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There They Go Again

Are you tired? I’m tired. Our national dysfunction is sucking the energy out of everything. And here they go again.

There have been a flurry of reports about the precise date when the Treasury department can no longer fudge paying the national bills. We will have hit the dreaded debt ceiling.  Presumably we’ll get a bump on our heads. Or something.

Anyway: I have ranted enough about the lunacy of having a debt ceiling. It is just dumb, the debt we are piling up is a consequence of past legislation, not current or new legislation. Besides the deficit is shrinking fast – too fast – and thus the pressure is off on the accumulation of debt. The immediate need to tinker with the budget is, therefore, far less of an issue than it was a couple of years ago.

But we knew that was going to happen didn’t we? After all even in an anemic recovery like ours the safety net costs start to go down as things pick up.

So why am I tired?

Because that self-imposed, and very foolish, debt ceiling is once more being used by the Republicans to blackmail us into accepting their extreme agenda. You know, the agenda rejected in last year’s election.

Today they submitted a laundry list of things they need done in order to support raising the debt limit. It’s an impressive list. It’s also very long. And absurd. Here’s part of the list as per the New York Times:

“They include a one-year delay of the president’s health care law, fast-track authority to overhaul the tax code, construction of the Keystone XL oil pipeline, offshore oil and gas production, more permitting of energy exploration on federal lands, a rollback of regulations on coal ash, blocking new Environmental Protection Agency regulations on greenhouse gas production, eliminating a $23 billion fund to ensure the orderly dissolution of failed major banks, eliminating mandatory contributions to the new Consumer Financial Protection Bureau, limits on medical malpractice lawsuits and an increase in means testing for Medicare, among other provisions.”

So they want to encourage pollution, slash into bank reform, neuter consumer protection, protect bad doctors, and make wealthy people pay for medicare. Well, that last one isn’t so bad. But the rest? A laundry list of sweetheart stuff for big business and other major players in the 1%. A bigger slap in the face for regular folks is hard to imagine.

This is tiresome. The Republicans have become so monotone. Not black and white. Just white. Pure white. And they’re not even shy about it.

No wonder we have no hope of dealing with inequality. They think it’s a good thing. I sometimes decry them as trying to send the country back into the 1800’s or into a type of Ayn Rand winner-take-all world. But I think I’m wrong. The truth is worse. This is overt class warfare on behalf of the privileged few.

And that story doesn’t end well.

When the wealthy disconnect from society, as our current plutocrats have, their commitment to any form of “common good” is eroded. They restrict their lens to their own issues and problems and ignore those of anyone else. They pretend they can survive without the rest. They demean them and resort to nasty tactics like defunding social programs in the name of “freedom from government”. Which they don’t actually mean because they are quick to mobilize big government when it suits them. As in bank bailouts.  This self centered approach to the deployment of government is why recent Republicans have tolerated big expenditures by Washington. In the last three to four decades the run up in the national debt has been bigger under Republicans than Democrats. They used the debt to do things they wanted. They see government expenditure as fine as long as the “right people” benefit. So Citibank is saved for the stability of the nation and is not labeled a “moocher”. Whereas the unemployed or the poor are seen as lazy and thus not worthy of help.

That is class warfare whether you want to see it or not. It is as clear as day. It is the story of the entire Reagan era. It was typified by Romney and his 47% comment that resonated so well on the right.

Can the nation reform itself to get rid of the plutocrats and their control before things get much worse?

I don’t know. But I am tired of these fights. These endless anti-democratic fights. The plutocrats lost the last election, but like spoiled brats everywhere, they are now stamping their feet and refusing to acknowledge that loss.

Until we break their power this will go on, and on, and …

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The Shiller Hedge

One of the reasons economists can be really annoying is that they always hedge. Or rather the more ethical, sober, and diligent ones do. This is, I think, because they have no strong theoretical footing. There is too little definitive in economics. Most of it is couched in excessive caveats. And even then it rarely says much that matches what we observe happening. Instead of saying “if this … then that”, most economics says “if this, if this, if this, if this … and if this … then maybe that, but only if this as well”. Worse, most of those caveats are other-wordly. Thus making the entire enterprise surreal.

But enough of that.

The result is that when a clever fellow like Shiller opines on something potentially incendiary or provocative, he feels obliged to be ultra-careful. Almost to the point of being noncommittal. The theoretical ground work being sufficiently unreal and riven through with unreal assumptions that any statement based upon it is necessarily equally riven through with doubt.

