It’s still the Economy Stupid! (version 9.999999999)

Personal Consumption Expenditure Revisions via Calculated Risk Blog. (People are not partying like it's 1999.)

Chatting up the ladies of The View is not going to get the majority of people’s minds off the worsening economy. The recovery is definitely slowing down and there are signs in the latest national product and income reports that are very disturbing to us necromancers of macroeconomics. The persistently high unemployment rate is taking its toll on consumer spending. Since that’s the main driver of the U.S. economy, things are not improving. It looks like on a sideways  slide.

One of the things that I really noticed is what Keynes referred to as the paradox of thrift in action. The personal savings rate for the second quarter was reported as 6.2 percent of disposable income. This is significantly higher than the 4 percent that most of the forecasters had anticipated. Coupled with poor consumer sentiment, this is a bad sign.

Confidence among U.S. consumers fell in July to the lowest level since November, posing a threat to the biggest part of the economy.

The Thomson Reuters/University of Michigan final index of consumer sentiment declined to 67.8 this month from 76 in June. The preliminary measure was 66.5.

Employment growth has been slow to take hold and lower home prices are depressing wealth. The lack of confidence may further restrain consumer spending, which accounts for 70 percent of the economy, and limit the pace of growth.

“Consumers have a lot to be concerned about,” Eric Green, chief market economist at TD Securities Inc. in New York, said before the report. “Private job growth is showing signs of slowing, not accelerating,” he said, and stock prices have declined since peaking in April.

People are not feeling secure enough about their wealth (home values, stock portfolio values, etc.) and their jobs to spend money. Instead, they are either saving their money or paying down debt. Either behavior has a bad result for the economy because it doesn’t translate into immediate spending. Because banks are building liquidity and capital and boosting their incomes via fees and arbitrage of investments, they are not lending. This means consumer savings is not translating into business investment. Plus, what business in their right mind is going to expand their concerns when you don’t see customers coming through the doors?

In fact, one of the most interesting trends we’re seeing right now is that businesses are buying equipment and not hiring workers. What profits they do manage to make is going to upgrade existing capital.

The fact that businesses seem to be investing more in equipment than in hiring may be a reason why households have been reluctant, or perhaps unable, to pick up the pace of their spending.

“There are limits on the degree to which you can substitute capital for labor,” Mr. Ryding said. “But you can understand that businesses don’t have to pay health care on equipment and software, and these get better tax treatment than you get for hiring people. If you can get away with upgrading capital spending and deferring hiring for a while, that makes economic sense, especially in this uncertain policy environment.”

Even the Federal Reserve is worried about the current trends.

On Thursday, James Bullard, president of the Federal Reserve Bank of St. Louis, warned that the Fed’s policies were putting the economy at risk of becoming “enmeshed in a Japanese-style deflationary outcome within the next several years.”

The warning by Mr. Bullard, who is a voting member of the Fed committee that determines interest rates, came days after Ben S. Bernanke, the Fed chairman, said the central bank was prepared to do more to stimulate the economy if needed, though it had no immediate plans to do so. On Friday, the government will release its estimate of gross domestic product for the second quarter of this year.

At the Fed, Mr. Bullard had been associated with the camp that sees inflation, the central bank’s traditional enemy, as a greater threat than deflation brought on by anemic growth. Until now he had not been an advocate for large-scale asset purchases to reinvigorate the economy.

Meanwhile, Congress seems completely out to lunch when it comes to fiscal policy. There’s a concerted effort by the right wing of the Republican party and many DINOS to push a meme that it’s all the fault of selfish poor people. I was appalled to read this particular bit of that in WaPO (h/t to BB). The current line is to push people’s needs to actually cash in on the insurance programs they’ve paid for to help them through bad times (e.g. social security, medicare, unemployment insurance) as ‘entitlements’ or some kind of welfare. This branding of safety net insurance programs is horrifying. My father paid for his social security benefits for over 70 years since its inception. To suggest that he’s adopted a “me first” attitude because he’s cashing in on his benefits it’s beyond morally reprehensible. Indeed, Neel Kashkari –a former Bush Treasury appointee–suggest that we should sacrifice further for the good of U.S. corporations. It’s like the fact they’ve been underpaying us for our increased productivity for decades now wasn’t enough sacrifice.

Cutting entitlement spending requires us to think beyond what is in our own immediate self-interest. But it also runs against our sense of fairness: We have, after all, paid for entitlements for earlier generations. Is it now fair to cut my benefits? No, it isn’t. But if we don’t focus on our collective good, all of us will suffer.

When a Republican like Kashkari starts talking about the ‘collective good’ you best mind your wallets. He touts TARP bailouts while telling us we need to fork over our future social security benefits. (Notice he works for Pimco now, he undoubtedly wants to churn up some investment fees from privatized social security accounts and forced saving.)

If you dig deeper into the numbers, it appears that the only reason we’ve experienced lackluster growth has been due to programs like the home credits for first time buyers, cash for clunkers, and money to states that have been used to save state workers jobs. Basically, government programs have given a short, one time injection into various markets but it’s not stopping their trends. It’s only slowing the momentum.

