillion.
About half of today’s huge deficits can be chalked up to Bush-era profligacy: mainly cutting taxes deeply while borrowing to wage two wars and to enact the Medicare prescription drug benefit — all of which Republicans supported, virtually in lockstep.
The other half of recent deficits is due to the recession and the financial crisis.
To avoid a meltdown, the government — under President Bush and President Obama — rightly decided it had no choice but to spend hundreds of billions of dollars to bail out banks and car companies and to stimulate the economy. That prevented a very bad situation from becoming much worse, but as the recession dragged on, hundreds of billions in tax revenues have also dried up.
As for why the financial system and the economy imploded, President Bush and Congress deserve much of the blame for their devotion to debt-driven growth and blind deregulatory zeal — although on deregulation, President Clinton and his team (some of whom are back in the White House) were also complicit.
Were it not for those multiple calamities, budget deficits today would be negligible. That does not mean we would be off the hook. An aging population and relentlessly rising health care costs will hit the country with even deeper deficits as the baby boomers retire. Politicians need to pass health care reform now and start thinking seriously about Social Security and tax reform.
So what are the immediate fiscal lessons here? The first lesson is that spending without taxing is a recipe for huge deficits, and that running big deficits when the economy is expanding only sets the country up for bigger deficits when the economy contracts. The second lesson is that once a deep recession takes hold, slashing government spending is not going to solve the problem. It will only make it worse.
WHAT CAN BE DONE NOW? Here is an unpopular but undeniable fact of life: When private sector demand is weak, the federal government must serve as the spender of last resort. Otherwise, collapsing demand sets in motion a negative, self-reinforcing spiral in which lack of demand — for goods, services and new employees — leads to ever deepening economic weakness.
That is why when the banks and the economy began to crumble in 2008, President Bush responded with a $700 billion bank bailout and a $168 billion stimulus package. When Mr. Obama took office, the banks were still shaky and the economy was still plunging— as measured by real-life indicators like jobs, consumer spending, credit availability, home equity, retirement savings and business confidence. The new administration made the sound decision to continue the bailout and pushed a $787 billion stimulus through Congress, with very little Republican help.
The stimulus package slowed job losses and helped spur activity — in the third quarter of 2009, the economy grew at an annual rate of 2.2 percent, and the initial fourth-quarter reading was 5.7 percent, a rebound few thought possible a year ago.
Still, without a jobs revival to boost consumer spending and tax revenues — and with the states facing immense budget shortfalls — the economy is unlikely to do anything other than limp along, at best, once the effects of the stimulus fade this year.
In his recent budget, Mr. Obama proposed to spend $266 billion on tax credits for hiring and new job-creation investments, and on other short-term stimulus including extended unemployment compensation. That would improve on the House-passed $154 billion jobs bill. But in the Senate, Republicans are balking at the prospect of a big bill, saying they need to hold down the deficit. They have spooked the Democrats, who are now trying to negotiate what appears to be a far too modest bill in hopes of winning Republican support.
What they should be saying — and what the White House should be saying a lot louder — is that a prolonged downturn or a renewed recession would do far more damage to the budget than upfront deficit spending. In fact, a clear lesson from the Depression of the 1930s is that reducing deficits at a time of economic fragility undercuts recovery.
SO DO WE JUST LIVE WITH THE DEFICIT? The problem must be addressed. Persistently high deficits are harmful to the economy and the country’s long-run security.
If the government must keep borrowing to make up the difference, it could drive up interest rates and force private companies to compete with the government for investors. That, in turn, would reduce economic growth and, by extension, the potential earnings — and standard of living — of everyone.
The process is generally gradual. But it could be wrenching if creditors lose confidence that the government will ever put its fiscal house in order and suddenly decide to put their money elsewhere. That could lead to a fiscal crisis, with sharp spikes in interest rates and a rapidly depreciating currency.
There is no question that, over the next several decades, deficits and debt in the United States are headed for dangerously high levels. But today’s deficit fearmongers invariably fail to note that the impact of stimulus spending on the long-term fiscal problem is small, because the spending is temporary.
