Category Archives: economy

Nothing Is Inevitable

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At MyDD, Jerome Armstrong analyzes the most recent polling numbers out of Iowa and New Hampshire. In brief: For the Dems, Iowa is up for grabs. Senator Clinton is ahead by a nose, but her support is soft. Her position in New Hampshire is stronger, but much of this support comes from her perceived electability. I agree with Jerome that if she loses Iowa, which is very possible, New Hampshire could slip away from her also.

But I admit that I have a terrible track record at predicting what voters will do.

Just for some perspective, see Democratic candidate rankings for the 2004 nomination, taken in November 2003:

Not Sure 34%
Howard Dean 15
Wesley Clark 10
Dick Gephardt 9
Joe Lieberman 9
John Kerry 7
Al Sharpton 4
John Edwards 3
Dennis Kucinich 2
Carol Moseley Braun 2
Other 6

(Zogby America Poll, 558 Likely Democrat Voters Nationwide, Conducted 11/3-5/03, Margin Of Error +/- 4.2%)

New Hampshire only, also November 2003:

Howard Dean 38%
John Kerry 24
Undecided 21
Wesley Clark 4
Joe Lieberman 4
John Edwards 4
Dick Gephardt 3
Carol Moseley Braun 1
Dennis Kucinich 1
Al Sharpton 0

(American Research Group Poll, 600 Registered Democrats And Undeclared Voters, Conducted 11/2-5/03, Margin Of Error +/- 4%)

Here are the final results for New Hampshire, 2004.

Kerry 39%
Dean 26%
Clark 13%
Edwards 12%
Lieberman 9%
Kucinich 1%
Sharpton 0%

And the moral is, pre-election poll results are like dust in the wind.

For the Republicans, Mitt Romney is ahead in both polls. In Iowa, Rudy Giuliani is only 4th (after Romney, Huckabee, and Undecided). In New Hampshire, he’s tied for second place with John McCain.

So tell me again why the bobbleheads keep talking about a Clinton-Giuliani race in 2008?

As I remember, all through 2003 many professional television pundits kept saying Dick Gephardt or Joe Lieberman would be the nominee. And now exactly the same crew, albeit a tad more wrinkled, are talking up Clinton and Giuliani. And they get paid for this. I make wrong predictions just as often, but I do it for free. Such a deal.

At the Washington Post, Michael Shear writes about the Hillary phenomenon among the GOP.

They mock her proposals, utter her name with a sneer and win standing ovations by ridiculing her ideas as un-American, even socialistic. She has become the one thing the Republican candidates for president can agree on.

Hillary Clinton.

Earlier this year, the senator from New York was the subject of an occasional laugh line from former New York mayor Rudolph W. Giuliani. Now, the trickle has become a torrent as the leading GOP candidates seek to one-up one another in a Clinton-bashing contest aimed at energizing their party faithful.

“The competition inside the GOP for who’s the most anti-Hillary is going to pay dividends,” said Greg Strimple, a GOP pollster and consultant who is not working with any presidential campaign. “Looking for that piece of anti-Hillary energy is what you’re seeing right now.”

I’m glad to see Republicans running an honest campaign for a change. But what will the eventual nominee campaign on if Senator Clinton is not his opponent? The poor dear will have to run on issues. Iraq, health care, the economy? God, guns, and gays?

Heh.

Chickens, Eggs, Prosperity

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Democrats are becoming the party of choice for the wealthy, according to several recent op eds. Let’s review.

It’s already been noted that business sectors, with the exception of petrochemicals, are donating more to Dems and less to Republicans for the first time in a great many years. People with profits in mind think the Republicans are far too stuck on God, guns, and gays.

But wealth is also about protecting and exploiting its advantages, and Dems are ready to help. Yesterday Paul Krugman asked if Dems were “wobbled by wealth.”

The most conspicuous example of this influence right now is the way Senate Democrats are dithering over whether to close the hedge fund tax loophole — which allows executives at private equity firms and hedge funds to pay a tax rate of only 15 percent on most of their income.

Only a handful of very wealthy people benefit from this loophole, while closing the loophole would yield billions of dollars each year in revenue. Retrieving this revenue is a key ingredient in legislation approved by the House Ways and Means Committee to reform the alternative minimum tax, something that must be done to avoid a de facto tax increase for millions of middle-class Americans.

A handful of superwealthy hedge fund managers versus millions of middle-class Americans — it sounds like a no-brainer.

But as The Financial Times reports, “Key votes have been delayed and time bought after the investment industry hired some of Washington’s most prominent lobbyists to influence lawmakers and spread largesse through campaign donations.” It goes on to describe how Harry Reid, the Senate majority leader, was “toasted by industry lobbyists” (and serenaded by Barry Manilow) at a money-raising party for his special fund to help Democrats get elected next year.

Is this the shape of things to come?

No, it’s not the shape of things to come. It’s the shape of what’s been going on for a long time, in both parties.

But Michael Franc wrote in yesterday’s Financial Times that “Democrats wake up to being the party of the rich.”

The decision by Senate majority leader Harry Reid, the Nevada Democrat, surprised many Washington insiders, who saw the plan as appealing to the spirit of class warfare that infuses the Democratic party. Liberal disappointment in Mr Reid was palpable at media outlets such as USA Today, where an editorial chastised: “The Democrats, who control Congress and claim to represent the middle and lower classes, ought to be embarrassed.”

Far from embarrassing, this episode may reflect a dawning Democratic awareness of whom they really represent. For the demographic reality is that, in America, the Democratic party is the new “party of the rich”. More and more Democrats represent areas with a high concentration of wealthy households. Using Internal Revenue Service data, the Heritage Foundation identified two categories of taxpayers – single filers with incomes of more than $100,000 and married filers with incomes of more than $200,000 – and combined them to discern where the wealthiest Americans live and who represents them.

Democrats now control the majority of the nation’s wealthiest congressional jurisdictions. More than half of the wealthiest households are concentrated in the 18 states where Democrats control both Senate seats.

The Financial Times implies that the concentration of wealth in Blue states also is a new thing, but it isn’t. Massachusetts and California didn’t become more liberal and more prosperous than Alabama and Mississippi last week. The more affluent states have tended to be more liberal for a long time. I’ll put the chicken ahead of the egg and say that these states are not more likely to elect Democrats because they are more affluent, but rather are more likely to be affluent because they elect Democrats. States that are more willing to tax themselves and provide better public education, well-maintained infrastructure, wider “safety net” programs and other social services will, in the long run, be more prosperous generally than states that let let education, infrastructure, etc., rot.