So when Shiller launches a shot at the financial industry it comes across as a nuanced and very balanced argument. Certainly restrained and well considered. And thus not much of a shot at all. You could be forgiven for not realizing that Shiller is lambasting finance and all who sail in it. In fact you could be forgiven for thinking he thinks finance is jolly good, in an economics kind of way.

If you look at banking and finance as an allocative device whose social function is to direct funds to the best projects available at any given moment you wouldn’t be far wrong. So you could then go on and try to measure how well its done. That’s very difficult because there’s a mess of other stuff that could get in the way of good allocation, but over time that stuff ought to be overcome.

So the question is: has our unregulated banking and finance system done a good job? Is our available pot of funding well allocated?

No. No it’s not.

This is, I think, part of Shiller’s message. The financial system has become something that makes money, not through good allocation but by through trading for its own sake. It diverts funds from the real economy – building factories, or financing new businesses for instance – and channels those funds into rent seeking activities.

Rent seeking being an activity that has no purpose other than to create a profit. No value is added to the economy at all, but the banks make a profit anyway.

And since rent seeking is easier than asset allocation – which is risky and requires tenacity and skill – it attracts hordes of clever folk who see an easy route to riches. They thus don’t go off into the economy and do socially useful things that end up creating jobs and wages for others, they sit at trading desks and gamble in order to earn fat bonuses. Or they run funds that buy companies and then fire the employees in order to recoup their investment and earn a profit.

What Shiller is trying to say is that deregulation was a total bust; that finance absorbs way too much talent; that the economy is thus messed up; and that we ought to be doing something about this.

Fortunately I am unencumbered by Shiller’s professional need for restraint. I see no need to hedge.

So I can say it: our banking system is screwed up and bankers are still ripping us off. Which is awful considering what the industry did to us a few short years ago.

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The End Of The World. Again.

Conservative people always predict the end of the world as we know it when confronted by reform. They are right. That’s the point of reform. In the last two to three hundred years, during the great progress we have made towards our modern freedoms, every single step has engendered an “end of the world” reaction. from those who have privileges under the old regime.

In the fifty years or so between the late 1700’s and the early 1800’s the world ended countless times. The great specter of the “mob” getting hold of political power so panicked conservatives with its dire world-ending consequences that they resisted any effort to extend voting rights, reform representation, or alter the constitutional privilege accorded property. Those with land – on both sides of the Atlantic – thought themselves the only suitable source of responsible government. After all, they had “skin in the game” because of their land, estates, and rental incomes. American independence did less to alter this establishment – indeed it sought to continue it – than the French revolution that sent shock waves of fear through aristocracies everywhere. And that nasty evolution, conservatives endlessly reminded themselves, led to Napoleon. Enough said. It took Waterloo to put an end to that nonsense, after which there was a determination to resist change with ever greater zeal.

All was for naught however as we know. Change was, and remains, inexorable. The rising middle class wanted representation. Then, so too, did workers. And women. And ex-slaves. And so on.

The dreaded curse of democracy engulfed the landed gentry, diverted legislation towards ameliorating injustices that those newly enfranchised people experienced, and otherwise upset the comfortable apple cart that conservatives treasured so much.

I am thinking about this for two reasons: one is that I just read Antonia Fraser’s book “Perilous Question” about the two tumultuous years ending with the passage of the Great Reform Act of 1832 in Britain. The second is the constant echo of the conservative lament we hear today in modern America.

In both cases the heart of the matter is that the conservatives benefit from the current set-up and thus imagine a zero-sum style game is being played out. If they concede to reform, they imagine they “lose” something. That loss may be simply power, it may be comfort, it may be having to admit that they had an unearned privilege, it may be any number of things. But they imagine a loss. And that loss will end the world. The world as they know it.

Between 1830 and 1832 the conservatives were led by people like the Duke of Wellington and Sir Robert Peel who were horrified at the prospect of sharing power with the under educated and certainly ungenteel regular folk clamoring for representation. The Parliamentary system was notably corrupt, deeply unrepresentative, and woefully in ned of updating. The new industrial cities had no representatives, whereas a few totally empty tracts of land were well represented. Great landowners appointed representatives for districts that they “owned”. Industrialization and rising levels of education had created a class of people for whom this antiquated system was nonsense. European disturbances added to the growing fever in favor of reform. Landowners took to hiring armed guards. Talk was of a choice between reform and revolution.

Ultimately reform passed and the world did end for the aristocrats. They persist to this day, but are nothing compared with what they were. And their leaders were correct: the Great Reform Act was not an end point, but a step along the way to greater democracy. Interestingly the very word democracy was so inflammatory that no reformer dared utter it for fear of bolstering the opposition. Earl Grey, the leader of the reformers, took care to refer to the “people” in order to draw a distinction with the ghastly “mob”. Even the reformers feared the mob. Less so the people.