The real problem, which also goes unmentioned, is that dangerous deficits will accumulate over time if continuing trends and policies — especially in health care — persist unchanged.
SO HOW DO WE FIX IT? Mr. Obama’s budget makes a down payment on deficit reduction by freezing some nonsecurity discretionary spending for three years, and by letting the Bush tax cuts for the richest Americans expire at the end of this year.
To truly tame deficits will require serious health care reform, the sooner the better. Other aspects of the long-term fiscal problem — raising taxes and retooling Social Security — must take place in earnest as the economy recovers.
Contrary to popular belief, there are many well-thought-out ideas for such reforms. Where technical questions are difficult, particularly on health care costs, reformers have advocated demonstration projects that can be tested over time. Where the real difficulty lies is summoning the political will to do what must be done, even though it will be unpopular.
If these problems are not addressed, here is what we face: Under current policies, federal debt in the United States — the sum total of annual deficits — would grow from 53 percent of the size of the economy in 2009 to more than 300 percent by 2050, driven mainly by rapidly rising health care costs and, in part, by the aging of the population. Combined, those two factors exert enormous pressure on the government’s biggest spending programs, Medicare and Medicaid, and, to a lesser extent, Social Security.
Unless health care costs are controlled, there is no way to solve the country’s long-term deficit and debt problems.
But that will not be enough. Broad tax reform is also essential to ensure that revenues keep pace with expenditures. From 1978 to 2008, revenues averaged about 18.4 percent of the economy. But without policy changes, expenditures for everything other than interest on the national debt will increase from 19.2 percent of the size of the economy in 2008 to 24.5 percent in 2050.
On the need for more taxes, Mr. Obama has been less than candid, pledging never to raise taxes on anyone making less than $250,000. Republican lawmakers have been worse, calling for tax cuts at most every opportunity — and never acknowledging that a shortfall in revenue is one of the important causes of the deficit.
The deficit commission that Mr. Obama intends to establish could be helpful in breaking this logjam, by calling for necessary changes that politicians would be loath to broach without political cover.
We hope that health care reform will move ahead before that. If it does, the commission will still have to press for new taxes that both raise revenue and broaden the tax base, including a value added tax.
And then there is Social Security. What is needed is a combination of benefit cuts and tax increases that preserve the program’s essential nature — a contract under which the young support the old via taxes and the rich help the poor via a benefits formula that favors low- income beneficiaries. One sound approach would be to link benefit levels to life expectancy, so that as people live longer, future benefits would be modestly reduced while payroll taxes that support Social Security would be modestly increased.
•
There is no way to get deficits under control until our political leaders are willing to acknowledge difficult truths and make even more difficult political choices. We have heard and seen too little of that from the Democrats lately, and none at all from the Republicans. That is truly a recipe for disaster.
This suggestion seems harsh to me to the most fragile among us…the very oldest beneficiaries of social security. I don’t think our society should tolerate a penalty for living long. However, other than that suggestion by the times I think this is a lengthy article…but, a short primer for economics.
February 7, 2010
Editorial
The Truth About the Deficit
When the White House released its new budget last week, including more spending to create desperately needed jobs, Republican leaders in Congress denounced President Obama for driving up the deficit and demanded that the Democrats halt their “reckless” ways.
The deficit numbers — a projected $1.3 trillion in fiscal 2011 alone — are breathtaking. What is even more breathtaking is the Republicans’ cynical refusal to acknowledge that the country would never have gotten into so deep a hole if President George W. Bush and the Republican-led Congress had not spent years slashing taxes — mainly on the wealthy — and spending with far too little restraint. Unfortunately, the problem does not stop there.
The Republican amnesia and posturing are playing well on the hustings, where Americans are deeply anxious about the economy and fearful of losing their jobs and homes. Far too many Democratic lawmakers are losing their nerve.
Americans should be anxious, for reasons including the huge deficit. But the cold economic truth is this: At a time of high unemployment and fragile growth, the last thing the government should do is to slash spending. That will only drive the economy into deeper trouble.