I’ve mentioned that Louisiana is about ready to go off the ‘budget cliff’ in a year and that all state schools and health facilities face an across the board cut of around 24%. From what I can tell already, most of that will come by nearly halving the work force at nearly all state run institutions. No wonder Republicans want to cut ‘entitlements’. How can you shift so many folks on to unemployment rolls and still save the state budget? Louisiana isn’t even one of the worst states like California. (Although if Bobby Jindal continues to have his way, it will be.) If any thing, states like California should be asking the Federal government to stop subsidizing North Dakota and Nebraska and send them back their federal tax money. Without that money, states like Louisiana would’ve been in the dumps at least two years ago.

I’m not sure why the group that’s in Washington DC doesn’t seem to get the extent of the bad news when it comes to the economy. It’s either purposefully ostrich-like or purposefully callous. Maybe it’s because a lot of them have forgotten what it’s like to live through continually high unemployment and job insecurity. It’s possible that there’s just way too many lawyers there and none of them have actually had experience with running a business or working like a serf for an unappreciative corporation.

Whatever it is, they need to get over themselves really quickly. If these patterns continue, it’s going to be a long slow decade and I for one, will not look kindly on any one that asks me to sacrifice for the good of corporate profits. This is especially when that sacrifice comes to giving back benefits that I’ve paid for since I was 15 years old and got my first job with a paycheck.


31 Days of Action

Check it out. Help end violence against women worldwide.

Women Thrive Worldwide presents the 31 Days of Action—a grassroots campaign intended to push Congress to pass the International Violence Against Women Act (IVAWA). Watch the video. Get inspired. Take action. Visit us at: http://www.womenthrive.org.

Find more videos here: http://www.youtube.com/user/WomenThriveWorldwide

Information from Amnesty International.

Information from UNIFEM.

Information from the Bill’s Sponsors SEN. JOHN F. KERRY & REP. BILL DELAHUNT & KERRY KENNEDY & LARRY COX via Politico.

IVAWA will support innovative programs that challenge public attitudes and cultural practices that perpetuate and condone violence against women and girls. In settings where women are prevented or discouraged from seeking justice, IVAWA will support training for police and judicial officials on countering violence against women and respecting the rights of victims. It will allow long-term prevention efforts such as increasing women’s economic security, expanding access to jobs and education, and engaging men to change behaviors and attitudes. Societies in which women are able to live and function in relative safety, empowered to realize their aspirations and move their communities forward are healthier, better developed, and more stable. Societies that take measures to deter discrimination and violence against women are better equipped to root out terrorism, less prone to conflict, and therefore more secure.

This isn’t just the right thing to do – it’s in our own interests. Investing in women makes sense because when they are safe and free to earn a living they invest in education and grow economies – making U.S. assistance dollars go farther. And, U.S. security benefits from the elevated status of women. The Joint Chiefs of Staff recently stated that one of the most effective forces for defeating extremism is female education. IVAWA will help make this possible


We come now to bury Supply Side Economics

I’ve been having a major hissy fit about the extraordinary bad policy measures proposed and undertaken by Republicans for sustaining tax cuts and deficits for as long as I can remember. The deal is, however, nobody likes it when you tell them they can’t have a free lunch when Ronnie Raygun repeated it ad infinitum. That is very much how the Republicans have achieved political victory since the Reagan years. Basically, they promise to cut taxes no matter what the circumstances and spend money on every military adventure and toy that comes down the pike and chock it up to preserving American exceptionalism. Ronald Reagan and Dubya Bush are responsible for the deficit today and the people that benefited from their tax cuts–and voted for them–should be asked to clean up the mess.

I was ever so pleased to read this article by FT’s Martin Wolf that recognizes ‘supply-side economics’ for what it is. It has nothing to do with a good economy and has everything to do with good politics. It’s a policy of promising and delivering everything and then screaming about the huge bill when a Democrat is in office. Every 8 years or so they do one huge Dine and Dash on the country. Wolf realizes this and basically calls Dubya’s tax cuts “massive, irresponsible, and unsustainable”. He also rightly calls the Reagan years for what they were. Reagan was a premier example of Keynesian policy. Ronald Reagan spent us out of the recession of the early 1980s. The only thing that was supply side about it was the high supply of bull shit rhetoric that went along with it. Some one needs to correct the message.

Ronald Reagan was the country’s premier Keynesian. Then Bill Clinton got into office and led us to a very long,very good business boom by doing what Keynes said to do during that time. You only deficit spend when the economy sucks. It had improved by the beginning of the 1990s. Bill Clinton was frugal. I can never forget the day that Dubya/Cheney looked at those surpluses they inherited and Cheney said, deficits don’t matter, Reagan showed us that. Then they immediately started two wars and gave away the Treasury to every corporation and rich person in the country. It’s damn ironic now that every Republican and Blue running Dawg thinks deficits matter. This is the time when we need them. We should’ve paid more attention to them like five years ago. But Cheney of no heart has brass balls and a spine. If only we had a Democrat in elected office with spine and balls.

Anyway, here’s Wolf’s nutshell description of supply side economics. It’s a good one.

