Our Leaders are Idiots

There is no better evidence that our educational system is in shambles than the complete inability of our leaders to learn from history. Clearly they didn't learn much of anything in school. Well, that's if they even went to school. A disturbingly high number of our leaders didn't even go to college, and yet we're entrusting them with decisions about our country's future? How is that even possible?

Shortly after the 1929 stock market crash the response from government was to cut spending and implement austerity measures in order to stabilize the markets. The opposite happened. A rapid contraction of government spending resulted in even less commerce and even less spending which caused businesses to fail and millions of Americans to lose their jobs, which sent the country into the Great Depression.

At first in the wake of the financial crisis of 2008, I thought maybe we'd learned from our mistakes. A rapid stimulus response pumped money into the economy and spared the crash that may have happened had it not been goosed with that money. But now, just as that stimulus money dries up, the budget hawks are calling for spending cuts and austerity measures. This is during a jobless recovery. We still have official unemployment of 9% and unofficial unemployment over 16%. More Americans are out of work today than were out of work during the Great Depression. Sure, we're a bigger country now, but that's still a lot of misery going around.

Meanwhile we have messages like this coming out of Congress:

Americans deserve immediate spending cuts that demonstrate that we are charting a swift path toward a balanced budget. We must implement discretionary and mandatory spending reductions that would cut the deficit in half next year.

This was a message from the Congressional Republican Study Committee.

Why do we deserve immediate spending cuts? What did we do to deserve having our safety nets slashed just when we're clinging to them to keep from falling into the abyss? Why do we deserve to have spending cuts when what we need right now is economic stimulus? We don't need a contraction in the one part of the economy that has actually continued to spend. We need continued investment in our economy to keep it from collapsing in on itself. We're not out of the woods ... we're still in the thick of it.

What we actually deserve is leadership up to the task of leading. Up to the task of defending the working (and unemployed, and elderly, and youth) people of the United States against the transgressions of the money whores.

If you're really concerned about the budget deficit and national debt, then raise taxes on those sectors that have actually weathered the storm with remarkable ease ... the top 2% that those Bush tax cuts went to. I know I've said all this before, but I'll keep on saying it, because it's still the truth.We're supposed to save during good times and spend during bad. The trouble is we spent during good and now those idiots who didn't pay attention in school want to save when times are bad. It's backward. It's stupid. It's ignorant.

But I guess I agree with one thing. It is what we deserve. Voters get what they deserve and in 2010 we actually invited the Republican party back into power and this is the result.

Bend over, America. The Boehner's back.

The Unoccupied Middle

According to Gallup polling, conservatives outnumber liberals in the United States by more than 2:1. At least as of 2010 figures in which 42% of Americans self-identify as conservative ideologically and 20% self-identify as liberals. An additional 35% self-identify as moderate. It's really this middle ground that determines elections if they're motivated to vote. But this also represents the most conservative our country has been since Gallup began this polling in 1992. 

Rather than get into why this has happened, I'd rather think about what this means.

Republicans appear empowered after their 2010 midterm election win, which gave them control of the House of Representatives and a number of Governorships. In just a few short months since their swearing in in January 2011 they've accomplished a remarkable amount, at least on paper. Virtually none of their legislative actions have a hope of passing the Senate or being signed into law by the president, but they've had much more success at the state level where they've severely hampered worker's rights in Wisconsin and other places. 

I'm sure they'd argue this is what the voters sent them to Washington (and state capitols) to do. I'm sure some voters would agree with them. Where I think they'll run into trouble is that many other voters did not. 

But the GOP appears to be rushing headlong toward a more conservative position. The expected passage of Paul Ryan's budget plan for 2011, which would cut taxes for the wealthy and corporations while turning Medicare into a voucher system, is a conservative's wet dream.

Add to that recent polling that has Donald Trump handily leading the pack of potential 2012 GOP presidential nominees with 23% of likely Republican voters saying that they will not vote for anyone who is not a birther, it's pretty clear the that GOP has shifted hard right. 

Very hard right. 