None of this means that the politicians — from either party — are off the hook. They will soon need to make hard decisions about how to reduce the deficit. But more posturing and sniping is not going to make the economy better or solve the deficit problem. President Obama has called on the Republicans to join a bipartisan commission to help make those tough decisions, but they have been resistant to the proposal.
•
We fear the demagoguing is not going to stop, especially with Congressional elections this November. As the budget debate plays out, here are some basic facts about the deficit that Americans need to consider:
HOW DID WE GET HERE? When President Bush took office in 2001, the federal budget had been in the black for three years, and continued surpluses were projected for a decade to come.
By the time Mr. Bush left office in early 2009, the government had run big deficits for seven straight years, and the economy was on the brink of another Great Depression. On Jan. 7, 2009 — two weeks before Mr. Obama was inaugurated — the Congressional Budget Office issued new budget estimates showing a fiscal year 2009 deficit of well over $1 trillion.
About half of today’s huge deficits can be chalked up to Bush-era profligacy: mainly cutting taxes deeply while borrowing to wage two wars and to enact the Medicare prescription drug benefit — all of which Republicans supported, virtually in lockstep.
The other half of recent deficits is due to the recession and the financial crisis.
To avoid a meltdown, the government — under President Bush and President Obama — rightly decided it had no choice but to spend hundreds of billions of dollars to bail out banks and car companies and to stimulate the economy. That prevented a very bad situation from becoming much worse, but as the recession dragged on, hundreds of billions in tax revenues have also dried up.
As for why the financial system and the economy imploded, President Bush and Congress deserve much of the blame for their devotion to debt-driven growth and blind deregulatory zeal — although on deregulation, President Clinton and his team (some of whom are back in the White House) were also complicit.
Were it not for those multiple calamities, budget deficits today would be negligible. That does not mean we would be off the hook. An aging population and relentlessly rising health care costs will hit the country with even deeper deficits as the baby boomers retire. Politicians need to pass health care reform now and start thinking seriously about Social Security and tax reform.
So what are the immediate fiscal lessons here? The first lesson is that spending without taxing is a recipe for huge deficits, and that running big deficits when the economy is expanding only sets the country up for bigger deficits when the economy contracts. The second lesson is that once a deep recession takes hold, slashing government spending is not going to solve the problem. It will only make it worse.
WHAT CAN BE DONE NOW? Here is an unpopular but undeniable fact of life: When private sector demand is weak, the federal government must serve as the spender of last resort. Otherwise, collapsing demand sets in motion a negative, self-reinforcing spiral in which lack of demand — for goods, services and new employees — leads to ever deepening economic weakness.
That is why when the banks and the economy began to crumble in 2008, President Bush responded with a $700 billion bank bailout and a $168 billion stimulus package. When Mr. Obama took office, the banks were still shaky and the economy was still plunging— as measured by real-life indicators like jobs, consumer spending, credit availability, home equity, retirement savings and business confidence. The new administration made the sound decision to continue the bailout and pushed a $787 billion stimulus through Congress, with very little Republican help.
The stimulus package slowed job losses and helped spur activity — in the third quarter of 2009, the economy grew at an annual rate of 2.2 percent, and the initial fourth-quarter reading was 5.7 percent, a rebound few thought possible a year ago.
Still, without a jobs revival to boost consumer spending and tax revenues — and with the states facing immense budget shortfalls — the economy is unlikely to do anything other than limp along, at best, once the effects of the stimulus fade this year.
In his recent budget, Mr. Obama proposed to spend $266 billion on tax credits for hiring and new job-creation investments, and on other short-term stimulus including extended unemployment compensation. That would improve on the House-passed $154 billion jobs bill. But in the Senate, Republicans are balking at the prospect of a big bill, saying they need to hold down the deficit. They have spooked the Democrats, who are now trying to negotiate what appears to be a far too modest bill in hopes of winning Republican support.
What they should be saying — and what the White House should be saying a lot louder — is that a prolonged downturn or a renewed recession would do far more damage to the budget than upfront deficit spending. In fact, a clear lesson from the Depression of the 1930s is that reducing deficits at a time of economic fragility undercuts recovery.