To understand modern Republican thinking on fiscal policy, we need to go back to perhaps the most politically brilliant (albeit economically unconvincing) idea in the history of fiscal policy: “supply-side economics”. Supply-side economics liberated conservatives from any need to insist on fiscal rectitude and balanced budgets. Supply-side economics said that one could cut taxes and balance budgets, because incentive effects would generate new activity and so higher revenue.

The political genius of this idea is evident. Supply-side economics transformed Republicans from a minority party into a majority party. It allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?

How did supply-side economics bring these benefits? First, it allowed conservatives to ignore deficits. They could argue that, whatever the impact of the tax cuts in the short run, they would bring the budget back into balance, in the longer run. Second, the theory gave an economic justification – the argument from incentives – for lowering taxes on politically important supporters. Finally, if deficits did not, in fact, disappear, conservatives could fall back on the “starve the beast” theory: deficits would create a fiscal crisis that would force the government to cut spending and even destroy the hated welfare state.

In short, Republicans chose one side of Keynesian economics–the side that uses government spending or tax cuts to spur an economy that should be used only during recessions–and applied it like the apple cider vinegar of economic policy. One spoonful of tax cuts fits all! Decades of data have shown economists that that is the farthest thing from truth, however, the political windbags of the right have managed to continue the charade that every one can have everything and not pay for it as long as we just cut taxes. (That is until a democratic president takes office). It’s like saying 1 + 1 = 4. Problem is that many people still buy that. It’s like thinking there were Dinosaurs in a literal Garden of Eden.

The truth is that tax cuts NEVER pay for themselves. Even one of Dubya’s advisors has said as much.

Indeed, Greg Mankiw, no less, chairman of the Council of Economic Advisers under George W. Bush, has responded to the view that broad-based tax cuts would pay for themselves, as follows: “I did not find such a claim credible, based on the available evidence. I never have, and I still don’t.” Indeed, he has referred to those who believe this as “charlatans and cranks”. Those are his words, not mine, though I agree. They apply, in force, to contemporary Republicans, alas,

Since the fiscal theory of supply-side economics did not work, the tax-cutting eras of Ronald Reagan and George H. Bush and again of George W. Bush saw very substantial rises in ratios of federal debt to gross domestic product. Under Reagan and the first Bush, the ratio of public debt to GDP went from 33 per cent to 64 per cent. It fell to 57 per cent under Bill Clinton. It then rose to 69 per cent under the second George Bush. Equally, tax cuts in the era of George W. Bush, wars and the economic crisis account for almost all the dire fiscal outlook for the next ten years (see the Center on Budget and Policy Priorities).

The Democratic leadership must get out ahead of this misleading set of facts and stories. It doesn’t help that they are also adding to the confusion by dissing the Clinton/Gore economic record. Indeed, if any of them would ever get around to reminding the public how good they had it in the 90s, the message would go far. I also remember the Reagan Years. My first house loan came with an interest rate of %16.7. Both my exhusband and I lost our first jobs out of college because of a bad economy. I lost my job at a huge S&L that went bankrupt. He lost his at the Federal Land Bank because of the bad ag economy. The Reagan period was not morning again in America and the Democrats need to step up the game to remind people of that.

Why is it that the Republicans so clearly and convincingly get people to buy the snake oil and the Democrats can event manage to agree on a coherent message? Of course, it would help if they’d stuff that dead racoon of a hairmet in Senator Ben Nelson’s mouth every time he goes rogue, but it would also help if they mentioned how everything was just fine during the Clinton years.

Here let me remind you. The unemployment rate hit a 30 year low in 1999. It was 4.2% and it was low for all groups including

Find the good trend.

blacks, women and hispanics. (It was 7.3% when he took office). From 1993 to 1999, the economy added 20.4 million jobs. There were also increases in blue collar jobs like construction.

20.4 Million New Jobs Created Under the Clinton-Gore Administration. Since 1993, the economy has added 20.4 million new jobs. That’s the most jobs ever created under a single Administration – and more new jobs than Presidents Reagan and Bush created during their three terms. Under President Clinton, the economy has added an average of 245,000 jobs per month, the highest of any President on record. This compares to 52,000 per month under President Bush and 167,000 per month under President Reagan.

92 Percent — 18.8 Million — of the New Jobs Have Been Created in the Private Sector. Since President Clinton and Vice President Gore took office, the private sector of the economy has added 18.5 million new jobs. That is 92 percent of the 20.4 million new jobs – the highest percentage since Harry S. Truman was President and presiding over the post-World War II demobilization.

We had the fastest and the longest Real Wage growth in two decades. Inflation was the lowest it had been since the 1960s.

Under President Clinton, real wages are up 6.5 percent, after declining 4.3 percent during the Reagan and Bush years. Real wage growth in 1998 reached 2.6 percent — the largest increase since 1972.

Okay, so now, tell me. What policies were highly successful? Which policies lead us to peace and prosperity? Why aren’t we seeing the Democrats today try to reinvigorate the policies of Clinton/Gore instead of putting through legislation that comes from the Heritage Foundation? Why are they even dicking around the Republicans at this juncture?