Yes, Democrats, like Republicans, are too influenced by Money, but they’re not as “wobbled” by right-wing ideology as are Republicans.

I’ve argued many times, such as here, that the U.S. became the world’s biggest economic powerhouse in the 20th century because, for a time, we invested in ourselves. And we are in danger of losing that status because of our own stinginess to each other.

A blog called “Statistical Modeling, Causal Inference, and Social Science” shows us another factor:

It is characteristic of the east and west coasts that the richer areas tend to be more liberal, but in other parts of the country, notably the south, the correlation goes the other way. A comparable journey in Texas would go from Collin County, a suburb of Dallas where George W. Bush received 71% of the vote, to rural Zavala County in the southwest, where Bush received only 25%. … there is a clear pattern [in Texas] that poor counties supported the Democrats while the Republicans won in middle-class and rich counties. …

… By comparison, the next graph shows the counties of Brooks’s home state of Maryland: here there is no clear pattern of county income and Republican vote. We have indicated Montgomery County, the prototypical wealthy slice of Blue America, in bold, and it is not difficult to find poorer, more Republican-supporting counties nearby as comparisons. Rich and poor counties look different in Blue America than in Red America.

Consider also this old Paul Krugman column. On the whole Red states receive more federal aid than they pay in federal taxes; wealthier Blue states pay more federal taxes than they get back. “Over all, blue America subsidizes red America to the tune of $90 billion or so each year.” But Red states tend to have more social problems — “Children in red states are more likely to be born to teenagers or unmarried mothers — in 1999, 33.7 percent of babies in red states were born out of wedlock, versus 32.5 percent in blue states. National divorce statistics are spotty, but per capita there were 60 percent more divorces in Montana than in New Jersey. ”

My understanding is that in more affluent states, wealthier people more often vote Democratic and poorer people more often vote Republiican, but in poor states it’s the other way around. I postulate that one reason many poor states are poor is that they’ve been run by a right-wing establishment for a long time. The wealthy of the poorer Red states, members of the establishment, align themselves with Republicans to keep their plutocratic power and privilege. The wealthy of the more affluent Blue states are more likely to appreciate the higher overall standard of living that a reasonably progressive government can enable.

At the same time, the less wealthy of Red states may have a greater appreciation of economic populism than their counterparts in Blue states.

Even so, in election cycles from 1976 to 2004, Democrats did much better among the poor than the rich in the nation overall. Maybe that difference is narrowing. But suddenly declaring that the Dems are the party “of the rich,” as the Financial Times is doing, strikes me as the cheap promotion of a cooked-up talking point.

Elsewhere, Jonathan Rauch asks “Can Democrats Own Prosperity?” Since the 1950s, he says, pollsters have asked the question “Looking ahead for the next few years, which political party do you think will do a better job of keeping the country prosperous?” And Rauch provides a chart that shows Dems generally owned that question until Ronald Reagan came along.

The chart begins in 1951, when Harry Truman was president, and it shows how decisively the Depression and New Deal had bestowed “party of prosperity” status on the Democrats. Only occasionally did the Republicans even touch them. The Democrats’ prosperity advantage seemed to be their birthright, part of the natural order of things, unlikely to be challenged or changed. Even well into the 1970s, as stagflation set in, few Democrats foresaw the trouble ahead.

That trouble arrived in the person of Ronald Reagan, whose greatest political achievement was to seize prosperity for the Republicans. He knew what he was doing when he made famous the phrase, “Are you better off than you were four years ago?” By the time he was finished, Reagan had exorcised Herbert Hoover’s ghost. Now it was the Democratic Party, once seemingly synonymous with modern economic management, that seemed inept and obsolete.

A recession and a bumbling Republican campaign nonetheless helped put a Democrat in the White House in 1993, and the succeeding eight years brought the Democrats news both good and bad. The good news was that a turbocharged economy lifted them back to parity. The bad news was that a turbocharged economy lifted them only to parity. Perhaps the memory of stagflation was too fresh in the public’s mind; perhaps divided government muddied the picture. For whatever reason, by the time George W. Bush took office, the Democrats had not made the sale. The country had no party of prosperity.

Seeing opportunity, Bush set out to recapture and fortify Reagan’s redoubt. His weapon was tax cuts—large and aggressive ones. That, plus five years of economic growth, should have pleased the public.

The results? Devastating. Crushing. Not only did Bush and his party fail to make the sale, the public slammed the door in their faces. Just why is hard to say. Worries about economic insecurity, and the failure of the median household income (adjusted for inflation) to rise during the Bush years, undoubtedly played a part. Bush’s personal unpopularity and the public’s displaced anger over the Iraq war may also figure.

In any case, by September 2006, Democrats had opened up a 17-point lead on prosperity. This September, the gap widened to 20 points, confirming that the change was no fluke. Democrats enjoy a lead on prosperity whose like they have not seen in a generation.

Rauch suggests that to maintain this advantate, Dems need a prosperity “narrative.” The right-wing “supply side” narrative is no longer selling, but Dems have yet to come up with a counter-narrative.

Various bits and pieces are in circulation. Fix health care. Improve income security. Restrict trade. Raise taxes on the rich. Democrats hope to speak to middle-class America’s feelings of economic vulnerability, which is probably the right tree to bark up. But while some Democrats strike notes of class resentment, others seem to blame foreigners. No candidate has found a package and a tone that tell a story not primarily about populism or nationalism but about prosperity: raising the tide to lift all boats.

I’ve got one: Let’s invest in ourselves. The ad running in the left-hand column says “Invest in the Home Front,” but I’d like to get away from war metaphors.

As for the influence of the malefactors of great wealth on politics, this is an old and deeply entrenched problem that probably will never go away completely. Public campaign finance would help minimize the beast, however.

See also BooMan and Kevin Drum.