SO DO WE JUST LIVE WITH THE DEFICIT? The problem must be addressed. Persistently high deficits are harmful to the economy and the country’s long-run security.
If the government must keep borrowing to make up the difference, it could drive up interest rates and force private companies to compete with the government for investors. That, in turn, would reduce economic growth and, by extension, the potential earnings — and standard of living — of everyone.
The process is generally gradual. But it could be wrenching if creditors lose confidence that the government will ever put its fiscal house in order and suddenly decide to put their money elsewhere. That could lead to a fiscal crisis, with sharp spikes in interest rates and a rapidly depreciating currency.
There is no question that, over the next several decades, deficits and debt in the United States are headed for dangerously high levels. But today’s deficit fearmongers invariably fail to note that the impact of stimulus spending on the long-term fiscal problem is small, because the spending is temporary.
The real problem, which also goes unmentioned, is that dangerous deficits will accumulate over time if continuing trends and policies — especially in health care — persist unchanged.
SO HOW DO WE FIX IT? Mr. Obama’s budget makes a down payment on deficit reduction by freezing some nonsecurity discretionary spending for three years, and by letting the Bush tax cuts for the richest Americans expire at the end of this year.
To truly tame deficits will require serious health care reform, the sooner the better. Other aspects of the long-term fiscal problem — raising taxes and retooling Social Security — must take place in earnest as the economy recovers.
Contrary to popular belief, there are many well-thought-out ideas for such reforms. Where technical questions are difficult, particularly on health care costs, reformers have advocated demonstration projects that can be tested over time. Where the real difficulty lies is summoning the political will to do what must be done, even though it will be unpopular.
If these problems are not addressed, here is what we face: Under current policies, federal debt in the United States — the sum total of annual deficits — would grow from 53 percent of the size of the economy in 2009 to more than 300 percent by 2050, driven mainly by rapidly rising health care costs and, in part, by the aging of the population. Combined, those two factors exert enormous pressure on the government’s biggest spending programs, Medicare and Medicaid, and, to a lesser extent, Social Security.
Unless health care costs are controlled, there is no way to solve the country’s long-term deficit and debt problems.
But that will not be enough. Broad tax reform is also essential to ensure that revenues keep pace with expenditures. From 1978 to 2008, revenues averaged about 18.4 percent of the economy. But without policy changes, expenditures for everything other than interest on the national debt will increase from 19.2 percent of the size of the economy in 2008 to 24.5 percent in 2050.
On the need for more taxes, Mr. Obama has been less than candid, pledging never to raise taxes on anyone making less than $250,000. Republican lawmakers have been worse, calling for tax cuts at most every opportunity — and never acknowledging that a shortfall in revenue is one of the important causes of the deficit.
The deficit commission that Mr. Obama intends to establish could be helpful in breaking this logjam, by calling for necessary changes that politicians would be loath to broach without political cover.
We hope that health care reform will move ahead before that. If it does, the commission will still have to press for new taxes that both raise revenue and broaden the tax base, including a value added tax.
And then there is Social Security. What is needed is a combination of benefit cuts and tax increases that preserve the program’s essential nature — a contract under which the young support the old via taxes and the rich help the poor via a benefits formula that favors low- income beneficiaries. One sound approach would be to link benefit levels to life expectancy, so that as people live longer, future benefits would be modestly reduced while payroll taxes that support Social Security would be modestly increased.
•
There is no way to get deficits under control until our political leaders are willing to acknowledge difficult truths and make even more difficult political choices. We have heard and seen too little of that from the Democrats lately, and none at all from the Republicans. That is truly a recipe for disaster.
Monday, February 1, 2010
BANKING REFORM – FACT VS FRAMING FICTION
The House and Senate Republicans are about to wage war against financial regulatory reform. Here’s your chance to know exactly what they are up to and why regulatory reform, if not enacted, will result in another financial meltdown with the results growing substantially more critical with each crisis.