The Obama apologists wonder why Obama–the greatest things since FDR?–is not getting due credit for all these massively huge bills that his congressional chorus line has passed. Well, it’s the economy stupid! First things should’ve been put first. We got a half assed stimulus bill the same way we now have assed financial reform and half assed health insurance reform. If he’d have put all of his political capital into solving the country’s economic problems (JOBS) first, he’d have had enough to run the gambit on the rest. And I would be willing to bet you we wouldn’t have to wonder why a bunch of half-baked Heritage Foundation plans got implemented under a Democratic presidency and majority.

What is so wrong with so many people that they can’t just point to the Clinton years and say, let’s just do that again? Of all things, why can’t the Democrats take and sell that message seriously?


Swimming in Privilege

Being born into privilege means different things to different people. I have found that there are many dimensions that grant you access to privilege. I was born into privilege in many ways and later, I purposely chose to opt out on some for reasons that I sometimes find hard to share with people. A lot of it has to do with the fact that I don’t like getting privileges that I didn’t earn but that I inherited.

It is sometimes hard for people to understand why I would opt out and join an “out” group. I guess the conversations here and in the media about racism and reverse racism have made me think more about this and I’d like to share my ideas with you. Again, I think privilege is multidimensional and that an “out” group can move further up in the hierarchy of that dimension or that other dimensions can offset or trump (in some instances) being a member of an “out” group in another dimension. I also think the idea of reversing privilege –especially when applied by a member who has spent their life having a life of privilege in many dimensions–is a notion that many people don’t understand.

So, I have these hypotheses and I’m going to bounce them off of you.

The dimensions of privilege in the U.S. are still these characteristics. The most privileged are white, male, christian, straight, upper middle class, young to middle age, and WASP. If you were born into this category, you basically hit the lottery and will very rarely experience barriers and words of discouragement to a life of continual upward mobility. You will access the best jobs, the best education, and probably never find that some one who helps you on your path says one of your dimensions is disturbing. However, if you are a person that has some profile that differs from that, you will experience life differently. You may be resented as a person of privilege, but this is not reverse discrimination. It is an emotion people feel towards you because you have no idea that your path was made easier than many others because of the gene lottery.

You can move in and out of privilege in the various dimensions. For example, as you age, you become a member of an “out” class; especially if you are a woman. I have learned this lesson well as my 40s progressed. You become more invisible. You also can become rich and educated and improve your status in that area, and it will clear many paths for you. If you can mimic the language, the dress, and the values of the upper middle class, you can move from an “out” class to a place of privilege. Again, this is true even if you have other dimensions that put you in the “out” group.

What I see at the moment is that this dimension–the upper middle class–dimension is the most important of them all. It didn’t necessarily impact as many lives as it does today, but it’s always been important. Race, ethnicity, and religion have been trump cards in the past that have completely blocked you. This has changed. In that if you were Jewish, you may have been barred from a country club even if you had all the other dimensions of privilege. Race was a huge problem in the South because racism was institutionalized and pervasive until we started knocking it down during the civil rights era. Ethnicity was a problem at one time for the Irish and Italians who also experience problems because they were Catholic. Sex has always been a trump card but again, laws have improved the situation for women in a similar way that civil rights laws have improved the situation for people of color. Still, there are places where we still get stuck.

The most pervasive “out” classes at the moment are those who are Muslim or are of middle eastern ethnicity. The events of 9/11 pushed these folks to the bottom of the hierarchy of ethnicity and religion. I see this now all the time. People think that specific practices–like genital mutilation or child marriage–are part of the Islam doctrine which is not true at all. They ignore that it happens in Catholic Guatemala and or Hindu parts of India. In fact, it happens right here in the U.S. with certain Mormon sects. And like it our not, we do mutilate the genitals of male babies in this country in the name of Judeo-Christian tradition. Once you become an “out” class, the stereotypes abound and memories of others about you become limited. I think it’s difficult for some people to view themselves as having privileges and to realize, in some cases, that they are privileged because there’s always some one ahead of you in something.

It’s also easier to hide some dimensions of being an “out” class. For example, for many gay people, the closet is a viable option. Some hide in traditional marriages. Education and moving to the upper middle class can hide some ethnic roots. Adopting the speech of the upper middle class, their habits and customs really helps one pass. And I believe that upper middle class black people, while still experiencing racism, will have much more privilege than some poor white people because, again, there are multiple dimensions upon which to experience the lack of privilege and the barriers that come along with it.

I do celebrate that many of these barriers–because of the civil rights and the women’s movement– have been removed by law. This doesn’t mean that we have gone over the edge, however. This is because privilege in all of these dimensions is so institutionalized and pervasive, it’s hard to press the mute button on all of it. This is where I have problems with positions like the one taken by Jim Webb today in the WSJ. There is no “myth” of white privilege. It exists. Just as there is male privilege in this country, straight privilege in this country, Christian privilege in this country, youth privilege in this country, and Western European ethnicity privilege in this country. It’s a lottery of genetics that gives us the original combination of privileges and “out” characteristics we get. Again, some we grow out of, some we grow into and , like me, we can opt out of some. Some cannot be changed.

Webb misses the point when he speaks to these statistics that I quote below. This is because he is focused solely on a single characteristic that grants being “out” or “in” privilege. Again, I suggest that the most pervasive out group today is that of the lower and working class. You see this occurring across many dimensions. Social class appears to be the ultimate trump card from experiencing some of the nastiest of the “isms”. It can dilute aspects of racism or ethnicity for example. Money can buy you a lot of privilege that not many other things cannot The exception maybe fame.