Nice While It Lasted

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Tim Watkin posts at The Guardian web site:

America is out of touch and behind the times on climate change and economic reform. It is mired in a stagnant war that the rest of the west has abandoned or is abandoning. American global influence is in decline, the country having lost the respect of allies and the credibility to lead. As we’ve seen yet again in last week’s brinkmanship by Turkey, American diplomacy has all the vim and vigour of Fred Thompson. For now America remains the world leader, but it’s moving steadily from superpower to first among equals. Nowhere is this more evident than in the sciences. …

… Overseas institutions and companies are increasingly competitive, and federal and state funding for science and engineering has fallen significantly, to just 0.8% of GDP. The wars in Iraq and Afghanistan are sucking up federal money, with President Bush last week asking Congress to raise the war budget for 2008 to $196bn. That’s quite an opportunity cost.

As Tom Friedman put it in his New York Times column on Iraq recently: “Can we pay for it and be making the investments in infrastructure, science and education needed to propel our country into the 21st century?” The answer, judging from speakers at the TechNet summit at Berkeley earlier this month, is no.

Watkin cites a report titled “Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future,” which was authored by The Committee on Science, Engineering, and Public Policy (COSEPUP), a joint unit of the National Academy of Sciences, National Academy of Engineering, and the Institute of Medicine.

It’s hard to ignore the scientists and business leaders who wrote the Gathering Storm report when they write, bluntly: “We are worried about the future prosperity of the United States.” As the US slides, other countries are catching up too rapidly. I think Americans will look back at the second half of the 20th century as the pinnacle of American power and influence.

The comments to this post are almost more alarming than the post. A number of American wingnuts responded, claiming that Chinese engineers can’t be compared to American engineers because Asians have no creativity, and hey, we landed on the moon.

We’re doomed.

The notion that America and Americans are intrinsically superior is so deeply ingrained on the Right that no amount of empirical evidence to the contrary is likely to flush it out. Also, American conservatives by nature will ignore and deny an impending problem until it bites their butts, and then they blame Democrats for not solving it.

You’ve probably had this experience yourselves — mention the mere possibility that the U.S. could be less economically dominant at some point in the future, and if there’s a wingnut present he will laugh at you. Nope, not possible, he says. The way things have been in my lifetime is the way they will always be, forever and ever, amen.

American economic dominance grew out of several factors. The United States was one of the few large industrial nations to emerge from World War II without massive war damage and with its manufacturing base intact and productive, for example. Mortgage subsidies helped the new married couples of the Greatest Generation to purchase homes, and the GI bill sent a large part of the population to college, and in turn those college graduates started businesses, developed new technologies, created new products. America dominated the second half of the 20th century partly by circumstance of war and geography and partly because we invested in ourselves.

These days college is prohibitively expensive. Our manufacturing base is moving overseas, and the current POTUS seems to think this is a good thing. A major American city suffers massive damage from floods, and two years later the federal government continues to show a remarkable lack of interest in setting things right. About one in six Americans lacked health insurance for all of 2005, and our elected “leaders” look the other way and talk glibly about fictional “market solutions.” Anti-government conservative ideology so dominates American politics that we can’t even have sensible discussions about using government to address our growing problems.

We’re strangling ourselves with our own stinginess to each other.

What They’re Not Telling Us

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I read in the Guardian that there has been a sharp drop in U.S. productivity growth since 2003. John Schmitt and Dean Baker write,

All the bad news about the bursting of the US housing bubble and the related meltdown in US share markets has deflected the world’s attention from what is arguably an even more fundamental problem facing the US economy: the sharp deceleration in productivity growth since the middle of 2004.

For Americans, the long-run implications of this little-discussed slowdown, if sustained, are actually more important to future living standards than any of the other events currently worrying world markets. For Europeans, long-encouraged to see the United States as the flexible economic ideal, the productivity slowdown sounds another note of caution about the US model. Europeans already know that the US economy generates substantial inequality. The last three years of slow productivity growth now suggest that all that inequality apparently doesn’t even guarantee faster growth.

Notice that this is not a decrease in productivity itself, but in productivity growth.

Economists define “productivity” as the value of goods and services produced per hour by an economy’s average worker, and agree that the growth rate of productivity is the single most important determinant of the long-run prospects for a country’s standard of living.

The deceleration in US productivity growth since the second half of 2004 is striking by historical standards. Between 1947 and 1973, the golden age of postwar capitalism, productivity growth averaged about 2.8% per year in the United States. At that pace, the output of the average worker was set to double about every 25 years, allowing roughly comparable increases in national living standards. From 1973 through 1995, however, productivity growth took a nosedive, with the average rate dropping to just 1.4%. At this lower rate, average worker output would take about 50 years to double, implying far slower progress in living standards.

From the mid-1990s on, however, official productivity growth again accelerated rapidly, returning to a 2.9% rate reminiscent of the golden age. Quite suddenly, though, in the second half of 2004, productivity growth dropped sharply. From the third quarter of 2004, productivity growth rate, at 1.3% per year, has not even managed to match the 1.4% growth rate of the productivity bust of 1973-1995.

But we’re still beating lazy ol’ socialist Yurp, right?

Meanwhile, how has Europe been faring? According to internationally comparable data from the Groningen Growth and Development Centre, between 1995 and 2004, the United States outperformed most of Europe, with productivity growing about 2.5% per year in the United States, compared to 1.7% in Germany, 2.0% in France, and 2.2% in the United Kingdom.

Between 2004 and 2006, however, the US lead all but evaporated. The US rate fell to 1.7%, not much different from the rates in Germany (1.7%), France (1.4%), and the United Kingdom (1.4%). If current trends continue, US growth rates may soon be trailing those of Europe (as was the case for almost the entire postwar period before 1995).

Well, damn.

I’m not an economist, but let me speculate anyway: Perhaps companies are not reinvesting in facilities and technology and “growing their people” as they did in the 1990s. “The driving force behind the 1996-2004 productivity acceleration … was massive investment in computers, software and related high-tech machinery, all of which become obsolete much faster than earlier generations of capital goods.” Now companies may be upgrading and replacing technology, but it’s not like in the 1990s, when PCs appeared on every office desk for the first time.

And then there’s the fatigue factor. Workers are worn out and stressed out. They’ve skipped vacations and worked way too much underpaid and unpaid overtime. They are not being rewarded. Their wages are stagnant, even as the cost of living rises. So workers subsidize their employer’s profits by going deeper into personal debt, struggling to maintain a “normal” middle-class lifestyle. (See also “Spherion Study Shows Less Than Half of U.S. Workers Are Satisfied With Their Jobs; Benefits and Compensation Inadequate to Retain Employees.“)

Back in the days of the Cold War we patriotic Americans were told, over and over again, that Communism is a bad system because it doesn’t provide a personal incentive for people to work. If everyone is going to be taken care of by the state, whether they work hard or not, then why bother? And I think that’s a valid criticism. You can’t deny that Communist countries produce piss-poor economies in the long run.