Nowadays the mob appears as the 47% of Mitt Romney fame. They are the “moochers” who drain the vitality from our economy and harass the “job creators”. Giving the mob more will inevitably destroy our nation’s competitive strength – so the story goes – because it will undermine the toughness and entrepreneurial spirit that has served us so well in the past. Conservatives always conflate their well being with that of the nation. So any loss to them – higher taxes for instance – is, somehow, a loss to the nation. Things will go wrong for all, they argue, if the mob is allowed to get goodies for itself without “earning” those goodies. Usually through self-denial and hard work. Just like the conservatives, plutocrats, and aristocrats “earned” their wealth. Inheritance rarely gets mentioned. I wonder why.

Conservatives never see the right to be free of economic worry, through higher wages or social safety nets for instance, as a right. In contrast the rights of property are sacrosanct in their minds. Privilege will always define its state as somehow naturally ordained, and the desires of the mob as unnatural and even crass.

If only those people would work hard. Like I did.

Those people are poor because they are lazy.

Those people milk the social programs. They cheat. They are a burden on us. They ought to earn a decent living. Like I did.

And so on.

It is a tradition on the right, and amongst conservatives generally, to demean the motives of the poor. So the recent attack in Congress on food stamps by extremist Republicans is justified, by one religious leader, as being morally healthy. Starvation will bolster the moral fortitude of the starving. Poverty will induce hard work. The loss of social support will be offset by an upwelling of individualism. That’s all it takes.

It isn’t surprising to read such comments from conservatives. They are convinced that they, and their privileges, are a result of their own hard work. Luck, especially luck of being born in the right place and at the right time, never enters their minds.

So it was in 1832. So it is now. Plutocrats are plutocrats no matter what era they infest.

The paradox is that the world never actually ends. Despite the constant encroachment by the mob. Despite democracy, our economy has done quite well. Entrepreneurs still flourish. Indeed they still make fortunes. America still innovates quite a bit. It manages somehow. The mob’s rise to power hasn’t undermined everything. All those repeated dire warnings never actually match anything manifest. They are just vapor. They are the angry resentment of a few who are facing changes they don’t like.

On October 1st this year Obamacare kicks into gear. It goes live. After that, every day it survives a few more of the mob will get better, cheaper health care. Eventually enough of the mob will realize that they need to keep Obamacare alive. It’s good for them. Heck, they might even want to reform and improve it. Then what can the conservatives do? Take health care away? raise its cost back up? Defy the mob?

I don’t think so.

No wonder they’re hyperventilating over health care reform. It’s inevitable. Irreversible. And great for the mob.

No wonder they’re predicting the end of the world. Again.

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More Extremism

Nobody likes losing elections. To do so is to suffer the rejection of things held dear. Still there’s always the next, which is a saving feature of democracy. Apparently the Republicans have no time for democracy: they want to short circuit the process and topple Obama right now. More particularly they want to topple Obamacare. This is making them say and do some truly stupid things.

Obamacare is the law of the land. It was passed with due process. It was signed into law appropriately. It even survive a challenge in the Supreme Court. It is as constitutionally solid as can be. Not only this but it featured strongly as an issue on last year’s election, and the guy advocating it beat the guy opposed to it. Handily. As in not even close. So the public has spoken.

This is a nuisance for the Republicans who want to get rid of it – and, I suspect all the other horrible social programs the federal government offers its citizenry.

So. What to do?

Well behave like a damned fool. That’s Ted Cruz’s solution. He’s an idiot. And he’s from Texas so he’s a big idiot – everything is bigger down there. So he’s thrown himself into a frenzy of “defunding” Obamacare. So obstinate is he that he is threatening to take the government budget down with him and, if need be, to force the shut down of all government services. This is lunacy because Obamacare would continue to get funding even if the government is shut down. That’s the law.

The point that appears lost on Republicans is that if there’s a law you don’t like you simply need to win an election and then legislate its elimination. The difficult part being to win the election. Which, for the modern Republicans is becoming ever more difficult.

So difficult that some of their more extreme followers – the true believers – feel disenfranchised. None of their kooky ideas seems to be getting much mass support.

Which can mean only one thing in the mind of a true believer: there’s a conspiracy afoot. It can’t be that the idea is kooky after all.

As proof of what can happen next I offer you these comments by one Larry Klayman, and avowed conservative and someone not yet convinced that Obama is actually American.

In a recent article he said that:

Obama will be forced to answer for his “criminality” and “Muslim, socialist, anti-Semitic, anti-Christian, anti-white, pro-illegal immigrant, pro-radical gay and lesbian agenda.”