This is an opportunity for President Obama and the Democrats. All they need to do to be successful in 2012 and beyond is to step into that middle ground that's been nearly completely abandoned by Republicans. 

President Obama has begun his move in this direction by both going along with the extension of the Bush tax cuts, which while it did not raise taxes for the wealthy, it also kept taxes lower for the rest of us. His own $4 Trillion deficit reduction plan, which he announced this week is also much more moderate than that proposed by Ryan. In the case of Obama's budget proposal, he's got both conservatives and liberals upset, which suggests it got it just right. 

The GOP has proven themselves adept at controlling the message (remember the death panels and other nonsense about health care reform), but they're going to have a hard time spinning their recent actions into something moderates will buy into. The longer the Tea Party and Birthers dominate the polling for the GOP nominee for president, the harder right the electable Republican hopefuls will need to shift. And the harder time they'll have beating a president who is stepping in behind them into the big empty middle ...

A middle devoid of Republicans, but not devoid of voters. 

Six months ago I thought Obama was extremely vulnerable for re-election. The longer things go on like this and the further right the GOP pushes things, the easier time he'll have winning 4 more years. 

The Debt is Coming, The Debt is Coming!

Okay, I'll play.

We've known for ages that the National Debt was an albatross around the necks of our future solvency. And as should be expected in our attention deficit afflicted political system, the unpopular choices have been kicked down the road time and again.

Let's start our story in 1993 when President Bill Clinton and Congress passed the Omnibus Budget Reconciliation Act of 1993. Built into the act was a mandate to balance the federal budget over a number of years.This passed without a single Republican vote. Let me repeat that. Without a single Republican vote.


By the year 1998 this had been achieved. We had a budget surplus for the first time in 30 years. The economy was humming and our house was in order.

By 2004 we were running record deficits. In the middle of a boom period. Record deficits.

What the hell happened?

9/11 happened and then we went to war. Military spending skyrocketed. Then the Bush tax cuts happened and tax revenue plummeted. Between the increased costs of the wars and the decreased revenue, we ended up in pretty deep deficits.

The typical rule of thumb has been "surpluses in good times, deficits in bad times" ... this, of course, makes perfect sense. When the economy is going well there's less demand for support services and the tax revenue received can be saved for a rainy day. During bad times that surplus can be tapped into to make up for lost tax revenue through the economic decline. It's a perfectly reasonable and sustainable approach to government spending.

And that's largely what we did as a nation until relatively recently. There was no reason - zero - for not running a continued surplus or at least only a minor deficit from 2002-2007. Usually, when our country has gone to war, taxes have been raised to pay for the fight. An unpopular war is one that voters rise up against, because their tax dollars are not being put to good use. We didn't have that reaction to Afghanistan and then Iraq, because it didn't feel like we were paying for it ... but we were ... and our children will since it was all added to the National Debt.

Then things went in the shitter. In 2007 the bottom fell out of the housing boom. In retrospect it looks almost inevitable, but at the time a lot of supposedly smart people got caught with their pants down.

Our record deficits we were running during the boom from 2004-2007 became astronomical in the "Great Recession" of 2008-2010. Why? Well, again, it's pretty simple.

1. More people need support services during bad times.
2. Tax revenues declined as they always do during a recession.
3. We're still at war.

Now we have an astronomical deficit and a rapidly increasing National Debt, which will quickly become unsupportable.

We're caught in a really hard place. We're supposed to spend our way out of a recession - the government making up for the slack demand in the economy until the private sector recovers and can get the economy going again on its own. Pretty simple math, really.

But now nobody in Washington has the spine to add more stimulus to our moribund recovery.

Instead, inexplicably, deficit hawks have begun targeting budget cuts to reduce the deficit. In a show of complete idiocy, the GOP threatened to shut down the federal government over $30B in federal spending. To put it in perspective, $30B represents a 1.8% reduction of the 2011 budget deficit (and less than 1% of the 2011 budget) This is just a couple months after the Republicans passed (and Obama signed) an $858B 2 year tax cut extension. So here's the math. If those tax revenues had been applied to the 2011 budget, we could have reduced the deficit by ~25%. Yep. The GOP wanted to shut the government down over 1.8%, but fought hard against 25%.