Generations of such deficiencies do not disappear overnight, and they affect the momentum of a culture. In 1974, a National Opinion Research Center (NORC) study of white ethnic groups showed that white Baptists nationwide averaged only 10.7 years of education, a level almost identical to blacks’ average of 10.6 years, and well below that of most other white groups. A recent NORC Social Survey of white adults born after World War II showed that in the years 1980-2000, only 18.4% of white Baptists and 21.8% of Irish Protestants—the principal ethnic group that settled the South—had obtained college degrees, compared to a national average of 30.1%, a Jewish average of 73.3%, and an average among those of Chinese and Indian descent of 61.9%.

Policy makers ignored such disparities within America’s white cultures when, in advancing minority diversity programs, they treated whites as a fungible monolith. Also lost on these policy makers were the differences in economic and educational attainment among nonwhite cultures. Thus nonwhite groups received special consideration in a wide variety of areas including business startups, academic admissions, job promotions and lucrative government contracts.

From this bit of statistics, Webb suggests that “government-directed diversity programs should end”. Well, I suppose if you solely look at the color of folks’ skin, this is what those statistics might tell you. But it ignores the nuances and it ignores the many dimensions that I bring up. Not one racial group is a “fungible monolith”.

We should stop all forms of discrimination. We should recognize that government law and programs successfully accomplish this. These statistics do not say that our job is done. It says that we do not recognize the many dimensions of privilege and the barriers to attainment. We should also recognize that because one person has an insult thrown at them, this does not mean they are suddenly the victim of one of the pervasive ‘isms’. This is especially true if they win the lottery of genes and haven’t experienced the kinds of institutional barriers that can block you day in and day out, year after year, decade after decade. You can’t scream that you are the victim of discrimination–like Mark Williams–after one incident where people judge you on one or some of the dimensions. This also applies to the people screaming that there’s a war on Christmas or Christians when the monopoly on holiday celebrations, monuments, and vacation calenders are set up based on your particular brand of mythology. You can’t attend a school or have a job where the majority of holidays, parties, and decorations aren’t hammered on you by that group year after year. Just asking people to recognize that they aren’t the only act in town isn’t discrimination. It’s asking you to reconsider your monopoly on religious privilege. It’s not persecution for your beliefs.

If you’re a Christian in Saudi Arabia, you can claim discrimination. You’re an out class member in that society. Discrimination isn’t about losing your privilege. It’s about not granting others access to privilege and rights. The same goes with the monopoly on marriage by heterosexuals and the privileges that come with that. Losing your unique privilege isn’t about discrimination. It’s about including others in the benefits of the institution. It’s about wresting a way a monopoly that gives you benefits that others do not get and cannot access.

That is what it’s about to me. Making sure whatever institutions we have in the United States do not provide discriminatory benefits based on being an “in” or “out” class of people. This also includes the right to build a place of worship wherever you choose. This means, that it’s okay for any religious institution to put a dharma center, church, synagogue, temple, or mosque on private land within blocks of ground zero. It’s not about offending the privileged group. It’s about protecting the rights of the ‘out’ group.

I’m not sure if this is what’s missing in some of these discussions that’s been happening recently. But, I’m pretty certain that I can trace a lot of problems back to the fact that privilege is multidimensional and a lot of folks only focus on one dimension at best. It’s difficult to rate which dimension causes the most pain in 2010. This is especially true given your personal family experience and memories. For many southern blacks, race has been the ultimate dimension that blocked progress historically. For many women, it’s been their sex. Up until recently, it was very difficult for women to get degrees or follow professions in anything but the so-called pink collar jobs. Right now, it appears that socio-economic status can trump both sexism and racism through law, but it can not erase history or the experience of the individual. We still have to fight for equality for GLBT and for those who follow religions outside the Christian tradition. It’s gotten better for Jews, but it is not good for those outside the Judeo-Christian tradition. Also, just try telling people you’re an atheist and watch their face.

It’s about time we take the Melting Pot meme seriously. Reversing discrimination isn’t about granting special privileges or benefits to some people. It’s about given them access to the monopoly on privilege that others have had for centuries and it doesn’t have to be a zero sum game.


BP CEO definitely Master of the Artful Dodge

Congress is in the process of proving just how inept they are as BP CEO Tony Hayward managed to spend hours providing insouciant looks and not much else. The shocker of the morning came from entrenched Republican Oil Lackey Congressmen Joe Barton who apologized to Hayward for subjecting such a fine business to a Chicago-style Shake Down. He’s now backed off of the statement but the damage is done to his credibility around the hill. This almost tops Joseph Cao’s call for ritual suicide for BP executives earlier this week. Barton’s apology came after even Republican colleagues started the call to remove him from the energy subcommittee.

After infuriating Democrats and Republicans alike with his public apology to BP and suggesting that a $20 billion escrow fund was a “shakedown” by the White House, Barton is now “retracting” his statement, made at a hearing with BP CEO Tony Hayward.