But I think King Capitalism is making the same mistake. If everyone is going to be pissed on by their employer whether they work hard or not, then why bother? What’s the incentive?

See especially “Our Sub-prime Economy” by Rick Wolff:

From 1973 to 2005, this is what happened to the 80 percent of US workers in non-supervisory jobs. Their hourly wages — adjusted for inflation — rose from $15.76 to $16.11. That is, over a 32 year period, most US workers enjoyed a stunning 2 percent increase in what their hourly pay could buy. Because their work weeks shortened over those years, their real weekly pay — what they could actually afford for a week’s pay — actually fell from $581.67 to $543.65, a decline of 6.5 percent. This means that workers’ wages could buy less in 2005 than in 1973.

Over the same thirty years, US workers produced 75 percent more. In the language of economics, that’s how much output per worker — “productivity” — rose. Corporations got 75 percent more goods and services produced per worker. They sold that extra output and thus got much more revenue and profit per worker employed. Yet what they paid those workers did not rise. Stagnant wages did not allow the workers to buy any of the extra output they produced.

Americans measure success by levels of consumption, Wolff writes. As the bumper stickers say, Whoever Dies with the Most Toys Wins. So as wages flattened, American workers compensated to maintain the lifestyle to which they had become accustomed. First, in the 1970s, women entered the workforce in large numbers. This of course was partly because of second-wave feminism, but it also corresponded with the slowdown of the economy that occurred after 1972. Second, people got used to carrying larger and larger chunks of debt to pay for the stuff they believed middle-class people were supposed to have, but which they couldn’t afford. As I said, they’re subsidizing their employers’ profits by going into debt.

Wolff also makes this observation:

The numbers on productivity and real wages before then — from 1945 to 1975 — were very different. Productivity rose much faster then than afterward. But the big difference is what happened to real wages: hourly, they rose 75 percent from 1947 to 1972, while weekly they rose 61 percent. In other words, US workers wages then rose with their higher productivity — exactly what stopped happening after the mid-1970s.

The welfare state economy of 1945 to 1975 was driven by two interconnected fears: of lapsing back into the Great Depression and of succumbing to socialism. History reduced those fears enough so that, after 1975, business could undo the New Deal and go back to the pre-1929 gaps between rich and poor. Most paid commentators cheer the business reaction as if it were good for everyone, but workers suffering the new sub-prime economy may reckon differently. The explosion of workers’ debts has postponed that reckoning. So too have fundamentalism, escapism, and the noise from all those commentators.

I’ve finally gotten around to reading Dear Hunting With Jesus by Joe Bageant, which expounds on this theme big-time, but more colorfully. However, Bageant’s subjects are so used to being pissed on by The System that they don’t even question it.

Those of us who were children in the 1950s and 1960s got so used to economic times getting better and better that we assumed that was the way the world would always be. Any slowdowns were just temporary glitches. In the early 1980s, when mortgage rates went through the roof, lots of my contemporaries cheerfully took out balloon mortgages because of course in five years they’d be making a lot more money. But, as a rule, they didn’t. Now I think most people have stopped expecting. They’re just hoping to hang on to what they have.

I’ve believed for a long time that much of America’s prosperity — whatever’s left of it, anyway — has been floating on the wealth created in the postwar years. That’s when all those veterans got college degrees on the GI Bill and went out and started businesses or created new products. That’s when all those middle-class couples, booming with babies, bought their first houses with mortgages subsidized by the U.S. government. That left with them income to buy new refrigerators and cars and television sets, growing the refrigerator and car and television set industries in America. It was win/win for everybody.

Well, those days are gone, huh? And if you want to get really depressed, take a look at this episode of Bill Moyers Journal.

Also, this guy says that people who are even worse off than we are, are subsidizing us — “a good many developing countries are actually subsidizing U.S. consumers indirectly (by keeping their currency undervalued).” Face it; the world’s economy isn’t “trickle down”; it’s “trickle up.” American workers are middle men, passing the world’s wealth up the chain after taking our little cut.

I don’t know what the solution is. I understand that old-style protectionism isn’t workable any more. On the other hand, Ian Welsh keeps patiently explaining to me that globalization is not inevitable. He understands economic stuff much better than I do, so I’ll take his word on that.

I do think that we must begin to think in terms of investing in ourselves again. If workers and business were relieved of the burden of health care costs, wouldn’t that help the economy (except for the insurance industry, of course)? If a college education were a lot more affordable, wouldn’t that (in the long run) help the economy, as it did in the 1950s and 1960s? And if workers felt that their hard work was actually being compensated, that there was a reason to work hard beside not getting fired, wouldn’t that put a spring in their step, so to speak?

The “I got mine, so the heck with you” attitude is not just unfair; it’s strangling all of us.

Pennies From Heaven

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What’s gotten into Tom Friedman? He’s written good columns two Sundays in a row.

Here’s last week’s, in case you missed it. Now, on to this week’s.

Every so often a quote comes out of the Bush administration that leaves you asking: Am I crazy or are they? I had one of those moments last week when Dana Perino, the White House press secretary, was asked about a proposal by some Congressional Democrats to levy a surtax to pay for the Iraq war, and she responded, “We’ve always known that Democrats seem to revert to type, and they are willing to raise taxes on just about anything.”

Yes, those silly Democrats. They’ll raise taxes for anything, even — get this — to pay for a war!

And if we did raise taxes to pay for our war to bring a measure of democracy to the Arab world, “does anyone seriously believe that the Democrats are going to end these new taxes that they’re asking the American people to pay at a time when it’s not necessary to pay them?” added Ms. Perino. “I just think it’s completely fiscally irresponsible.”

Friends, we are through the looking glass. It is now “fiscally irresponsible” to want to pay for a war with a tax. These democrats just don’t understand: the tooth fairy pays for wars. Of course she does — the tooth fairy leaves the money at the end of every month under Treasury Secretary Hank Paulson’s pillow. And what a big pillow it is! My God, what will the Democrats come up with next? Taxes to rebuild bridges or schools or high-speed rail or our lagging broadband networks? No, no, the tooth fairy covers all that. She borrows the money from China and leaves it under Paulson’s pillow.