We should have learned our lesson in the financial crisis in the eighties…but, we went right ahead with the notion that if we continued to de-regulate the financial institutions we would all be the better for it. However, the financial institutions saw it a different way. They saw it as their chance to make huge profits for themselves believing you, as an ordinary American citizen, would be happy eating the crumbs off the table. Well…in the end they put us all at risk. And, remember this if you don’t remember anything else…you, the ordinary American citizen, had to bail their sorry asses out. Then, to show their gratitude, they closed their lending window and returned to their overpaid bonuses without a grain of remorse.
Large Wall Street commercial banks and investment banks find it far easier to make a few big loans than a lot of small loans. But, also remember this. If you owe the bank, say, one hundred thousand dollars, they own you…but, if you owe the bank 100 billion dollars you own them. So, you can see who gets the upper hand. However, the fact is, if you originate a lot of small loans that also circulates money to customers who in turn use it to start new business, buy cars, furniture and goods that will pick up the economy. The economy is not and never has been a trickle down process…it’s always been a ground swell process.
Today, Paul Krugman, wrote about the model we should follow if we want stability in the financial markets, and Frank Luntz (a Republican wordsmith) issued a memo to Republicans on how to game the frame game by confusing you with language.
Here’s Luntz argument as written by Sam Stein in the Huffington Post.
“Nine months after he penned a memo laying out the arguments for health care legislation's destruction, Republican message guru Frank Luntz has put together a playbook to help derail financial regulatory reform.
In a 17-page memo titled, "The Language of Financial Reform," Luntz urged opponents of reform to frame the final product as filled with bank bailouts, lobbyist loopholes, and additional layers of complicated government bureaucracy.
"If there is one thing we can all agree on, it's that the bad decisions and harmful policies by Washington bureaucrats that in many ways led to the economic crash must never be repeated," Luntz wrote. "This is your critical advantage. Washington's incompetence is the common ground on which you can build support."
Luntz continued: "Ordinarily, calling for a new government program 'to protect consumers' would be extraordinary popular. But these are not ordinary times. The American people are not just saying 'no.' They are saying 'hell no' to more government agencies, more bureaucrats, and more legislation crafted by special interests."
In Republican circles Luntz's words, which have helped the party score win the message wars over health care and other legislative battles, are often treated as gospel. Already, some of the advice he's offered on regulatory reform has found its way into the political discourse -- with a proposed Consumer Financial Protection Agency seemingly on life support under Republican objections.
In addition to tying regulatory reform to a massive government takeover, Luntz's memo includes several other data points and messaging suggestions as a blue print for the legislation's defeat. Opponents, he writes, would be well served to link the package to the financial industry bailout (which, it should be noted, is fundamentally not part of the legislation). According to accompanying polling data, 52 percent of voters said they would be "much less likely" to vote for their member of Congress if they voted for a financial reform bill that contained a fund to bail out banks and Wall Street.
"Public outrage about the bailout of banks and Wall Street is a simmering time bomb set to go off on Election Day," Luntz wrote. "Frankly, the single best way to kill any legislation is to link it to the Big Bank Bailout."
Another effective strategy to kill the bill, according to Luntz, is to make the case that it was written in secret by lobbyists.
"The American people are tired of add-ons, earmarks, and backroom deals - but they are mad as hell at 'lobbyist loopholes,'" Luntz wrote. "You must put proponents of the legislation on the defense, forcing them to attempt to justify the 'lobbyist loopholes' and exemptions placed in the bill... Highlight the exemptions. Broadcast them. Remind them, 'The legislation is filled with lobbyist loopholes that exclude certain wealthy, powerful industries from regulations.'"
On the specific issue of a Consumer Financial Protection Agency, Luntz argued that opponents should stress the high-cost of creating an additional regulatory body in addition to the damaging effects it will supposedly have on "small business owners" (as opposed to, merely, small businesses).
"Owning a small business is part of the American Dream and Congress should make it easier to be an entrepreneur," wrote Luntz. "But the Financial Reform bill and the creation of the CFPA makes it harder to be a small business owner because it will choke off credit options to small business owners."
These lines or arguments are similar to the ones used by regulatory reform opponents in the past, often with some success. What's telling is that they are being trotted out again in this type of economic environment.
