The DC Disconnect

The disconnect between reality and beltway rhetoric has never been more obvious when it comes to the economy.  The NYT editorial page has an op-ed up today– ‘The Numbers are Grim’–in which they call for more attention to the unemployment crisis.  As I mentioned when these numbers came out, a decrease in domestic household consumption is a troublesome signal in an economy where nearly 68% of production usually goes to domestic consumption.

When consumers are constrained, so is hiring, because without customers, employers are hard pressed to retain workers or make new hires. A recent Labor Department report showed a greater-than-expected rise in the number of people claiming jobless benefits even as private-sector economic forecasts are being revised downward — both very bad omens for continued job growth.

Republican lawmakers have responded to renewed signs of weakness with a jobs plan that prescribes more of the same “fixes” that Republicans always recommend no matter the problem: mainly high-end tax cuts, deregulation, more domestic oil drilling and federal spending cuts.

The White House has offered sounder ideas, including job retraining, plans to boost educational achievement and tax increases to help cover needed spending. But its economic team is mainly focused on negotiations to raise the debt limit, presumably parrying Republican demands for deep spending cuts that could weaken the economy further while still reaching an agreement on the necessary increase.

The grim numbers tell an unavoidable truth: The economy is not growing nearly fast enough to dent unemployment. Unfortunately, no one in Washington is pushing policies to promote stronger growth now.

Even the Wall Street Journal recognizes the challenges our economy faces.  Many corporate economists see similar indications of a permanent growth problem.  This should not be happening.  We know how to correct this.  We have nearly 70 years of economy theory and empirical data that have provided a guide to every administration except the last two.

Manufacturing is cooling, the housing market is struggling and consumers are keeping a close eye on spending, meaning the U.S. economy might be on a slower path to full health than expected.

“It’s very hard to generate a rapid recovery when rapid recoveries are historically driven by housing and the consumer,” said Nigel Gault, an economist at IHS Global Insight. He expects an annualized, inflation-adjusted growth rate of less than 3% in coming quarters—better than the first-quarter’s 1.8% rate, but too slow to make a meaningful dent in unemployment.

A growing number of forecasters are downgrading their second-quarter growth predictions. JPMorgan Chase & Co. economists revised down their estimate to a 2.5% rate from 3%, while Bank of America Merrill Lynch economists cut theirs to 2% from 2.8%. Deutsche Bank cut its forecast to 3.2% from 3.7%.

Companies are similarly cautious. Applied Materials Inc., the largest maker of machines used in producing computer chips, said it expected growth in its semiconductor and solar markets to slow following one of its best quarters ever. Hewlett-Packard Co. cut its fiscal-year outlook amid weak computer sales and negative effects from the disaster in Japan. Clorox Co. offered a more guarded outlook for its household goods business as executives noted that higher prices may hurt sales.

As stated by the NYT, most Republicans put a plan forward that calls for “high-end tax cuts, deregulation, more domestic oil drilling and federal spending cuts”.   This is exactly the opposite of what needs to be done.  The mantra of  ‘too high’ taxes strangling business which dampens unemployment is simply not true. It’s never been true.  It’s a fallacy!   Bruce Bartlett has done an excellent job–see the nifty graph above–in using facts to put down that meme.  Not only are effective tax rates on corporations already exceedingly low, but tax revenues from wealthy individuals are so low that most of us probably have higher effective marginal tax rates.  This has been the case now for nearly 7 years and for about that same time we’ve experienced some of the worst job creation and economic growth ever.

The economic importance of statutory tax rates is blown far out of proportion by Republicans looking for ways to make taxes look high when they are quite low. And they almost never note that the statutory tax rate applies only to the last dollar earned or that the effective tax rate is substantially lower even for the richest taxpayers and largest corporations because of tax exclusions, deductions, credits and the 15 percent top rate on dividends and capital gains.

The many adjustments to income permitted by the tax code, plus alternative tax rates on the largest sources of income of the wealthy, explain why the average federal income tax rate on the 400 richest people in America was 18.11 percent in 2008, according to the Internal Revenue Service, down from 26.38 percent when these data were first calculated in 1992. Among the top 400, 7.5 percent had an average tax rate of less than 10 percent, 25 percent paid between 10 and 15 percent, and 28 percent paid between 15 and 20 percent.

The truth of the matter is that federal taxes in the United States are very low. There is no reason to believe that reducing them further will do anything to raise growth or reduce unemployment.

Meanwhile, the complete disconnect between spending and cutting priorities in Congress and the White House and the American people grows.  As mentioned by BostonBoomer this morning in a reference to a Paul Rosenberg peice at Alternet, Americans want none of what is being dished up in the beltway.  It is true that the current spending path for the general budget, social security, and medicare are not sustainable at current levels.  What is not true is that we need to accept the current path and Republican policy priorities as the solution. There is no evidence that anything they’ve suggested will remotely help our jobs and growth problem which would take care of much of the deficit problems. The rest could be solved by simply returning tax policy back to the Reagan or Clinton levels.

It’s obvious from the last set of economic numbers that the current problem stems from lack of consumer demand which is rooted in a lack of income, confidence,  and wealth in the majority of US Households.  People simply do not have the wherewithal to purchase homes or sustain household budgets.  This is because we have an unacceptably high level of unemployment, we have let the pathway to home ownership completely collapse, and we’re allowing basic government services to collapse to fund unrealistically low tax rates for corporations and wealthy individuals.  Don’t even get me started on funding never-ending wars.  There is mounting evidence that these funds aren’t even staying in the country any more but are being used to fund jobs, investment, and growth in other places.   This is unacceptable policy under our current economic situation. American treasury should not be used to chase profits abroad.

