Category Archives: economy

Why Do Righties Hate America?

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Conservative blogger Susan Duclos takes issue with my theory that large parts of the people opposed to raising the debt ceiling have no idea what the debt ceiling is.

Then again that is the same old song the left like to sing whenever the majority or plurality of Americans disagree with them. In their minds the American public isn’t educated enough on (insert issue here), the American public aren’t capable of looking into an issue and making their own determination.

Actually, I think (and have said many times) that most Americans can make sensible decisions about issues when the facts are clearly presented to them. However, that hardly ever happens any more. I blame news media for that.

I completely disagree with that. I believe the American public is watching the issue closely, they understand the ceiling is going to be raised but want to make sure the endless merry-go-round of borrowing, spending and being forced to borrow more because Washington overspends, ends.

Dishonest argument. Knowing “the ceiling is going to be raised” but wanting it tied to spending cuts, is not the same thing as being opposed to raising the debt ceiling.

The people responding to the Gallup poll were not asked if they preferred certain conditions to be met before the debt ceiling is raised. They were asked if it should be raised, period. It’s not at all clear from other news stories I have seen that the hard-core teabaggers will be placated by spending cuts if the debt ceiling is raised.

But Republicans in Congress, most of whom realize the debt ceiling will have to be raised, are using the issue to try to gouge concessions from the Democrats on cutting Social Security and Medicare. And this is partly because they are desperate to inoculate themselves from the political fallout of the Ryan budget. If enough Dems vote to cut Medicare and Social Security, Republicans won’t be clobbered by the Ryan budget in 2012. So they’re pushing the same “raise with conditions” argument that Duclos is making.

Back to the poll — the Gallup poll says that “Republicans oppose raising the debt ceiling by 70% to 8%.” Independents oppose it 46% to 15%, and Democrats favor raising it 33% to 26%. Remainders admit they don’t know enough about the issue to have an opinion, which is a remarkably large percentage of “don’t knows.”

A larger portion of Republicans than Dems or Independents say they are watching the issue closely, but I assume that means they are soaking in whatever propaganda is coming out of Faux News and rightie talk radio, and have no clue about what’s really at stake.

But if Duclos is correct, and and a whopping majority of Republicans understand the debt ceiling issue, then they must understand that not raising the debt ceiling could be an economic catastrophe. Yet they oppose raising it. Apparently, they favor deliberately trashing our economy. Why do they hate America?

The Republican Job Creation / Victory in 2012 Plan!

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The Republican Job Creation/Victory in 2012 Plan is a variation on the plan that has worked very well for them these past 30 years or so, namely —

1. Screw Everything Up
2. Blame Democrats/Liberals/Leftists
3. Win!

In fact, the only time this plan seems to fail for them is after a long run of dominating both the White House and Congress, and at least part of the electorate catches on that, just maybe, it wasn’t Democrats who screwed everything up. But this enlightened effect doesn’t seem to last very long, however, possibly because Dems fail to capitalize on it by taking over news media and ceaselessly repeating a few catchy talking points to drive home the point that Republicans screw everything up.

The precise plan right now is to jam through their insane “fiscal sanity” measures, which will cost the nation 700,000 jobs and cut economic growth by as much as 2 percentage points. Then, throughout 2012 yammer endlessly about “Obama’s economy.” Win!

Greg Sargent, who insanely is trying to be sane, writes,

Even if you disagree with these analyses, you’d think the fact that there are now two of them reaching similar conclusions would be newsworthy enough to break through the din of Beltway deficit-reduction fetishizing. The argument about budet cuts is too often framed solely as an argument between so-called deficit “hawks” and “doves,” as a dispute between those who say steep cuts are necessary and those who say they’re cruel and extreme. The fact that outside analysts think that budget cuts could actively hamper the recovery deserves to be part of the discussion.

Mais non, dear readers. That makes sense. Therefore, it won’t happen.

See also: Paul Krugman, “Not Enough Bureaucrats” and “Leaving Children Behind.”