Luntz does seem to acknowledge that the climate makes defeating regulatory reform a bit trickier. At the top of his memo he urges opponents (primarily Republican lawmakers) to "acknowledge the need for reform that ensures this NEVER happens again," He insists that "the status quo is not an option" and that members of Congress, when addressing the crisis, "never forget its impact on your audience." Luntz even advise his audience to promote themselves the agents of change.
But for the sake of winning the debate, he adds, it is vital to insist that such change does not include additional Washington-based regulatory powers.
"Many of the same members of Congress responsible for the legislation that helped create the housing bubble and the Wall Street financial crisis are now attempting to create another new government agency with an unlimited budget and almost unlimited regulatory powers," wrote the GOP wordsith. "I'm sorry to say this but they don't know what they're doing. They have gotten it wrong time and time again..."
"A new agency with new bureaucrats is not change we can believe in," Luntz wrote. "It's not change at all."”
So Luntz argument is founded on the use of words…not the facts or the danger of neglecting to fix what is wrong about the financial regulatory system.
However, Paul Krugman, in his Op-Ed article in the New York Times February 1 issue, notes the success of dealing with the financial crisis in Canada, an economy much like our own, and the success which can be factually measured there.
Mr Krugman writes, “Over the past decade the United States and Canada faced the same global environment. Both were confronted with the same flood of cheap goods and cheap money from Asia. Economists in both countries cheerfully declared that the era of severe recessions was over.
But when things fell apart, the consequences were very different here and there. In the United States, mortgage defaults soared, some major financial institutions collapsed, and others survived only thanks to huge government bailouts. In Canada, none of that happened. What did the Canadians do differently?
It wasn’t interest rate policy. Many commentators have blamed the Federal Reserve for the financial crisis, claiming that the Fed created a disastrous bubble by keeping interest rates too low for too long. But Canadian interest rates have tracked U.S. rates quite closely, so it seems that low rates aren’t enough by themselves to produce a financial crisis.”
Canada’s experience does seem to support the views of people like Elizabeth Warren, the head of the Congressional panel overseeing the bank bailout, who place much of the blame for the crisis on failure to protect consumers from deceptive lending. Canada has an independent Financial Consumer Agency, and it has sharply restricted subprime-type lending.
Above all, Canada’s experience seems to support those who say that the way to keep banking safe is to keep it boring — that is, to limit the extent to which banks can take on risk. The United States used to have a boring banking system, but Reagan-era deregulation made things dangerously interesting. Canada, by contrast, has maintained a happy tedium.
More specifically, Canada has been much stricter about limiting banks’ leverage, the extent to which they can rely on borrowed funds. It has also limited the process of securitization, in which banks package and resell claims on their loans outstanding — a process that was supposed to help banks reduce their risk by spreading it, but has turned out in practice to be a way for banks to make ever-bigger wagers with other people’s money.
There’s no question that in recent years these restrictions meant fewer opportunities for bankers to come up with clever ideas than would have been available if Canada had emulated America’s deregulatory zeal. But that, it turns out, was all to the good.
So what are the chances that the United States will learn from Canada’s success?
Actually, the financial reform bill that the House of Representatives passed in December would significantly Canadianize the U.S. system. It would create an independent Consumer Financial Protection Agency, it would establish limits on leverage, and it would limit securitization by requiring that lenders hold on to some of their loans.
…there’s a good chance that we’ll do nothing, or nothing much, to prevent future banking crises. But it won’t be because we don’t know what to do: we’ve got a clear example of how to keep banking safe sitting right next door.”
Don’t be fooled by conservative strategist whose true loyalty lies to Wall Street’s biggest commercial banks and investment banks. The truth is these folks are lazy. You see…it takes a great deal more effort to make a lot of small loans than it does to make one great big one. But, the small loans to small businesses are the life blood of a democratic capitalistic system. Create more customers and the result is a robust economy for small and large businesses alike. Catering to only wealthy will eventually strangle the life out of rich and poor alike.