Is it me, or is Friedman sounding a tad shrill?

Of course, we can pay for the Iraq war without a tax increase. The question is, can we pay for it and be making the investments in infrastructure, science and education needed to propel our country into the 21st century? Visit Singapore, Japan, Korea, China or parts of Europe today and you’ll discover that the infrastructure in our country is not keeping pace with our peers’.

We can pay for anything today if we want to stop investing in tomorrow. The president has already slashed the National Institutes of Health research funding the past two years. His 2008 budget wants us to cut money for vocational training, infrastructure and many student aid programs.

Not to mention providing health insurance for children.

Of course, the chairman of the House Appropriations Committee, the Democrat David Obey, in proposing an Iraq war tax to help balance the budget was expressing his displeasure with the war. But he was also making a very important point when he said, “If this war is important enough to fight, then it ought to be important enough to pay for.”

Our bridges are falling down, too many of our children go without health care, we’re in debt up to our eyeballs to Japan and China, and the Right wants perpetual war in the Middle East, but by gawd we won’t raise taxes!

And why not? Because then we’d be going down the same road as sick ol’ socialist Europe, and we all know how badly they’ve …. wait a minute … um, actually Europe is doing pretty well these days. See also Ezra.

Losing Ground

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The New York Times has dismantled the evil Times Select firewall (yay).

It’s also given Paul Krugman a blog, called “The Conscience of a Liberal.” Here’s the first post. It begins:

“I was born in 1953. Like the rest of my generation, I took the America I grew up in for granted — in fact, like many in my generation I railed against the very real injustices of our society, marched against the bombing of Cambodia, went door to door for liberal candidates. It’s only in retrospect that the political and economic environment of my youth stands revealed as a paradise lost, an exceptional episode in our nation’s history.”

That’s the opening paragraph of my new book, The Conscience of a Liberal. It’s a book about what has happened to the America I grew up in and why, a story that I argue revolves around the politics and economics of inequality.

He provides a thumbnail review of the past ninety or so years of the U.S. economy, divided into four periods, as shown on this chart:

Krugman says,

The chart shows the share of the richest 10 percent of the American population in total income — an indicator that closely tracks many other measures of economic inequality — over the past 90 years, as estimated by the economists Thomas Piketty and Emmanuel Saez. I’ve added labels indicating four key periods.

The four periods are the Long Gilded Age (which ended ca. 1937), the Great Compression (ca. 1937 to mid-1940s), Middle Class America (mid-1940s to late 1970s), and the Great Divergence (late 1970s to now).

I’ll get back to the Great Compression, but this is what Krugman says about the last couple of periods:

Middle class America: That’s the country I grew up in. It was a society without extremes of wealth or poverty, a society of broadly shared prosperity, partly because strong unions, a high minimum wage, and a progressive tax system helped limit inequality. It was also a society in which political bipartisanship meant something: in spite of all the turmoil of Vietnam and the civil rights movement, in spite of the sinister machinations of Nixon and his henchmen, it was an era in which Democrats and Republicans agreed on basic values and could cooperate across party lines.

The great divergence: Since the late 1970s the America I knew has unraveled. We’re no longer a middle-class society, in which the benefits of economic growth are widely shared: between 1979 and 2005 the real income of the median household rose only 13 percent, but the income of the richest 0.1% of Americans rose 296 percent.

Certainly, the Middle Class America period wasn’t perfect, especially since racial minorities were kept locked out. But if you’re as old as Krugman and I — I’ve got a couple of years on him, actually — you know that the American middle class ain’t what it used to be. Not even close. Relative share of wealth and, IMO, quality of life have declined in many ways. I see a whopping large chunk of American citizens struggling more and more frantically to maintain what they were brought up to think is a “normal” lifestyle.

But our ideas of “normal” came out of a period that Krugman calls “a paradise lost, an exceptional episode in our nation’s history.”

I’m going to skip Krugman for a moment and go to a Harold Meyerson column from last year (August 30, 2006).

Labor Day is almost upon us, and like some of my fellow graybeards, I can, if I concentrate, actually remember what it was that this holiday once celebrated. Something about America being the land of broadly shared prosperity. Something about America being the first nation in human history that had a middle-class majority, where parents had every reason to think their children would fare even better than they had….

…From 1947 through 1973, American productivity rose by a whopping 104 percent, and median family income rose by the very same 104 percent. More Americans bought homes and new cars and sent their kids to college than ever before. In ways more difficult to quantify, the mass prosperity fostered a generosity of spirit: The civil rights revolution and the Marshall Plan both emanated from an America in which most people were imbued with a sense of economic security.

That America is as dead as the dodo. Ours is the age of the Great Upward Redistribution. The median hourly wage for Americans has declined by 2 percent since 2003, though productivity has been rising handsomely. Last year, according to figures released just yesterday by the Census Bureau, wages for men declined by 1.8 percent and for women by 1.3 percent.

The increase of two-income families masked the inequality for a while; people with two incomes were able to maintain the same level of “normal” that one wage earner provided in earlier times. But now the two wager-earners are working longer hours, skipping vacations, and living from paycheck to paycheck. They are clinging to Middle Class-ness by their fingertips.

Back to Meyerson:

According to a report by Goldman Sachs economists, “the most important contributor to higher profit margins over the past five years has been a decline in labor’s share of national income.”…

…For those who profit from this redistribution, there’s something comforting in being able to attribute this shift to the vast, impersonal forces of globalization. The stagnant incomes of most Americans can be depicted as the inevitable outcome of events over which we have no control, like the shifting of tectonic plates.

Problem is, the declining power of the American workforce antedates the integration of China and India into the global labor pool by several decades. Since 1973 productivity gains have outpaced median family income by 3 to 1. Clearly, the war of American employers on unions, which began around that time, is also substantially responsible for the decoupling of increased corporate revenue from employees’ paychecks.

But finger a corporation for exploiting its workers and you’re trafficking in class warfare. Of late a number of my fellow pundits have charged that Democratic politicians concerned about the further expansion of Wal-Mart are simply pandering to unions. Wal-Mart offers low prices and jobs to economically depressed communities, they argue. What’s wrong with that?