Update: Now, here’s a man with clarity. Indiana Republican Governor Mitch Daniels said that cutting budgets is essential even if it costs a lot of jobs. He’s not even bothering with “underpants gnomes” thinking that cutting budgets magically will create jobs. He knows that the times demand budget cuts, because this will result in a leaner, meaner electorate that will not only vote for Republicans but will gratefully accept whatever the Corporate Overlords dish out.

Today in Capitalism

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Has anyone else noticed that every other ad on cable television these days is for Medicare Advantage plans? I guess “Obamacare” didn’t kill Medicare Advantage after all.

I also noticed a news story about a company called High Road Capital, which seems to be in the business of buying things, snapping up a whole lot of health care businesses.

Private equity firms have snapped up many companies that provide medical billing, coding and document processing this year in an effort to reap some of the government stimulus earmarked for the digitization of health care and to help the sector meet upcoming regulatory changes.

I assume they expect to make a profit.

Also, rejoice that we just had the strongest holiday sales season since 2006. That’s something you’ll never hear on Faux News.

Pallavi Gogoi, Associated Press, writes that top American corporations are racking up big profits, and stock prices also are up. And they’re hiring! Just not in the U.S.

All but 4 percent of the top 500 U.S. corporations reported profits this year, and the stock market is close to its highest point since the 2008 financial meltdown.

But the jobs are going elsewhere. The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year, compared with less than 1 million in the U.S. The additional 1.4 million jobs would have lowered the U.S. unemployment rate to 8.9 percent, says Robert Scott, the institute’s senior international economist.

“There’s a huge difference between what is good for American companies versus what is good for the American economy,” says Scott.

That last sentence is significant. Naturally, the incoming Congress will be tripping all over itself giving tax breaks to big corporations to create more jobs. India should thank us for subsidizing its economy.

Why Is There an Economy?

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From Paul Krugman’s blog:

There’s now a lot of talk about the fact that U.S. corporations are sitting on a lot of cash, but not spending it. I don’t find that particularly puzzling: with huge excess capacity, why invest in building even more capacity. But almost everyone seems to agree that if we could somehow get businesses to spend some of that cash, it would create jobs.

Which then raises the question: how can you believe that, and not also believe that if the U.S. government were to borrow some of the cash corporations aren’t spending, and spend it on, say, public works, this would also create jobs? (Brad DeLong has tried to make this argument repeatedly).

I didn’t know that U.S. corporations were sitting on a lot of cash, but this sort of ties in to something Yves Smith and Rob Parenteau wrote for the New York Times a couple of days ago, “Are Profits Hurting Capitalism?” In a nutshell, Smith and Parentau argue that over the past decade and a half corporations have been saving more and investing less in their own businesses. Smith and Parenteau continue,

The reason for all this saving in the United States is that public companies have become obsessed with quarterly earnings. To show short-term profits, they avoid investing in future growth. To develop new products, buy new equipment or expand geographically, an enterprise has to spend money — on marketing research, product design, prototype development, legal expenses associated with patents, lining up contractors and so on.

Rather than incur such expenses, companies increasingly prefer to pay their executives exorbitant bonuses, or issue special dividends to shareholders, or engage in purely financial speculation. But this means they also short-circuit a major driver of economic growth.

Krugman says that the corporations need an incentive to stop sitting on all that idle cash. Krugman discusses the famous exchange between President Lincoln and General McClellan, in which Lincoln asked McClellan if he could borrow his army, since McClellan wasn’t using it. Krugman continues,

We don’t literally have to borrow from the corporations; they’re parking their funds in the money market, and the feds would borrow from that market. But the end result would be to put some of that idle cash to work — and, ultimately, to give the corporations a reason to start investing, too, so that the deficit spending would crowd investment in, not out.