“I apologize for using the term ‘shakedown’ with regard to yesterday’s actions at the White House in my opening statement this morning, and I retract my apology to BP,” Barton said. “As I told my colleagues yesterday and said again this morning, BP should bear the full financial responsibility for the accident on their lease in the Gulf of Mexico. BP should fully compensate those families and businesses that have been hurt by this accident.”

Showing just how involved Republican leadership was in damage control over Barton’s comments today, the retraction was forwarded to the media by House Minority Leader John Boehner’s office.

Barton evidently likes BP’s deep corporate pockets as evidenced by records of his campaign corporate contributions.

Ordinarily, it’s not that shocking to see a Republican from Texas defend the petroleum industry. But Rep. Joe Barton’s comments to BP CEO Tony Hayward today, in which he described it as a “tragedy” that a “a private corporation can be subjected to what I would characterize as a shakedown”, has obviously touched something of a raw nerve, with Republicans already seeking to distance themselves from the comment while Democrats look for ways to exploit it.

Making matters worse for Barton is the identity of the top contributor to his election campaigns. Since 1989, it has been the company Anadarko Petroleum, from which he’s received $56,500 in PAC donations and another $90,000 in individual contributions.

Congress is intent to prove that BP put safety measures on hold to enhance profits. (Shock! Corporations Maximizing Profits! More Breaking News at 6!) Even CNN has given up live coverage because basically, there’s nothing to see here! BP is under criminal investigation. They actually think Hayward will pony up some evidence?
Lawmakers castigated BP chief executive Tony Hayward at a House hearing Thursday for what they said were cost-cutting measures and other “shortcuts” leading to a disastrous oil spill in the Gulf of Mexico, but Hayward said he was not prepared to make judgments about the cause of the catastrophe until “multiple investigations” are completed.

Well, the hearings continue, but so does the stiff upper lip. Who is winning this argument?

Meanwhile, over at the CNN Polling people, it’s obvious the Oval Office Speech on Tuesday hasn’t improved the President’s ability to lead on this issue.

Fifty-nine percent of people questioned say they disapprove of how the president is dealing with the spill, up eight points from May. Forty-one percent say they approve of how Obama’s handling the crisis, down five points from last month.


The Hypocrisy of the Deficit Squawks

I think the entire congress needs to spend the rest of its summer in a remedial economics course. If the sky is falling from the future size of the deficit, then why are we getting calls from the same folks to extend the Bush tax cuts to the rich? (This includes taxing things like dividends.) Why are they being deliberately inconsistent? It’s VooDoo economics again. The supply side Zombies will just not die. What’s worse is that some democrats are joining them.

My question is which is it boys? You can’t have it both ways. Is the source of all evil deficit or tax increases on the very rich? If the 80s and the naughts proved anything to us,it’s that lowering the tax rates on the rich does lead to a increase in the deficit and it does not stimulate the economy or investment as much as good old fashion government spending. It mostly leads to speculative asset bubbles that burst in every one’s face. Why does the middle and working class get the “let them eat cake” while the rich “get to have their cake and eat it to?” Where’s the economic theory and the common sense in that?

Top Republicans called on Democrats in Congress and the White House to extend all the tax cuts that are set to expire at the end of this year.

Sen. Judd Gregg (N.H.), the top Republican on the Senate Budget Committee, joined House Minority Whip Eric Cantor (R-Va.) in pushing for the extension of a series of taxes set to expire at the end of this year, including a series of cuts for households making more than $250,000 per year.

“If you want to do something to stimulate the economy, you could make clear that tax rates aren’t going to go up at the end of the year,” Gregg said during an appearance on CNBC. “If this administration really wants to stimulate, say they’re going to continue those tax rates — all those tax rates.”

The tax cuts on income and dividends that Republican Congresses had approved during the administration of President George W. Bush are set to expire at the end of 2010.

Senator Jon Kyl had to twist himself into a illogical pretzel to justify the position. I’ve always been amazed by the Republican ability to hold completely contradictory positions without having complete brain failure. For example, they demand the government be smaller and get out of peoples lives while wanting to control the domestic arrangements of GLBTs and women seeking reproductive health. That’s another one of those issues where the contradictions are painful to watch. Thinking you can lower the deficit while not taxing the people with the incomes and assets just boggles the mind. Don’t forget, that prescription also includes approving every military toy and adventure that comes across their desk save helping veterans.

Here’s a description of Kyl’s appearance on Fox from Ezra Klein.

“[Y]ou should never raise taxes in order to cut taxes,” Jon Kyl said on Fox News Sunday. “Surely Congress has the authority, and it would be right to — if we decide we want to cut taxes to spur the economy, not to have to raise taxes in order to offset those costs. You do need to offset the cost of increased spending, and that’s what Republicans object to. But you should never have to offset cost of a deliberate decision to reduce tax rates on Americans.”

What’s remarkable about Kyl’s position here is that it appears to be philosophical. “You should never have to offset cost of a deliberate decision to reduce tax rates on Americans,” he said. Never! This is much crazier than anything you hear from Democrats. Imagine if some Democrat — and a member of the Senate Democratic leadership, no less — said that as a matter of principle, spending should never be offset. He’d be laughed out of the room.