Were that all that Wal-Mart did, of course, the answer would be “nothing.” But as business writer Barry Lynn demonstrated in a brilliant essay in the July issue of Harper’s, Wal-Mart also exploits its position as the biggest retailer in human history — 20 percent of all retail transactions in the United States take place at Wal-Marts, Lynn wrote — to drive down wages and benefits all across the economy. The living standards of supermarket workers have been diminished in the process, but Wal-Mart’s reach extends into manufacturing and shipping as well. Thousands of workers have been let go at Kraft, Lynn shows, due to the economies that Wal-Mart forced on the company. Of Wal-Mart’s 10 top suppliers in 1994, four have filed bankruptcies.

For the bottom 90 percent of the American workforce, work just doesn’t pay, or provide security, as it used to.

Devaluing labor is the very essence of our economy.

Krugman:

On the political side, you might have expected rising inequality to produce a populist backlash. Instead, however, the era of rising inequality has also been the era of “movement conservatism,” the term both supporters and opponents use for the highly cohesive set of interlocking institutions that brought Ronald Reagan and Newt Gingrich to power, and reached its culmination, taking control of all three branches of the federal government, under George W. Bush. (Yes, Virginia, there is a vast right-wing conspiracy.)

Because of movement conservative political dominance, taxes on the rich have fallen, and the holes in the safety net have gotten bigger, even as inequality has soared. And the rise of movement conservatism is also at the heart of the bitter partisanship that characterizes politics today.

I have a lot of thoughts as to why this happened, but those will have to wait for another post. For now I’ll just say that you probably have to be a geezer like me or Krugman to appreciate the difference between Then and Now. The Fall of the Middle Class happened gradually enough that it took some time before we realized that steadily increasing prosperity had been replaced by ceaseless struggling just to keep from sliding further. If the change from, say, the economy of 1967 to the economy of 2007 had happened over a five-year period there would have been rioting in the streets.

On the other hand, if your earliest memories are from after the 1960s, you might not see the difference. Righties — and I still say they are disproportionately Gen X-ers — get a little boost in their stock portfolios and think life is fine, but they’re not seeing the big picture.

Ezra Klein:

In some ways, the conversation over whether inequality is being driven by impersonal, technical forces or government policy is neither here nor there (at least on a policy level — politically, people use it to justify inequality as something organic, inevitable, and even beautiful — like the tides). We live in a regulated economy governed by both public and private institutions, so there’s no such thing as “natural” forces. Even if superstar CEOs are taking home billions, they’re still reliant on our system of contracts, and limited liability, and stock market regulation. In other words, what public policy giveth, public policy can taketh away. Few doubt that we have the tools — using something called “the tax code” — to engage in some redistribution. The question is whether we have the will.

I don’t think the tax code is the only tool we have, but it’s a start.

Very briefly I want to go back to the Great Compression. It’s interesting to me that the Compression began abruptly about seven or eight years into the Great Depression, which seems to me is an argument that the Great Depression was not a cause of the Compression, as this blogger argues. No doubt myriad factors were involved, and if I had more time today I’d go back to see exactly what New Deal policies were in place by 1936 or so that might have helped the Compression along. Yes, the industrial buildup during World War II was a huge factor, but that was instigated and overseen by the federal government during the FDR Administration.

Labor Day Links

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The theme of the past week has been “the road to serfdom.” Most of us would rather not be serfs, I assume, but it seems there are exceptions.

The Associated Press reports today that American workers are the most productive in the world —

American workers stay longer in the office, at the factory or on the farm than their counterparts in Europe and most other rich nations, and they produce more per person over the year.

They also get more done per hour than everyone but the Norwegians, according to a U.N. report released Monday, which said the United States “leads the world in labor productivity.” …

… The U.S. employee put in an average 1,804 hours of work in 2006, the report said. That compared with 1,407.1 hours for the Norwegian worker and 1,564.4 for the French.

Here in America, “a manufacturing employee produced an unprecedented $104,606 of value in 2005,” it says. What the AP doesn’t tell us is since 2005 he was laid off without health care or a pension, his job went overseas, and CEOs grew wealthier.

Even so, you can count on finding a happy rightie blogger: “So, still think everything is gloomy in the US? Really?”

Gary Younge seems a tad gloomy:

There are moments when things really are the way they seem and facts really do speak for themselves. Bad as the facts may appear, attempting to rationalise them only makes matters worse. Trying to convince people otherwise only insults their intelligence.

So it would have seemed last Tuesday when the US census bureau revealed its latest findings on income, poverty and health. The report showed that since George Bush came to power the poverty rate had risen by 9%, the number of people without health insurance had risen by 12%, and real median household income had remained stagnant. On the second anniversary of Hurricane Katrina we learned the racial disparity in income and the gap between rich and poor show no sign of abating.

Bush declared himself “pleased” with the results, even if the uninsured presented “a challenge”. He pointed out that over the past year poverty had declined (albeit by a fraction, and from the previous high he had presided over) and median household income had increased (albeit by a fraction and primarily because more people were working longer hours). Maybe he thought Americans would not realise that five years into a “recovery” their wages were stagnant, their homes were being repossessed at a rate not seen since the Depression, and their pension funds were on a roller coaster.

Having beckoned ordinary Americans with the lure of cheap credit and stock market gains, the invisible hand of the market has now grabbed them by the scruff of the neck and is shaking them mercilessly.

Steven Thomma reports for McClatchy Newspapers that Americans generally are a tad gloomy:

A year before they choose a new government for the post-Bush era, Americans are desperate to change the country’s course.

According to opinion polls and interviews with political experts and voters, the U.S. population is more liberal than at any time in a generation, hungering to end the Iraq war, turn inward and use the federal government to solve problems at home. …

… The surveys point to one thing almost all Americans tend to agree on: They’re deeply unhappy with the way things are going in the United States and eager to move on. There’s virtually no appetite to extend the Bush era, as there was at the end of Ronald Reagan’s presidency in 1988 or Bill Clinton’s in 2000.

  • Just 1 in 5 Americans think the country is going in the right direction, the worst outlook since the Reagan-Bush era ended in 1992.
  • Less than one-third of Americans like the way the current President Bush is handling his job, among the lowest ratings in half a century. The people had similarly dismal opinions just before they ended the Jimmy Carter era in 1980, the Kennedy-Johnson years in 1968 and the Roosevelt-Truman era in 1952.
  • The ranks of people who want the government to help the poor have risen sharply since the early 1990s — dramatically among independents, but even among Republicans.