To which Brad DeLong adds,

After all, simply rename the United States government something like: “United States Joint-Stock Corporation” and then if it borrows and spends, or even spends more rapidly, employment goes up. The argument for the ineffectiveness of fiscal policy in all of its forms requires a rigid (or, at least, a completely interest-inelastic) velocity of money and money multiplier. And that means that increases in private desires to spend also have no effect save to raise interest rates–the full Say’s Law.

I had never heard of Say’s Law, so I looked it up. Apparently there are a lot of different “Say’s Laws,” including one that seems to support supply-side economics, but I don’t think that’s what Brad DeLong is talking about here. From what I glean from Wikipedia, Says (18th-19th century economist and businessman) said that what really drives an economy is the exchange of commodities, and that money is just a facilitator. That works for me.

I have long thought that we lose sight of what an economic system is for, which is to enable people to trade with each other for goods and services they need and want without having to do face-to-face negotiation for every little thing. So raw materials and finished goods all move to where they need to be without, say, the shoemaker having to barter directly with the tanner, and what if the tanner already has enough shoes?

Further, as I understand it, Say’s Law says the process of producing and exchanging goods and services will drive an increase in real income to purchase goods and services. That’s the part that gets picked up by supply-siders, but the flaw in supply-side theory is that just cutting taxes on businesses doesn’t necessarily translate into investment into more production of goods and services. As we see from the real world, it’s just as likely to create a class of hyper-rich corporate executives who sit on their money.

I think what Brad DeLong is pointing to here is that a desire for goods and services by itself will not grow an economy. It also suggests that when an economy becomes more about acquiring and hoarding money rather than producing goods and services, it will stagnate.

I thought this was all particularly interesting given the discussion that followed the last post. The righties who joined in continue to believe the private sector can save itself. In theory, I suppose it could. But the private sector is sitting on its hands, and there is no “market based” incentive in sight that might persuade it to do otherwise.

Welcome to the Plutocracy

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Business Insider — which I take it is not exactly a socialist propaganda sheet — has published 15 charts showing wealth and inequality in America.

The gap between the top 1 percent and everyone else hasn’t been this big since the Roaring Twenties. And we might remember how that ended.

You don’t want to read the comments to this article. In brief — Thank God we’re not like Europe! I’m serious.

See also Kevin Drum and Political Carnival.

Capitalism: A Love Story

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The opening credits to Michael Moore’s latest film appear against a backdrop of bank surveillance videos, shot during actual bank robberies. As I sat through this assortment of real life holdups – showing robbers sticking guns into tellers’ faces, jumping over counters, quickly grabbing the cash and stuffing it into bags – criminal human behavior that most of us have never experienced – it dawned on me that these bank videos depicted greed at its most intense and personal. This sets the tone for the rest of the film.

A 1960s Encyclopedia Britannica educational film, like the kind many of us saw in grade school, follows next, explaining the fall of the Roman Empire. The clip shows how Roman decadence, including a vast gulf between rich and poor, as well as bread and circuses for the poor, brought the empire down. This is brilliantly intercut with scenes from contemporary America, scenes that the original producers of the Britannica film could never have imagined. It’s as though the decades-old voiceover is describing our own time, instead of the Roman.

Moore then does a great job showing how the general prosperity of post World War 2 America gave way to Reaganism, from whence the looting of this country shifted into gear. Having grown up in a rust belt town in the 1960s – not unlike Flint Michigan – what Moore showed from his youth paralleled my own experience of how good those times were; this must seem unbelievable to younger generations.

A central, if not explicitly stated theme of the movie is how unbridled capitalism is turning our country into a nation of serfs. Wall Street dictates to an impotent government, even to President Ronald Reagan. Destitute citizens are hired by companies to issue foreclosure notices to those who are still clinging onto their homes. Those being evicted from their homes are hired and paid by the bank to clean up their home, before the bank takes it over.