We should have learned our lesson in the financial crisis in the eighties…but, we went right ahead with the notion that if we continued to de-regulate the financial institutions we would all be the better for it. However, the financial institutions saw it a different way. They saw it as their chance to make huge profits for themselves believing you, as an ordinary American citizen, would be happy eating the crumbs off the table. Well…in the end they put us all at risk. And, remember this if you don’t remember anything else…you, the ordinary American citizen, had to bail their sorry asses out. Then, to show their gratitude, they closed their lending window and returned to their overpaid bonuses without a grain of remorse.
Large Wall Street commercial banks and investment banks find it far easier to make a few big loans than a lot of small loans. But, also remember this. If you owe the bank, say, one hundred thousand dollars, they own you…but, if you owe the bank 100 billion dollars you own them. So, you can see who gets the upper hand. However, the fact is, if you originate a lot of small loans that also circulates money to customers who in turn use it to start new business, buy cars, furniture and goods that will pick up the economy. The economy is not and never has been a trickle down process…it’s always been a ground swell process.
Today, Paul Krugman, wrote about the model we should follow if we want stability in the financial markets, and Frank Luntz (a Republican wordsmith) issued a memo to Republicans on how to game the frame game by confusing you with language.
Here’s Luntz argument as written by Sam Stein in the Huffington Post.
“Nine months after he penned a memo laying out the arguments for health care legislation's destruction, Republican message guru Frank Luntz has put together a playbook to help derail financial regulatory reform.
In a 17-page memo titled, "The Language of Financial Reform," Luntz urged opponents of reform to frame the final product as filled with bank bailouts, lobbyist loopholes, and additional layers of complicated government bureaucracy.
"If there is one thing we can all agree on, it's that the bad decisions and harmful policies by Washington bureaucrats that in many ways led to the economic crash must never be repeated," Luntz wrote. "This is your critical advantage. Washington's incompetence is the common ground on which you can build support."
Luntz continued: "Ordinarily, calling for a new government program 'to protect consumers' would be extraordinary popular. But these are not ordinary times. The American people are not just saying 'no.' They are saying 'hell no' to more government agencies, more bureaucrats, and more legislation crafted by special interests."
In Republican circles Luntz's words, which have helped the party score win the message wars over health care and other legislative battles, are often treated as gospel. Already, some of the advice he's offered on regulatory reform has found its way into the political discourse -- with a proposed Consumer Financial Protection Agency seemingly on life support under Republican objections.
In addition to tying regulatory reform to a massive government takeover, Luntz's memo includes several other data points and messaging suggestions as a blue print for the legislation's defeat. Opponents, he writes, would be well served to link the package to the financial industry bailout (which, it should be noted, is fundamentally not part of the legislation). According to accompanying polling data, 52 percent of voters said they would be "much less likely" to vote for their member of Congress if they voted for a financial reform bill that contained a fund to bail out banks and Wall Street.
"Public outrage about the bailout of banks and Wall Street is a simmering time bomb set to go off on Election Day," Luntz wrote. "Frankly, the single best way to kill any legislation is to link it to the Big Bank Bailout."
Another effective strategy to kill the bill, according to Luntz, is to make the case that it was written in secret by lobbyists.
"The American people are tired of add-ons, earmarks, and backroom deals - but they are mad as hell at 'lobbyist loopholes,'" Luntz wrote. "You must put proponents of the legislation on the defense, forcing them to attempt to justify the 'lobbyist loopholes' and exemptions placed in the bill... Highlight the exemptions. Broadcast them. Remind them, 'The legislation is filled with lobbyist loopholes that exclude certain wealthy, powerful industries from regulations.'"
On the specific issue of a Consumer Financial Protection Agency, Luntz argued that opponents should stress the high-cost of creating an additional regulatory body in addition to the damaging effects it will supposedly have on "small business owners" (as opposed to, merely, small businesses).
"Owning a small business is part of the American Dream and Congress should make it easier to be an entrepreneur," wrote Luntz. "But the Financial Reform bill and the creation of the CFPA makes it harder to be a small business owner because it will choke off credit options to small business owners."