So now we've established that the GOP isn't serious about cutting the deficit. But neither are Democrats. At least not in the ways that are necessary to make this really happen.

This isn't the time to focus on deficits anyway - our economy isn't even out of the ditch yet - but if we were to focus on deficits, the solutions are surprisingly simple. But they are deeply unpopular.

Long term health of our government's budget will require raising taxes, reforming entitlement programs, and deeply cutting military spending. But who really wants to do any of that? Other than people who are sincerely committed to reducing the Federal Debt?

Oh wait. President Obama just released his 12 year plan to reduce the federal debt by ... raising taxes, reforming entitlement programs, and deeply cutting military spending. Well done, Mr. President. I can't wait to watch the inevitable Republican backlash to your reasonable approach to this contentious issue.

At least one politician gets it ...

With all the hue and cry about austerity and budget cuts, there is at least one lone politician on Capitol Hill who is consistently and loudly advocating for the less fortunate in the wake of the rape of our economy by Wall Street and the unfunded $3 trillion spending spree also known as the Iraq War. Want to look for a single cause of our burgeoning national debt? Look at the accounting practices regarding Afghanistan and Iraq War funding from 2001-2008. 

Nevertheless, while our politicians target safety net programs and public employee pensions as potential cost savings measures, let's remember that these same politicians have given enormous handouts to Wall Street and extended an enormous tax cut for the wealthy. 

Without further delay I give you Senator Bernie Sanders (VT-I) first expounding on how he sees things and then asking pointed questions to Treasury Secretary Timothy Geithner. 

The trouble with Bernie, of course, is that he's a self avowed Democratic Socialist. That means he is a socialist who embraces democratic principles. Remember, socialism is an economic system, not a political system. While democracy is a political system, not an economic system. When I say "the trouble with", what I really mean is that many find it easy to dismiss Bernie Sanders, because of his aversion to unfettered capitalism. Of course, when you stop and think about his position in this video clip, it is very difficult to contradict him without being a complete tool (of the plutocracy). 

It's the economy, stupid. (Part 1 of many)

Where to begin? From my perspective, virtually everything related to governing and the philosophy thereof is related to economics. Other things, particularly social issues which are so important to some people, are simply window-dressing when it comes to governance compared to the fundamental purpose of our government, which is to provide a safe environment in which our economy can grow and our people can be well fed, clothed, and pursue life, liberty, and happiness to their heart's content. 

Unfortunately, our government has done a poor job of this in the past 30 or so years.  It began with the misguided economic principles of Ronald Reagan and Alan Greenspan and has continued through each administration since, culminating with the near collapse of our credit markets in the early days of the financial crisis. Those were the dark days when the Troubled Assets Relief Program (TARP) was driven through Congress like a nail through balsa wood. No time to deliberate. No time to read and reflect. Must pass this legislation immediately or our banking system will collapse. 

It wasn't true. I won't go into the details. Movies like Inside Job and books like  13 Bankers provide plenty of insight into what happened during the crash and how it could have been prevented. How TARP could have been better managed. How that moment provided an opportunity to put regulations in place that would prevent a future bubble/burst of that magnitude from happening again. But since the TARP program was administered by former financial industry executives, they had no incentive to handcuff the industry that had made them wealthy beyond most of our imaginations.

Suffice it to say, a huge windfall befell the financial services industry, an industry that had grown from just 4% of GDP in the late 1970s to over 8% of GDP in the late 2000s. A doubling of a century old industry in just 30 years. How? Well, look no further than Reagan & Greenspan - deregulation of the banking industry. Investment houses went from private partnerships playing with their own money to publicly traded corporations with stockholders interested in short term gains over long term viability. And again from publicly traded corporations to publicly traded corporations gambling with bank deposits from regular banking customers.