For most Michael Moore films, I have found – because I’ve spent a lot of time on the internet – that I pretty much already know the subject matter going into the theater, and am simply thrilled that someone else gets it, and has the guts and vision to put it into a film. This movie went beyond that for me. I learned about Dead Peasant insurance – life insurance policies taken out by major companies on their employees. When an employee dies, the benefit goes to the company. While this might make sense in the case of hard to replace, highly valuable individuals, Moore shows that this practice is widely used on thousands of ordinary employees simply to make a buck, to add to the bottom line.

There were two other segments that opened my eyes. One was a memo written by Citigroup to (I believe) its biggest investors. It spoke of how the USA has become a Plutonomy – an economy run by and for the benefit of the wealthy. It openly talked about threats to this arrangement, notably the fact that everyone still has a vote. I have long realized that this was the state of affairs in the US, kind of a dirty secret that most people know to varying degrees; but to see this explicitly revealed, with all the implications, in black and white from a major player in the oligarchy was stunning.

The other segment is rare footage of FDR delivering a speech on a Second Bill of Rights, shortly before his death. None of these rights – for example, the right to a job and a good education – essentially elements of economic security – ever became part of the American way. Moore argues that they did become part of Germany and Japan, whose constitutions were rewritten after World War 2. He shows how the Japanese and German carmakers survived despite this, while American automakers have faltered and failed. Moore shows us a few worker owned companies in the US, and how their wages and conditions are much better than their top-down, capitalist competitors.

The villains in this movie are less the Republicans – although George W. Bush makes quite a few appearances via his speeches – and more the plutocrats who are behind both the Republicans and Democrats. The major heroes in this movie are: Marcy Kaptur (Rep-OH), Elizabeth Warren (chair of the Congressional Oversight Panel, formerly known as the TARP program), and William Black, a senior regulator during the S+L crisis. The minor heroes are many: among them are the Republic Window and Door workers who staged a successful sitdown strike to force the company’s bankers to pay them withheld wages; a poor family in Miami who organized their neighborhood and successfully rebuffed the bank’s (and the law’s) attempts to evict them.

Of course, there are the usual Michael Moore stunts of trying to speak to some corporate executive by storming the front gate – these are annoying but probably a necessary comic relief given the density and impact of the surrounding material. I felt that this film is probably Moore’s finest, most polished work. Having a large budget with lots of assistants to find the best archival footage, the best subjects to interview, and great music really helps. There are brilliant gems and nuggets throughout. It’s not easy to fit a critique of a huge subject like capitalism – something that all of us live and breathe in, to the point of being unaware of any other way of life, a sacred part of our national mythos, into a powerful 127 minute film.

Capitalism: A Love Story opened September 23 in NY and LA; it opens nationwide October 2.

Juxtapositions; or Kindle to the Rescue

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The latest word on the possible Boston Globe closedown is that the Union blinked. The Globe will stay in business, for now.

Full disclosure: The Boston Globe is owned by the New York Times Company, as is the other site I write for, About.com. A couple of months ago the company announced it was cutting the stipend for those of us who write for About.com on contract. Of course, we don’t have a union, so there wasn’t much we could say about it.

But also in today’s New York Times — will Kindle come to the rescue? I’ve never used one (although if you buy one from Amazon, please click through using the kindle widget on the sidebar so I get a cut, thanks). However, I can foresee a time when most of us will have broadband kindle-type devices with us all the time so we can download and read current news wherever we are. I would like that. No paper, no ink, no printing, big cost savings for newspapers. Not so good for printers, of course.

Paul Krugman discusses falling wage syndrome. Lots of people are taking wage cuts, and falling wages create more economic stagnation. Bill Anderson at LewRockwell sniffs,

You see, Krugman believes that there should be no consequences to an unsustainable boom, and that once a bubble bursts, then the spending that occurred during the boom must be continued at all costs. That is not economics, folks. That is nonsense.