These lines or arguments are similar to the ones used by regulatory reform opponents in the past, often with some success. What's telling is that they are being trotted out again in this type of economic environment.
Luntz does seem to acknowledge that the climate makes defeating regulatory reform a bit trickier. At the top of his memo he urges opponents (primarily Republican lawmakers) to "acknowledge the need for reform that ensures this NEVER happens again," He insists that "the status quo is not an option" and that members of Congress, when addressing the crisis, "never forget its impact on your audience." Luntz even advise his audience to promote themselves the agents of change.
But for the sake of winning the debate, he adds, it is vital to insist that such change does not include additional Washington-based regulatory powers.
"Many of the same members of Congress responsible for the legislation that helped create the housing bubble and the Wall Street financial crisis are now attempting to create another new government agency with an unlimited budget and almost unlimited regulatory powers," wrote the GOP wordsith. "I'm sorry to say this but they don't know what they're doing. They have gotten it wrong time and time again..."
"A new agency with new bureaucrats is not change we can believe in," Luntz wrote. "It's not change at all."”
So Luntz argument is founded on the use of words…not the facts or the danger of neglecting to fix what is wrong about the financial regulatory system.
However, Paul Krugman, in his Op-Ed article in the New York Times February 1 issue, notes the success of dealing with the financial crisis in Canada, an economy much like our own, and the success which can be factually measured there.
Mr Krugman writes, “Over the past decade the United States and Canada faced the same global environment. Both were confronted with the same flood of cheap goods and cheap money from Asia. Economists in both countries cheerfully declared that the era of severe recessions was over.
But when things fell apart, the consequences were very different here and there. In the United States, mortgage defaults soared, some major financial institutions collapsed, and others survived only thanks to huge government bailouts. In Canada, none of that happened. What did the Canadians do differently?
It wasn’t interest rate policy. Many commentators have blamed the Federal Reserve for the financial crisis, claiming that the Fed created a disastrous bubble by keeping interest rates too low for too long. But Canadian interest rates have tracked U.S. rates quite closely, so it seems that low rates aren’t enough by themselves to produce a financial crisis.”
Canada’s experience does seem to support the views of people like Elizabeth Warren, the head of the Congressional panel overseeing the bank bailout, who place much of the blame for the crisis on failure to protect consumers from deceptive lending. Canada has an independent Financial Consumer Agency, and it has sharply restricted subprime-type lending.
Above all, Canada’s experience seems to support those who say that the way to keep banking safe is to keep it boring — that is, to limit the extent to which banks can take on risk. The United States used to have a boring banking system, but Reagan-era deregulation made things dangerously interesting. Canada, by contrast, has maintained a happy tedium.
More specifically, Canada has been much stricter about limiting banks’ leverage, the extent to which they can rely on borrowed funds. It has also limited the process of securitization, in which banks package and resell claims on their loans outstanding — a process that was supposed to help banks reduce their risk by spreading it, but has turned out in practice to be a way for banks to make ever-bigger wagers with other people’s money.
There’s no question that in recent years these restrictions meant fewer opportunities for bankers to come up with clever ideas than would have been available if Canada had emulated America’s deregulatory zeal. But that, it turns out, was all to the good.
So what are the chances that the United States will learn from Canada’s success?
Actually, the financial reform bill that the House of Representatives passed in December would significantly Canadianize the U.S. system. It would create an independent Consumer Financial Protection Agency, it would establish limits on leverage, and it would limit securitization by requiring that lenders hold on to some of their loans.
…there’s a good chance that we’ll do nothing, or nothing much, to prevent future banking crises. But it won’t be because we don’t know what to do: we’ve got a clear example of how to keep banking safe sitting right next door.”
Don’t be fooled by conservative strategist whose true loyalty lies to Wall Street’s biggest commercial banks and investment banks. The truth is these folks are lazy. You see…it takes a great deal more effort to make a lot of small loans than it does to make one great big one. But, the small loans to small businesses are the life blood of a democratic capitalistic system. Create more customers and the result is a robust economy for small and large businesses alike. Catering to only wealthy will eventually strangle the life out of rich and poor alike.
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