All of this comes about as the Democratic co-chair of Obama’s cat food commission calls the growth of the deficit a ‘cancer’. Why is it that congress seeks to balance the budget on the backs of those least able to pay for it and those who have benefited the least from the excessive spending?

Bowles said that unlike the current economic crisis, which was largely unforeseen before it hit in fall 2008, the coming fiscal calamity is staring the country in the face. “This one is as clear as a bell,” he said. “This debt is like a cancer.”

The commission leaders said that, at present, federal revenue is fully consumed by three programs: Social Security, Medicare and Medicaid. “The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans — the whole rest of the discretionary budget is being financed by China and other countries,” Simpson said.

“We can’t grow our way out of this,” Bowles said. “We could have decades of double-digit growth and not grow our way out of this enormous debt problem. We can’t tax our way out. . . . The reality is we’ve got to do exactly what you all do every day as governors. We’ve got to cut spending or increase revenues or do some combination of that.”

Bowles pointed to steps taken recently by the new coalition government in Britain, which also faces an acute budgetary problem, as a guide to what the commission might use in its recommendations. That would mean about three-quarters of the deficit reduction would be accomplished through spending cuts, and the remainder with additional revenue.

Most Republicans in Congress are opposed to any tax increases, which has made the work of the commission far more difficult. Bowles and Simpson appealed for support to the governors, who have been forced by their states’ constitutions to balance their budgets with deep spending cuts and, in many cases, tax increases.

Americans faced similar budget issues after World War 2 and a lot of it was paid off by economic growth. However, growth seems elusive in the current environment. This is especially true because there has been no fundamental change in the systemic causes of the current financial crisis and deficit debacle. This policy choice we’re given now is ridiculous! Investment bankers who made bad bets get a blank check but we can’t extend unemployment insurance to the 2 million long term unemployed that just lost their benefits? Who is most likely to actually become a customer to businesses? Is it A, an unemployed person that needs to pay the rent and buy groceries or or B, Goldman Sachs that will take the cheap loan and game the market by arbitraging self-created paper?

Also, go back to the tax rates during that same booming period of post World War 2. Obviously, taxing the rich does not kill an economy. Here’s some examples of tax rates from the Eisenhower years.

The highest tax bracket on earned income today is 35%. During Ike’s administration, the highest tax bracket was 92% in 1953, and 91% thereafter [1]. Yes, taxes on the Rich were almost three times higher under the Republican Eisenhower compared to our current President, or compared to the Democratic administration of Bill Clinton!

Here’s the capital gains treatment for the Eisenhower period.

It is considered to be almost the gospel today that capital gains should be taxed at a far lower rate than earned income. Today the maximum capital gains tax rate is a whopping 15% on assets that have been held for at least a year since purchase. This is why the middle class, who are dependant on earned income, effectively pay taxes at a higher rate than do the wealthy.

In Ike’s day, capital gains were not treated differently from earned income, so the rich paid 91% tax on capital gains. From 91% to 15% – another reason why it’s good to be rich!

Note that in 1955, in the middle of Ike’s presidency, the typical (median) family paid less than 20% in all taxes [2]. By 2003, the total of all taxes paid by a typical family had more than doubled, to almost 40% of income.

So in Ike’s day, the rich paid a lot of taxes, the middle-class paid a little taxes, and somehow it all worked out.

Right now, there is a need for money to be given to the people who are mostly likely to spend it. State governments and poor to middle class people are the ones that come to mind. Banks are not lending out money. Businesses are sitting on money and not investing. They’ve got the lowest real interests rates possible now and they’re not expanding capital. Why would they if they have no customers walking through their doors?

Investors aren’t particularly happy with the market either. There appears to be a massive pay down of debt as a way of savings rather than money heading for the markets. Most of the market money is not coming from the individual investor. It’s coming from pension funds and such. That’s why Wall Street is so hungry for Social Security dollars. There’s very little new money coming into the market. They have nothing they can use to build new pyramid schemes asset bubbles. So where does stimulus come from if the government does not do it itself? It has to come from people that are most likely to be customers of business. Only the increase in customers will make a business expand its production. Either way, you have to get the money to the right people.

Here is a prelimary study out by Corsetti et al (May 2010) that empirically studies the impact of fiscal policy multipliers during financial crisis. (h/t to Paul Krugman) It basically reinforces the idea that fiscal stimulus in the right places is necessary to create a multiplying impact for federal dollars spent on sustaining the economy. Don’t try to read the analysis part, it’s extremely technical. Here’s the conclusion which is the part that policy makers need to understand. Corsetti is some one I follow a lot because of his work on exchange rates. There are some important findings for that. However, this last statement is germane to our conversation.

A second key finding relates to the marked increase in fiscal multipliers during times of financial crisis. On the one hand, this may be taken as evidence in support of fiscal stimulus during financial crises. On the other hand, our empirical results also suggest that many countries have historically cut back government spending during financial crises, presumably out of concern over debt sustainability. In this sense, a large conditional multiplier also provides a stark warning about the costs of financial turmoil, and an argument in favor of building up fiscal buffers in normal times so as to avoid fiscal retrenchment when it is most painful.