Krugman wrote that an economy needs spending, or else it is stagnate. And if an economy is heading for stagnation, it needs more spending. I don’t see how anyone could argue with that. One thing defines the other; like if it doesn’t rain for a long time, it’s a drought. In other words, it’s not about what should happen, or what Krugman wants to happen, but what will happen. Hardly nonsense. But you know libertarians; Ann Coulter will win the Nobel Peace Prize before libertarians will admit Krugman might be right about something. He could say water flows downhill, and they’d argue with him.

The righties must have worn themselves out over the weekend defending the honor of hedge funds, because so far they’ve been quiet about the President’s plan to crack down on multinational corporations that use tax loopholes to avoid paying U.S. taxes. But Andrew Leonard writes,

But the president’s announcement Monday morning of a push to crack down on tax loopholes that allow multinational corporations to avoid paying what they owe to the U.S. government is already spawning half-hearted chatter on the cable news shows: It’s more proof of Obama’s antipathy to business.

The criticism is muted, however, because it’s just not a winning political proposition to defend multinational businesses that offshore jobs at a time when populist fervor rages so high.

Well, yeah. And if you missed it, be sure to catch the story about the Bush Administration’s American Jobs Creation Act of 2004 and how well that worked. It was great for business but bad for the economy, a circumstance that ought to cause heads to explode at LewRockwell.

Never fear for the rich, folks. Steve M tells us that in the past 100 days they’ve dropped $100 million on the George W. Bush Presidential Library. If they’ve got that much money to waste, I can’t feel too sorry for ’em.

Pity the Poor Hedge Fund!

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This follows up the last post, on “Why Is There an Economy?” A blogger named Corky Boyd is outraged that the Obama White House is strong-arming business.

Yesterday (May 1) on Detroit’s Frank Beckman’s morning talk show (WJR), bankruptcy attorney Tom Lauria made the incendiary accusation that the members of the White House had threatened to use the “the full force of the White House Press Corps to destroy” his client’s reputation if it didn’t acquiesce to highly unfavorable terms of the government’s proposed Chrysler restructuring plan. Because of the strongarm tactics, Lauria’s client dropped its opposition. …

…There is a pattern here. Financial institutions holding billions of Chrysler’s secured debt are being held hostage by the TARP loans they are not permitted to pay back. They are being forced to accept just pennies on the dollar for loans they made in good faith less than two years ago. Just like mob loan sharks, the administration wants them under its thumb so they can extort more and more concessions.

This is an abuse of power that goes beyond Nixon.

Oh Noes! Why is the White House being so mean to the nice businessman?

Here’s the reason: The client who is being strong-armed is hedge-fund manager Perella Weinberg Partners LLP. Perella and a couple of other hedge funds that owned a part of Chrysler’s debt have been obstructing Chrysler’s attempts to restructure itself and avoid bankruptcy. The hedge funders wanted Chrysler liquidated so they could take their money, and too bad if the loss of Chrysler sets off a chain reaction of failed suppliers and other businesses that send the entire American economy into a tailspin. Not to mention what would happen to the retirees, who would lose their pensions, etc.

Lisa Lerer at The Politico explains what happened.

“Bankruptcy is only required today because of the greed of a few hedge funds that held a fraction of Chrysler’s debt,” said Rep. Candice Miller, (R-Mich.) “President Obama today stated that he did not stand with these hedge funds and neither do I.”…

…“The administration put a great deal of pressure on those entities to go forward,” said Rep. Gary Peters, (D-Mich.) “They gave these hedge funds every single possible opportunity to accept the deal.”

Last night, the Treasury department sweetened their $2 billion cash offer to holders of Chrysler’s secured debt by $250 million. The secured debt holders would have gotten the cash in exchange for retiring roughly $6.9 billion in debt. The administration also extended an original 6pm deadline to continue negotiating through the night.

Sen. Debbie Stabenow, (D-Mich.) blamed the breakdown in negotiations on three large hedge funds – Oppenheimer Funds, Perella Weinberg Partners and Stairway Capital.

“We’ve been working with them every day, last night, and up until this morning,” said Stabenow. “They pushed as hard as they could.”