Coupled with this deregulation of the banking industry, which had provided walls of protection between bank deposits and risky speculation, was the creation of a completely unregulated market of derivatives trading and the unregulated rating of these derivatives by the private ratings agencies and you have a recipe for disaster. 

That leaves us where we are today.

We're clearly in deep economic doldrums. Our economy's growth is sluggish. New jobs are not even keeping up with new workforce additions (every month people finish school or turn 18 and want to start working) so our latest jobs report shows that unemployment has risen from an atrocious 9.5% to an abysmal 9.8%. Underemployment is much higher - people who would like to work full-time but can only find part-time work. The stimulus plan, implemented almost 2 years ago, is fast coming to an end - it was a 2 year program.

Congressional Republicans have remained entrenched and unified in their support of Ronald Reagan's trickle down economic theory. That theory which in 1980 was presciently referred to by future President George H.W. Bush as "voodoo economics". 

It's actually not a bad theory, in theory, when the economy is soundly based on manufacturing and service industries and the economy is growing at a robust rate. But our economy has been increasingly converted to a paper dragon. The real economy, that based on concrete commodities or usable services, has been shrinking in many sectors, particularly wholesale goods manufacturing and construction. Meanwhile, the financial industry has more than doubled in size. And virtually all of the wealth in the last boom was created inside this industry. And they created nothing. Nothing of value. They traded in derivatives, which do not spur economic growth, do not spur job creation, do not spur technological innovation. Because nothing of value has been created and we've been shedding the kinds of jobs that do actually create something of value, we're in bad shape. 

Here we can take a step back for a moment.

Businesses create jobs when their output no longer meets the demand for their goods and services. The other reason a business might create jobs is if forecasts suggests there will be increased demand soon and there are incentives in place to develop that capacity now rather than waiting for when the demand hits. This is manipulated by the Federal Reserve through interest rate reductions. Most companies take out loans to develop additional infrastructure - when interest rates are low those loans are most attractive.

Demand for goods and services increases when the working classes have more income to spend. Tax cuts to the middle class, unemployment insurance, Welfare payments - all of these programs put money into the hands of people who will spend that money. Tax cuts for the wealthy result in investment in securities (e.g., derivatives), not increased demand for goods and services. 

Each $1 the U.S. government doles out to the unemployed results in $1.61 in economic stimulus. Welfare/food stamps are even better: $1.74. The Bush tax cuts? $0.32. The way this works is that when an unemployed person or welfare recipient gets their check, they spend what they're given. The people they pay for goods and services then spend the money they earn so the money goes right back into the economy a 2nd time. Thus each $1 can result in more than $1 in stimulus. Much of the Bush Tax cuts (and that's all of them, not just the tax cuts for the wealthy) go into people's pockets without additional spending for the economy, because most of the tax benefit goes to higher income earners - either the wealthy, who get the lions share, or the middle class who is still working, who is currently focused on reducing family debt levels and saving more for the future. So just $0.32 out of each $1 goes back into the economy. It's still stimulative, but at less than 1/5th the stimulative effect of extending unemployment benefits. 

This chart shows how much of the tax cuts go to each income group.

 

 

The most stimulative of these tax savings are in the lowest income brackets, probably those <$100,000 or so. Those are the people most likely to put the money directly back into the economy through increased purchasing power. Everyone else is much more likely to save money or invest it, which while theoretically a force for the economy, is much less so now that investment firms traffic so heavily in the derivatives markets.

And as you can see, the Republican plan, which is the plan that has just been agreed upon in yesterday's compromise between the Obama Administration and Congressional Republicans, gives by far the largest tax break to the wealthy who will be the least stimulative - they're not only least likely to spend their money, they're also the most likely to actively seek out complex securities for investment.

I realize this one rambles a bit, but I had to get that off my chest. I'm not too happy with the tax cut plan. 

All Out War

It's impolite to admit it, but we're at war. I'm not talking about Iraq, Afghanistan, or even Pakistan or Yemen. I'm talking about at war with ourselves. We have a domestic battle going on. And again, I'm not talking about red states versus blue states or the intellectual elites versus the mama grizzlies. I'm talking about class warfare. 

