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The Monster Is Eating Itself

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Back on February 10, 2009 – before President Obama had completed his first month in office – two students at the Yale Law School, Jeffrey Tebbs and Ady Barkan, wrote an article which began with the point that the financial crisis was caused by the recklessness and greed of Wall Street executives.  Tebbs and Barkan proposed a “windfall bonus tax” on those corporate welfare queens of Wall Street, at the very moment when budget-restrained states began instituting their own economic austerity measures so that The Monster could be fed:

Last week, Connecticut Gov. M. Jodi Rell proposed a state budget that slashes crucial public services, including deep cuts to health care for kids and pregnant women, higher education and consumer protection.  She says that the cuts are necessary to close our state’s budget shortfall, but she’s apparently unwilling to increase taxes on Connecticut’s millionaires.

That is to say, while your hard-earned tax dollars are funding Christmas bonuses for Wall Street’s jet-set, Connecticut’s government will be cutting the programs and services that are crucial to your health and safety and to the vitality of our communities.

Since that time, “reverse Robin Hood” economic policies, such as the measures proposed by Governor Rell, have become painfully widespread.  As an aside:  Despite the fact that Governor Rell announced on November 9, 2009 that she would not seek re-election, the conservative Cato Institute determined that Rell was the only Republican Governor worthy of a failing grade on the Institute’s 2010 Fiscal Policy Report Card.

The entity I refer to as “The Monster” has been on a feeding frenzy since the financial crisis began.  Other commentators have their own names for this beast.  Michael Collins of The Economic Populist calls it “The Money Party”:

The Money Party is a very small group of enterprises and individuals who control almost all of the money and power in the United States.  They use their money and power to make more money and gain more power.  It’s not about Republicans versus Democrats.  The Money Party is an equal opportunity employer.  It has no permanent friends or enemies, just permanent interests.  Democrats are as welcome as Republicans to this party.  It’s all good when you’re on the take and the take is legal.  Economic Populist

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The party is also short on compassion or even the most elementary forms of common decency.  It’s OK to see millions of people evicted, jobless, without health care, etc., as long as short term profits are maintained for those CEO bonuses and other enrichment for a tiny minority.  It’s perfectly acceptable for this to go on despite available solutions.  If you don’t look, it’s not there should be their motto.

Beyond that, The Monster’s insensitivity has increased to the point where it has actually become too numb to realize that the tender morsel it is feasting on happens to be its own foot.  Until last year, The Monster had nearly everyone convinced that America would enjoy a “jobless recovery”, despite the fact that the American economy is 70 percent consumer-driven.  Well, the “jobless recovery” never happened and the new “magic formula” for economic growth is deficit reduction.  As I discussed in my last posting, Bill Gross of PIMCO recently highlighted the flaws in that rationale:

Solutions from policymakers on the right or left, however, seem focused almost exclusively on rectifying or reducing our budget deficit as a panacea. While Democrats favor tax increases and mild adjustments to entitlements, Republicans pound the table for trillions of dollars of spending cuts and an axing of Obamacare.  Both, however, somewhat mystifyingly, believe that balancing the budget will magically produce 20 million jobs over the next 10 years.

Simon Johnson, who formerly served as Chief Economist at the International Monetary Fund, conducted a serious analysis of whether such “fiscal contraction” could actually achieve the intended goal of expanding the economy.  The fact that the process has such an oxymoronic name as “expansionary fiscal contraction” should serve as a tip-off that it won’t work:

The general presumption is that fiscal contraction – cutting spending and/or raising taxes – will immediately slow the economy relative to the growth path it would have had otherwise.

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There are four conditions under which fiscal contractions can be expansionary.  But none of these conditions are likely to apply in the United States today.

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The available evidence, including international experience, suggests it is very unlikely that the United States could experience an “expansionary fiscal contraction” as a result of short-term cuts in discretionary domestic federal government spending.

Economist Stephanie Kelton explained that the best way to lower the federal budget deficit is to reduce unemployment:

The bottom line is this:  As long as unemployment remains high, the deficit will remain high.  So instead of continuing to put the deficit first, it’s time get to work on a plan to increase employment.

Here’s the formula:  Spending creates income.  Income creates sales.  Sales create jobs.

If you think you can cut the deficit without destroying jobs, dream on.

Dr. Kelton has identified the problem:  Deficit reduction schemes which disregard the impact on employment.  Nevertheless, The Monster is determined to press ahead with a “deficits first” agenda, regardless of the consequences.  The Monster will have its way because its army of lobbyists has President Obama under control.  As a result, we can expect increased unemployment, a diminished tax base, less consumer spending, less demand, decreased corporate income, lower GDP and more deficits.  The Monster’s gluttony has placed it on a course of self-destruction.  Perhaps that might be a good thing – if only it wouldn’t cause too much pain for the rest of us.


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Wisconsin Bogeymen Could Save Democrats From Themselves

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Until this week, it was beginning to appear as though November 6, 2012 would be the day when Barack Obama and the entire Democratic Party would fall victim to their incurable case of The Smug.  I discussed this syndrome back on December 2:

The Democratic Party is suffering from a case of terminal smugness. Democrats ignored the warning back in 2006, when the South Park television series ran the episode, “Smug Alert”.