A better articulation of the right wing’s laundry list of all that’s wrong in America you could not ask for. Clearly Klayman is a fact based kind of guy.

He goes on:

“We must act now. Our Founding Fathers pledged their sacred honor, fortunes, and lives to form a new nation under God. They knew that the odds of defeating the British were not great, save for His Divine grace and intervention. Now, 237 years after they signed the Declaration of Independence in my native city of Philadelphia, the nation has come full circle to the tyranny that has been imposed by a new despot, one far more evil than King George III. King George III may have been a greedy “control freak,” but at least he was a Christian. The United States is being run by a Muslim bent on furthering an Islamic caliphate who seeks to destroy our spirituality and the body politic of our Judeo-Christian roots.

Life is not easy. It requires risk and sacrifice. If as a nation we want to restore our freedom, and we are on the verge of being enslaved under Obama’s socialist Muslim inclinations, we must take our fight to a new level. Tea partiers, bikers, construction workers, police officers, school teachers, farmers, truckers, clergy, housewives, husbands, students, doctors, lawyers and all elements of our society who see our nation slipping away into the abyss, must now stand tall and descend on the capital, much like the Egyptians recently did in ousting another radical Muslim, their then president Mohammed Morsi. If the Egyptians can seek to rid their country of the poison of the Muslim Brotherhood without any real history of democracy, then we Americans, who know what democracy is and have practiced it prior to the ascension of the great usurper, can and must succeed.”

Wow.

I guess that’s all more fun than actually, you know, trying to win elections.

America is exceptional. Exceptionally dumb sometimes.

 

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The Austerity Flop

A very quick thought:

The obsession with the federal deficit is misleading if you want to consider the effect of austerity here in the US. State and local government makes up a very sizable chunk of total government spending, and is, obviously, beyond the control of Washington. That means fiscal policy can be altered by decisions all across the country. This makes it difficult to assess the effects of things like the 2009 stimulus with precision.

When you look at government spending in this way, in total, you see that it has been declining for a while, and especially since around the middle of 2010. The much debated federal stimulus was offset by massive state and local government reductions. So government spending has been on a steady downward track for the past three years – in sharp contrast to the overheated invective you hear from Washington.

What does this mean?

It means that we have been pursuing austerity style policies.

And how’s that working for us? One way to look at it is to take the spending gap – the difference between where spending might have been without the cuts, and where it is in fact – and try to estimate its impact on GDP. After that you can, very roughly, figure out how many more or fewer jobs there are. In other words you can prove or disprove the claims of the austerity advocates.

If you do these calculations – as Krugman has on the back of an envelope – you arrive at the not unsurprising conclusion that austerity is a major flop. I say unsurprising because there were a number of us who said this was the likely result all along. Krugman’s numbers appear to say that the entire reason we have lingering high unemployment is due to austerity. Even if he’s off quite a bit, it’s clear austerity is a significant drag on the economy.

There are two points to make consequent to this analysis:

  1. Austerity advocates have been shown to be wrong. They have no credibility going forward. We should ignore them. They argued that less government spending would somehow impel a surge in private activity sufficient to offset the lost demand due to austerity. It didn’t. The private sector has recovered in many respects – consumer spending is top, so is investment – but by nowhere near enough to get the economy out of the doldrums.
  2. The political advocacy of austerity was not about austerity as a way of freeing up the private sector, but was about reducing government as a factor in the economy. It was not an economic policy at all, it was an expression of an ideological position. Austerity advocating economists were simply providing cover for a deeper anti-social motive, that is now exposed clearly. Most of those economists are now silent, but none are retracting their work. Why should they? Their job is done.

The battle has now shifted. We are now reading constantly about the next wave of attacks on government spending. This time in the guise of affordability. Or lack thereof. The focus is public worker pensions. Cities and states across the US are considering ways to eliminate or reduce their pension obligations to municipal workers. That these obligations are contractual is no obstacle. Compliant courts appear willing to set aside those contracts. The issue stems from years of tax cutting. So unwilling are many local governments to raise taxes that they have had to cut services to the bone in order to keep paying their pension obligations. This manifests itself as far fewer teachers, fewer police and fire fighters, and sundry other things such as less clean streets, parks and so on. The citizenry is now upset by the lost service but is unwilling to pay the taxes to restore it. Those pension obligations stand between a normal service and low tax rates. So they have become a target.

So not only has austerity hammered the national economy it has undermined local services, and in some cases, safety.

I call this the austerity flop. Its advocates call it a victory for freedom from government.

I think I am more accurate.

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