Conservatives call it "redistribution of wealth", and they're right. There's an effort by liberals in this country to redistribute the wealth. There's a reason for this. A sound reason. For the past 30 years the wealth has been redistributed in the opposite direction. 

Senator Bernie Sanders (I-VT) in this youtube video from the Senate floor, lays out the facts of this case in much more clear terms than I can hope to recreate here so I'll let the gentleman from Vermont stand on his own. 

Highlights (I'd argue they are lowlights):

- In 2007, the top 1% of Americans earned 23.5% of all income in the United States, up from just 8% in mid-1970s. 

- This top 1% earned more than the bottom 50% of all Americans combined. 

- The top o.1% (1/1oth of 1%) earns 12¢ of every dollar made in the United States.

- Between 1980 and 2005, 80% of all new income went to the top 1%. That leaves 20% for the remaining 99%.

- Wall Street executives largely responsible for the financial crisis are now earning more than they made before the bailout.

- We have the most unequal distribution of income and wealth of any developed country on earth. 

- Some in Congress have come out in support of $700B in income tax breaks over the next 10 years to the top 2% of earners. This would result in an average $100,000 tax break to each person in the top 2%. 

- Eliminating the estate tax would cost $1T over the next 10 years and that break would go virtually entirely to the top 3/10th of 1%.

- Our trade policy has resulted in the loss of millions of jobs earning livable wages in exchange for cheap goods overseas and higher corporate profits. 

- In 2009 ExxonMobil made $19B in profits, paid $0 in taxes, and received a  $156M refund from the IRS. 

All of these are verifiable facts. Not opinions. 

So at a time when our economy is in distress, we have sustained high unemployment, our federal budget deficit is growing daily through a combination of increased outlays to help the poor and unemployed and decreased tax revenue,  a substantial number of our leaders think it is sound policy to extend tax breaks to the top 2% of earners and eliminate the estate tax altogether, providing a $1.7T windfall to these highest earners over the next 10 years.

So we're clear, the extension of tax breaks to the wealthy represents just a 2.8% increase in their top marginal tax rate. This means they pay the same as everyone else on all taxes in all lower brackets. Only once they exceed $200,000 in taxable income as an individual or $250,000 as a couple do they pay an additional 2.8% of their income over those thresholds in taxes. The GOP is claiming this is necessary to create economic growth. These tax breaks have been in place for nearly 10 years. Where's the growth? It's a myth. It's a fiction. It doesn't work. We need the tax revenue to cover expenditures for the poor, the elderly, and the infirm. 

This is part and parcel to an assault on the working and middle classes by the moneyed elite in this country. It began under Ronald Reagan and it has continued under every president since, Republican and Democrat alike. Only now, under President Obama, has there been any pushback whatsoever against this systematic financial rape of the American people, and the resulting hue and cry from the wealthy and their shills has been shouts of "Socialism!", "Communism!", "It's a war. Like when Hitler invaded Poland in 1939!" All this when President Obama's policies and the Democrat-controlled Congress have been largely business friendly. His Justice Department has not pressed charges against a single Wall Street executive for defrauding investors. The financial reform law falls far short of what is likely necessary to avoid future bubble/burst cycles. The health care reform law does not actually capitate expenditures for healthcare. 

It's clear why this state of affairs exists. These moneyed interests own Congress. Their campaign contributions and political action committees trade treasure for power. Politicians who dare to stand up to these forces do so at their own peril. Wall Street, which had backed President Obama overwhelmingly in the 2008 election, poured their millions into Republican coffers in 2010. Apparently the president was too critical of their excesses and their payback was to support his opponents. No matter who wins the elections, the American public, at least the 98% or 99% of us who don't hold the purse strings, lose. 

You'll find this is a common topic for me to discuss. I've hesitated to call it war for a long time, but that's where we are. We have a choice. We can either continue to accept the status quo or we can stand up for egalitarian principles in which our interests are given equal weight to those with loads of cash.