    • Daniel Gross writes at Newsweek about how the mortgage bubble burst is dragging the rest of the economy down with it. (BTW, Paul Krugman predicted this more than two years ago.) See also Hale Stewart, who thinks the next few months will be very dicey for the markets.

    Let’s go back to Gary Younge:

    In 1991 Clinton’s chief strategist pinned a note on the wall of his campaign headquarters to remind the team of its core message: “the economy, stupid”.

    A similar focus may once again be necessary, although translating that maxim into votes is not straightforward. Paradoxically, the states with the highest levels of poverty and lowest incomes are staunchly Republican. Poor people tend not to vote, and candidates tend neither to appeal nor refer to them. However, economically they are a glaring and shameful fact of American life; socially and culturally they dominate the centre of almost every moral panic – but politically they do not exist.

    The poor aren’t the only invisible Americans:

    Most Americans identify themselves as “middle class” – but in the middle of what is not clear. Anything that would identify working people as a group with a collective set of interests that are different from and at times antagonistic to the interests of corporations has pretty much been erased from public discourse. People will refer to “blue collar workers”, “working families”, “the poor”, the “working poor”. But the working class simply does not exist.

    Anything that would identify working people as a group with a collective set of interests that are different from and at times antagonistic to the interests of corporations has pretty much been erased from public discourse. And we know who controls public discourse.

    None the less, class does play a role. It is most often used by the right to cast liberals as cultural “elites”. The price of Edwards’s haircut, John Kerry’s windsurfing, Al Gore’s earth tones – all are exploited as illustrations of the effete mannerisms of those who claim to speak for the common man and woman. Class is not elevated to politics but reduced to performance: that is how the fact that Bush has made so little of his elite upbringing has become an asset.

    The conservative columnist Cal Thomas said of Edwards: “His populist jargon is nothing but class warfare.” If only. Long ago the wealthy declared war on the poor in this country. The poor have yet to fight back.

    Yet there is a ray of hope.

    None the less, in recent years the conditions associated with poverty have spread far beyond the poor. Almost two-thirds of those who lost their health insurance last year earn $75,000 or more. Homeowners are also not so easy to write off, not least because those hardest hit happen to be in politically sensitive areas. Of the 10 states that have suffered the most from foreclosures, six – Nevada, Colorado, Arizona, Florida, Ohio and Michigan – are swing states.

    Will the middle class surrender to serfdom, or will it fight back? The 2008 elections may provide a clue.

    Elsewhere — For some interesting historical perspective on Labor Day, see “The labor day that wasn’t” in the Boston Globe and a retrospective at the Los Angeles Times.

    And let us not forget what Theodore Roosevelt said in 1910:

    We cannot afford weakly to blind ourselves to the actual conflict which faces us to-day. The issue is joined, and we must fight or fail.

    In every wise struggle for human betterment one of the main objects, and often the only object, has been to achieve in large measure equality of opportunity. In the struggle for this great end, nations rise from barbarism to civilization, and through it people press forward from one stage of enlightenment to the next. One of the chief factors in progress is the destruction of special privilege. The essence of any struggle for healthy liberty has always been, and must always be, to take from some one man or class of men the right to enjoy power, or wealth, or position, or immunity, which has not been earned by service to his or their fellows. …

    … At many stages in the advance of humanity, this conflict between the men who possess more than they have earned and the men who have earned more than they possess is the central condition of progress. In our day it appears as the struggle of freemen to gain and hold the right of self-government as against the special interests, who twist the methods of free government into machinery for defeating the popular will. At every stage, and under all circumstances, the essence of the struggle is to equalize opportunity, destroy privilege, and give to the life and citizenship of every individual the highest possible value both to himself and to the commonwealth.

    Of course, if some Democrat were to say the same thing today, every rightie pundit and blogger in the Hemisphere would scream about class warfare.

    Divided and Conquered

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    There were a lot of great comments to yesterday’s Road to Serfdom post, and I want to keep the discussion going.

    For example, K wrote

    What the right has succeeded in doing is brainwashing a couple of generations that all the problems are individuals’ fault and responsibility and that group action( group insurance, group investment, group labor, even group retirement, group education, group military service) is evil and inefficient. They want to destroy public education, public retirement, public service, public military service, public investment, public works, public ‘insurance’. Give it all over to private interest so someone can get wealthy off of what used to be a public good and turn it into exploitation of individuals who have no power to fight large powerful interests. And yes welfare is great when it all goes to the few very wealthy to the toadies and the contributers. They just redirected government benefit to their little club and have loosed the vultures on what used to be a middle class america with economic and political stability. divide and conquer indeed.

    That’s the plan, isn’t it? The first step in the new road to serfdom is persuading people that it’s selfish — immoral, even — for people to expect government to do anything for them. Then, as quality of life erodes because old systems are breaking down, tell people that their problems are personal, not systemic. So, We the People are divided from our government — our government, notice — and from each other. And then the vultures move in.

    Steven Andresen linked to an article by Carl Bloice about the mortgage crisis. Millions of Americans face hardship and dislocation because of subprime loans and other “easy credit” scams. Further, the crisis is causing a ripple effect across many economic sectors that could leave the nation in recession. And apparently the leaders of many of these sectors got to President Bush, who announced yesterday the government would take steps to help some homeowners keep their homes. However, he was careful to explain his proposals were not a “bailout.” “It’s not the government’s job to bail out speculators or those who made the decision to buy a home they knew they could never afford,” Bush said.

    You’d think that these deadbeats held mortgage lenders at gunpoint and forced them to cough up bad loans. The truth is that many were scammed, lied to, manipulated, cheated, whatever else you want to call it, to go into debt over their heads. I was struck by this bit from the article Steven linked:

    Many dealers and lenders perceive these consumers as having fewer options, less financial experience, and a diminished sense of marketplace entitlement, thus making them more likely to be desperate or susceptible when it comes time to close the deal.

    However, Carl Bloice found “a pattern of responses to the subprime mortgage mess that seeks to absolve the financial sector of responsibility and place it on the shoulders of its victims.” The rhetoric in many of these responses poured contempt for those who were scammed. But I saw no criticism of the scammers.

    Mark Schmitt has a must-read post at The Guardian‘s Comment Is Free site.