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In the 2008 Democratic Primary elections, voters chose “change” rather than another Clinton administration.  Nevertheless, what the voters got was another Clinton administration.  After establishing an economic advisory team consisting of retreads from the Clinton White House, President Obama has persisted in approaching the 2010 economy as though it were the 1996 economy.  Obama’s creation of a bipartisan deficit commission has been widely criticized as an inept fallback to the obsolete Bill Clinton playbook.  Robert Reich, Labor Secretary for the original Clinton administration recently upbraided President Obama for this wrongheaded approach:

Bill Clinton had a rapidly expanding economy to fall back on, so his appeasement of Republicans didn’t legitimize the Republican world view.  Obama doesn’t have that luxury.  The American public is still hurting and they want to know why.

More recently, Robert Scheer lamented how President Obama’s economic team of recycled Clinton advisors shared the blame with Republicans in helping bring about the financial crisis and the ever-worsening income inequality between the “haves” and the “have nots”.  Mr. Scheer reminded us that the Democrats who promised “change” have been no less corrupted by lobbyists than their Republican counterparts:

The lobbyists are deliberately bipartisan in their bribery, and the authors of our demise are equally marked as Democrats and Republicans.  Ronald Reagan first effectively sang the siren song of ending government’s role in corporate crime prevention, but it was Democrat Bill Clinton who accomplished much of that goal.  It is the enduring conceit of the top Democratic leaders that they are valiantly holding back the forces of evil when they actually have continuously been complicit.

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Thanks to President Clinton’s deregulation and the save-the-rich policies of George W. Bush, the situation deteriorated further from 2002 to 2006, a period in which the top 1 percent increased its income 11 percent annually while the rest of Americans had a truly paltry gain of 1 percent per year.

And that was before the meltdown that wiped out the jobs and home values of so many tens of millions of American families.

Thanks to Wisconsin Governor Scott Walker and Wisconsin Congressman Paul Ryan, the Democrats now have two bogeymen, who can personify the “reverse Robin Hood” crusade of the modern Republican Party.  E.J. Dionne of The Washington Post recently placed the burden on centrists to prevent the draconian budget proposal introduced by Representative Ryan, from finding its way to the President’s desk (probably because it would be signed if it got there):

Ryan’s truly outrageous proposal, built on heaping sacrifice onto the poor, slashing scholarship aid to college students and bestowing benefits on the rich, ought to force middle-of-the-roaders to take sides.  No one who is even remotely moderate can possibly support what Ryan has in mind.

Mr. Dionne then focused his attack more directly on two “middle-of-the-road” political figures:

Erskine Bowles and Alan Simpson, the co-chairs of the deficit commission and the heroes of the budget-cutting center, put out a statement saying some nice things about the idea of the Ryan budget.  They called it “serious, honest, straightforward,” even though there is much about its accounting that is none of those.

What Mr. Dionne conveniently ignores is that it was President Obama who appointed Erskine Bowles and Alan Simpson as co-chairs of the deficit commission.  Those guys were never my heroes.  Last December, when I criticized Obama’s elevation of Alan Simpson and a Clinton retread to leadership of his own deficit commission, I incorporated some pointed observations by Cullen Roche of Pragmatic Capitalism.  The platitudinous insistence by Erskine Bowles (Clinton’s former Chief of Staff) that it’s time for an “adult conversation about the dangers of this debt” drew this blistering retort from Cullen Roche:

Yes.  America has a debt problem.  We have a very serious household, municipality and state debt crisis that is in many ways similar to what is going on in Europe.   What we absolutely don’t have is a federal government debt problem.  After all, a nation with monopoly supply of currency in a floating exchange rate system never really has “debt” unless that debt is denominated in a foreign currency.  He says this conversation is the:

“exact same conversation every family, every single business, every single state and every single municipality has been having these last few years.”

There is only one problem with this remark.  The federal government is NOTHING like a household, state or municipality.   These entities are all revenue constrained.  The Federal government has no such constraint.  We don’t need China to lend us money.  We don’t need to raise taxes to spend money.  When the US government wants to spend money it sends men and women into a room where they mark up accounts in a computer system.   They don’t call China first or check their tax revenues.   They just spend the money.

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Mr. Bowles finished his press conference by saying that the American people get it:

“There is one thing I am absolutely sure of.  If nothing else, I know deep down the American people get it.   They know this is the moment of truth”

The American people most certainly don’t get it.  And how can you blame them?  When a supposed financial expert like Mr. Bowles can’t grasp these concepts how could we ever expect the average American to understand it?  It’s time for an adult conversation to begin before this misguided conversation regarding the future bankruptcy of America sends us towards our own “moment of truth” – a 1937 moment.

We centrists actually know better than to take Simpson and Bowles seriously.  Unfortunately, E.J. Dionne’s hero – Barack Obama – doesn’t.

Wisconsin Governor Scott Walker has become the second bogeyman for the Democrats to spotlight in their efforts to cleanse their own tarnished images after selling out to Wall Street lobbyists.  As Amanda Terkel reported for The Huffington Post:

A divisive budget battle between labor unions and Gov. Scott Walker (R-Wis.) turned a state Supreme Court race into a nationally watched bellwether on the electorate’s mood heading into a recall campaign and the 2012 elections.

Nearly 1.5 million people turned out to vote, representing 33.5 percent of voting-age adults — 68 percent higher than the 20 percent turnout officials had expected.  JoAnne Kloppenburg has already declared victory, with the vote tallies showing her beating incumbent David Prosser by just a couple hundred votes.  The race is expected to head to a recount.

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There were no party affiliations on the ballot, but Kloppenburg was heavily backed by Democrats and Prosser by Republicans, making it a fierce proxy battle for the two parties.

Will the Wisconsin Bogeymen provide the Democrats with the inspiration and motivation they need to put the interests of the American middle class ahead of the goals of the Plutocracy?  Don’t bet on it.


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