This is something that most economists that have a real feel for Keynes have being saying for years. Keynes didn’t recommend endlessly running budget deficits. He believed they were necessary during times of crisis. He recommended balanced budgets and surpluses during good times which is exactly what Bill Clinton’s administration did. He handed a surplus to Dubya Bush who immediately threw it away. A similar situation happened down here in Louisiana. The first year of the Jindal administration, Jindal was handed a surplus and a big rainy day fund. Rather than sitting on it, Jindal wanted to eliminate income taxes. This kind of behavior leads to future deficit problems.

Where are these deficit squawks when the government is running surpluses and in a good situation? Well, they generally throw caution to the wind and spend like crazy or rebate like crazy. You can’t do this and then turn around and complain about high deficits and demand tax cuts to the folks with wherewithal a few years later during recessions without sounding contradictory, crazy, and callous. But that’s the way with these Supply Side Zombies, they entice the middle class with the idea that they pay too much in taxes when the real motive is to stuff the pockets of the Bonus and the political donor class.

This financial crisis and the resulting deficit problems were not caused by the poor and working class. They are as much victims since they did not participate in the lavish incomes and tax cuts that came from the last asset bubbles fueled by low interest rates and low capital gains taxes. Why then, ask us to bear the burden of this sudden onset of restraint?


Where have all the Consumers Gone?

We talk about this often. As a matter of fact, it was just yesterday we were talking about the failure of Reaganomics or so called “Trickle Down” economics. (More aptly called VooDoo economics by the first President George Bush.)

kc, on July 7, 2010 at 10:37 pm Said: Edit Comment

thanks–would it be accurate to say that trickle down doesn’t work well because the rich already have consumer goods so they could save it.??

Reply

Well, supposedly the residual goes into investments which go to create well paying jobs which the rest of us get. However, that link is weak link. Especially with so many corporations moving their capital investments out of the country or having major operations elsewhere. In order for it to create jobs, the money has to stay put in the community and there’s no guarantee it will. Also, a lot of profits these days are just arbitrage profits that create no value. If you don’t direct the dollars to long term investment the money can go anywhere.

Robert Reich has a great blog post up today that gives you some perspective on what happens to our consumption driven society when only the few rich people get the income gains. The income doesn’t go to driving the economy, it goes to driving asset bubbles and in the two cases he talks about, that leads to some pretty bad economics results. Reich says that “We’re in a Recession Because the Rich Are Raking in an Absurd Portion of Wealth: Our economy can’t thrive when the richest 1% get an ever larger share of the nation’s income and wealth, and everyone else’s share shrinks.”

The end of the Hoover years and the end of the Dubya years brought as big increases in income inequality. What was the result?

Each of America’s two biggest economic crashes occurred in the year immediately following these twin peaks—in 1929 and 2008. This is no mere coincidence. When most of the gains from economic growth go to a small sliver of Americans at the top, the rest don’t have enough purchasing power to buy what the economy is capable of producing. America’s median wage, adjusted for inflation, has barely budged for decades. Between 2000 and 2007 it actually dropped. Under these circumstances the only way the middle class can boost its purchasing power is to borrow, as it did with gusto. As housing prices rose, Americans turned their homes into ATMs. But such borrowing has its limits. When the debt bubble finally burst, vast numbers of people couldn’t pay their bills, and banks couldn’t collect.

You can’t have an economic machine driven by consumption and then turn the switch over to people who have so much money that all they do is speculate. It just doesn’t work. If you want long term real investment, then you have to ensure that the investment dollars are going to things of real value. A good example of something of real value is a factory that employs people that have to pay for houses, groceries, clothing and transportation. Every dollar of a well earned wage trickles outward to a community. Putting all your investment eggs into derivatives does nothing to support long term growth. Taking all the income from productivity coming from the people that work and giving it to people that just simply want to drop a few dimes in a stock that might go up like a BP oil gusher does not create customers for businesses. Customers are what businesses need to grow. No amount of tax cuts or cheap credit will expand a business that doesn’t see customers coming in the door. Also, there’s a real good chance a lot of these people–and the corporations in which they invest–offshore their wealth anyway so there’s no guarantee that it stimulates our economy. Although, if you check it out, you’ll see that the richest countries in the world are those small countries that are depositories and shelters of offshore funds. These are the little countries that banking and no taxes built like The Grand Caymans, Guernsey, Bermuda, etc.

Anyway, Robert Reich does a very good job pointing to how we let our government leaders recreate the environment of the 1920s and how by only a little finesse and a lot of liquidity by the Fed stopped us from going over the edge into another period where unemployment was 25% instead of 10%. What I worry about is that the current leaders seem to be recreating the second dip of the Great Depression also. Remember, the two BIG recessions since World War 2 happened when you’ve had people who sincerely believe in the Trickle Down hypothesis. It frightens me that we have a President who admires Ronald Reagan and has continued Dubya Bush Policies. (Here’s another great link to Brad DeLong’s Blog who has similar worries. The piece is called “These are NOT the Ones We have been waiting for”. No kidding!) If we do have a double-dip, it will be because of all this austerity nonsense. We really don’t need any more lessons from Voodoo Economics. We’ve had enough to traumatize several generations and put a lot of people into unemployment hiatus.