    On the anniversary of Hurricane Katrina, we would do well to consider this statement from Jim Risch. He is currently lieutenant governor of Idaho and, if Craig resigns as expected, Risch appears poised to be appointed to succeed Craig immediately, which will enable him to run for the senate in 2008 (when Craig was scheduled to face the voters anyway) as an incumbent.

    A year ago, Risch was the acting governor of Idaho. He told this newspaper’s Oliver Burkeman how he viewed the victims of Katrina:

    “Here in Idaho, we couldn’t understand how people could sit around on the kerbs waiting for the federal government to come and do something. We had a dam break in 1976, but we didn’t whine about it. We got out our backhoes and we rebuilt the roads and replanted the fields and got on with our lives. That’s the culture here. Not waiting for the federal government to bring you drinking water. In Idaho there would have been entrepreneurs selling the drinking water.”

    Taken on its own terms, this is a cruel and unsympathetic statement, assuming that the deeply impoverished people of a city that had washed away could and should have just taken care of themselves. But if you look at what Risch was talking about, it’s truly astonishing.

    The dam that broke in 1976 was the Teton dam, built on the Snake River just a few months earlier, at a cost of $100m. (That’s worth almost $500m today.) Built not by entrepreneurs, but by the federal government’s bureau of reclamation. It was built at the political insistence of a few millionaire ranchers and potato-growers, whose political allies had persuaded the government to build a series of dams that transformed a desert into some of the richest and wettest agricultural land in the country. And it was built despite predictions that it would fail.

    And when it did fail, it was not the self-sufficient entrepreneurs of Idaho who “rebuilt the roads and replanted the fields.” It was, once again, the federal government. According to the government’s official history of the incident, federal agencies quickly rebuilt all the irrigation systems, and paid more than $850 million in claims to about 15,000 people who had lost property in the flood.

    In other words, it’s fine for a few “self-sufficient” ranchers to grow wealthy at taxpayer expense, but the poor are on their own.

    Mark Schmitt concludes (emphasis added):

    This, not Larry Craig’s awkwardly closeted sexuality, is the hypocrisy that matters. This hypocrisy consists not in a failure to reconcile public and private life, but in two public positions that are in absolute contradiction to one another: The belief that people must make it on their own, with no “whining” and no help from government, coexisting with a staggering, slavish dependence on government – and the federal government, and thus taxpayers of the rest of America, in particular.

    In a foreshadowing of Risch’s comment about the New Orleans victims, the author Marc Reisner, whose 1986 book Cadillac Desert is the finest account of these Western politics, quotes one of the Teton dam’s earlier opponents about the culture of this part of Idaho: they “get burned up when they hear about someone buying a bottle of mouthwash with food stamps. But they love big water projects. They only object to nickle-and-dime welfare. They love it in great big gobs.”

    This is the culture in which American conservatism – from Barry Goldwater’s Arizona to Ronald Reagan’s southern California, to George Bush’s Texas, where great wealth was made possible because the government subsidized money losing oil companies – was bred. It is a culture of self-delusion and hypocrisy that excuses great cruelty. And it’s far more dangerous than a poor old man in airport lavatory.

    This week no end of right-wing voices have heaped abuse on New Orleans. Klaus Marre writes for The Hill:

    GOP presidential hopeful Rep. Tom Tancredo (Colo.) said Friday it is “time the taxpayer gravy train left the New Orleans station” and urged an end to the federal aid to the region that was devastated by Hurricane Katrina two years ago.

    “The amount of money that has been wasted on these so-called ‘recovery’ efforts has been mind-boggling,” said Tancredo, who is running a long-shot presidential campaign. “Enough is enough.”

    Rightie blogger John Hawkins writes at Townhall:

    Two years after Katrina, everywhere you turn, there are people carping, whining, and kvetching. Just why hasn’t the pity party for the citizens of New Orleans run out of booze and chips yet?

    Everywhere on the rightie blogosphere you can read that New Orleans “got” $127 billion in taxpayer dollars, so what’s the problem? However, some of that money never left Washington; New Orleans was promised it, but hasn’t “gotten” it yet. [Update: I see in this Washington Times article that the $127 billion was allocated for “the region” of the Gulf Coast, not just New Orleans, but this is a distinction that got lost rather quickly.] It’s been stuck in bureaucracy or, in some cases, not released at all. And much that has been released was eaten by corruption and cronyism, or diverted into pork projects unrelated to Katrina. Yes, there’s a gravy train, but the folks stuck in FEMA trailers aren’t the ones lapping up most of the gravy. (There’s an article about this in the rightie e-zine Reason Online that’s not half bad; I don’t normally link to Reason but I’m making an exception in this case. See also “New Orleans: Where’s the money?” at CNNMoney.com.)

    Bob Herbert’s New York Times column (outside the firewall here) focuses on Andrew Stern, president of the Service Employees International Union, and the fears of American workers.

    The feeling that seems to override all others for workers is anxiety. American families, already saddled with enormous debt, are trying to make it in an environment in which employment is becoming increasingly contingent and subject to worldwide competition. Health insurance, unaffordable for millions, is a huge problem. And guaranteed pensions are going the way of typewriter ribbons and carbon paper.

    “We’re ending defined benefit pensions in front of our eyes,” said Mr. Stern. “I’d say today’s retirement plan for young workers is: ‘I’m going to work until I die.’ ”

    The result of all of this — along with such problems as the mortgage and housing crisis, and a domestic economy that is doing nothing to improve living standards for ordinary Americans — is fear.

    “Workers are incredibly, legitimately scared that the American dream, particularly the belief that their kids will do better, is ending,” said Mr. Stern. He is trying to get across the idea that in a period of such profound change, the old templates, the traditional ideas and policies of even the most progressive thinkers and officeholders, will not be sufficient to meet the new challenges.

    People are afraid because the systems that sustained the American middle class for many decades are breaking down. This breakdown is partly the result of new stresses, such as globalization, but in many cases the systems deliberately are being dismantled by the Right. The steady erosion of middle class quality of life is not a matter of laziness or lack of virtue or even bad luck. But our political and business elites address our concerns as if we were children fearing monsters under our beds.

    The American electorate needs to learn two things, and fast — one, our fears are well founded; and two, we have a right to use our government — our government — to find solutions that work for us. And I don’t mean by trickling down from some political crony’s over-stuffed pockets.

    Update: See also Steve Benen.