The White House strong-armed Perella Weinberg Partners into signing on to the $2 billion deal in order to leave something left of Chrysler to restructure. This in turn will, it is hoped, save thousands of jobs (you’re saving not just Chrysler, remember, but also suppliers) and at least some portion of employee health and retiree benefits. And this is good not just for the employees and retirees, but for the state and local economies in which these businesses are located.

In other words, three hedge funds tried to hold a chunk of our nation’s economy hostage, and the White House didn’t let them get away with it. And this meathead blogger says the White House is abusing power. Jeez louise, people are stupid.

Update: A mouthpiece for Plutocracy called “Founding Bloggers” links here, saying,

Right on cue, here is a liberal blogger that makes the case against the evil capital investors who would dare exercise their rights under contract.

What the pea-brains aren’t noticing is that there are vast numbers of contracts that are being shredded or amended because of the plight of the automakers. These include contracts with suppliers and, probably, dealers as well as workers. Everybody else is taking a hit. The White House is trying to spread the pain around so that there’s something to salvage and the overall U.S. economy doesn’t take a bigger hit than it’s already taking.

In a perfect world the automakers would be making a profit and the capital investors would be making a nice return on their investment. But when the Titanic is going down it’s not the time to complain that you paid for a cabin with a better view and want a refund.

Leaving 20th Century Economics Behind

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Eric Hobsbawm writes in The Guardian about the economic realities of the 21st century.

The 20th century is well behind us, but we have not yet learned to live in the 21st, or at least to think in a way that fits it. That should not be as difficult as it seems, because the basic idea that dominated economics and politics in the last century has patently disappeared down the plughole of history. This was the way of thinking about modern industrial economies, or for that matter any economies, in terms of two mutually exclusive opposites: capitalism or socialism.

This is exactly right, I think, but until a majority of our politicians and what passes for public intellectuals grasp this, our policies will drag way behind realities.

We have lived through two practical attempts to realise these in their pure form: the centrally state-planned economies of the Soviet type and the totally unrestricted and uncontrolled free-market capitalist economy. The first broke down in the 1980s, and the European communist political systems with it. The second is breaking down before our eyes in the greatest crisis of global capitalism since the 1930s.

The True Believers of both sides will argue no, no, no, pure Marxism/Free Market Capitalism has never been tried. But “pure” anything has never been tried. That’s the reality of our human condition. Any endeavor that requires human input is never pure. It will suffer some degree of corruption. Put together people, money, and power, and corruption is a certainty. That’s why any workable, sustainable model factors in corruption and makes some provision to keep it to a minimum.

That’s what the Marxists and the Ayn Rand culties cannot understand. Give all power to a central government planning authority, and you’re screwed. Give all power to an elite cabal of corporate heads, and you’re screwed. There has to be a way to reign in the power, to diffuse it, to oversee it and make it accountable to other power. That’s one reason the public and private sector need each other — to keep each other semi-honest.

The future, like the present and the past, belongs to mixed economies in which public and private are braided together in one way or another. But how? That is the problem for everybody today, but especially for people on the left.

From here, Hobsbawm talks about recent British history, New Labour and Thatcherism. But similar things go on here (is it the almost-common language?). Our Right has effectively taken itself out of the conversation (even though it won’t shut up) because it can’t let go of its old ideologies and aphorisms that don’t work any more. I’m not sure if what passes for a “Left” here is fully cognizant of the new reality, either.

But unlike the Right, the current Left has no one economic model that we all put on an altar and worship. At least some among us are looking hard at the current reality and thinking through solutions that might work in the real world, as opposed to solutions that make good sound bites and look good on a bumper sticker.

But a progressive policy needs more than just a bigger break with the economic and moral assumptions of the past 30 years. It needs a return to the conviction that economic growth and the affluence it brings is a means and not an end. The end is what it does to the lives, life-chances and hopes of people.

That’s something else that neither the Marxists nor the free-market Randbots ever understood.