The President has gotten away with extending tax cuts for the wealthiest individuals.  He appears ready to go to the table and accept draconian cuts to federal spending which will impact all levels of government provision of goods and services.  This basically means that he has signed on to a prescription for slow economic growth.  He undoubtedly does so with no worries about the upcoming election.  The Republicans offer up potential candidates that have absolutely no grasp of reality or come with a facile lack of morality to deny it.  Even George F. Will believes one of the front runners to be so incapable of holding office that the thought of giving the ability to launch nuclear weapons to some of the candidates bothers him.  Is handing over the ability to tank our economy any less problematic?

This is beyond disheartening.  It is evident that the plutocracy is doing everything it can to silence any one that could run a narrative contrary to these current fallacies.  I don’t believe for one moment that Congressman Wiener’s hacker isn’t part of tearing down any one that appears to be stepping away from the abyss of Washington group think.  Meanwhile, the media speak is about pushing the economy to the precipice by focusing on the debt ceiling.  It’s looking like we’re being prepped for that.  This will make the market demand extremely high rates of return for federal borrowing which will only increase our interest payments on the debt which are already a huge portion of the budget.  How much sense does that make?

Early proposals for whittling down spending include a plan to drop federal agriculture subsidies and to require larger employee contributions to the pension system for non-military federal workers.

“Those talks, which actually we’ve been meeting for over three weeks now, they have been all positive. Everything is on the table,” House Majority Leader Eric Cantor (R-Va.) said Sunday on CBS’s “Face the Nation.” “We’ve said, as Republicans, we’re not going to go for tax increases. I think the administration gets that. But we’ve also put everything on the table as far as cuts.”

Oh, and if you think the Republicans are all about small businesses and start-ups because they create jobs, check this nifty graph out from MoJo.  The Dubya years basically killed that phenomenon too so it wasn’t about lowering  tax rates, was it?

As this chart from the BLS shows, the number of jobs created by new businesses peaked in 2000, began declining at the start of the Bush administration, and has been plummeting ever since …

So much for that Republican meme.  Facts are stubborn things, aren’t they?

This problem is basically due to the inability to govern and make prudent decisions. They’d much rather pump out lies and continue on the same path to destruction. These people ran up tons of debt to fund wars for which they found no funds.  This is all about the irresponsible Bush tax cuts that Congress and the Obama administration returned to law in December.  The pain for these horrible decisions are about to be extracted on middle and working class Americans who have done absolutely nothing to bring on the recent economic problems and fiscal problems. There has been no bail out or special tax breaks for us.  It should be obvious by now that the policies of the last five years have done nothing but improved the situation for the very rich and the very large corporation.  Shame on all of those elected officials that go along with this.  It is as if they are purposefully setting out to destroy our economy and our way of life. I have no idea why they hold so many of us in contempt but it is obvious that that they prefer the donor class to voters.  They seem to want a repeat of the Great Depression.  At this rate, that is exactly what they will have.

12 Comments on “The DC Disconnect”

  1. djmm says:

    Wonderful post, Dakinikat!

    Two of the very important questions you raise puzzle me a lot:

    1)”This basically means that he [President Obama] has signed on to a prescription for slow economic growth. He undoubtedly does so with no worries about the upcoming election.”

    Why is this? Is this because no one will primary him and the current offerings of the Republicans are so weak so he see no threat to re-election? Is it because he is doing fine and he just does not care about ordinary Americans? Because…???

    2) “They seem to want a repeat of the Great Depression.” I can understand the faith-based economic position of some Republicans. Some are opposed to reason in general and truly believe in their economic dogma: tax cuts cure all. No facts will dissuade them. But I believe others do want another Great Depression, so they can profit from it. I would like to think neither position has a strong hold in the Democratic party, but I suspect the President is closer to the first group of Republicans than we would like.


    • dakinikat says:

      as to number 1)yes, because he faces no primary threat and the Republicans are lame so he can concentrate on the needs of his donors.

      2) I think the high rate of unemployment and uncertainty over oil and food prices makes people that are working insecure and more likely to take wage cuts and stay in bad job situations. I think they like that it also tends to make people boost their productivity and not take vacations if they are scared of losing miserable jobs. If the job market were good, corporations may have to actually pay well and treat people well.

      • dakinikat says:

        Another Financial Crisis Is On The Way, Mobius Says

        Warren Buffett called them weapons of mass destruction. Now those same products, known as derivatives, are pushing the world closer to another financial crisis.

        That’s according to Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group. Mobius, who over sees more than $50 billion in assets, says another financial crisis is “around the corner” because little has changed since recent collapse of the markets.

        “There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis. Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”

        That was his response to a question about price swings at the Foreign Correspondents’ Club of Japan in Tokyo today, according to Bloomberg

        He’s not changed anything because nothing has forced him to change. He’s not under any real threat to change what he’s doing.

  2. paper doll says:

    There is one party and one party only:the elite party . They want all the accumulated wealth of 300 + years and the rest of us can go hang. Thinking in terms of of two parties just leads to confusion…exactly what the elite party wants of course. That’s why Sarah Palin and the rest are constantly paraded before us. Otherwise the one party rule we live under would be too obvious

  3. bostonboomer says:

    Excellent post! We are going to end up with a repeat of the Great Depression. Will that wake any of these people up? I’m not sure. I think they might continue on their destructive path anyway.

  4. jawbone says:

    Back in the 90’s the area in WI around my brother’s house began having house prices rise and rise, with more and more farmland being taken over for very pricey McMansions.

    I remember asking my brother who was able to afford these houses, and he said lots of people were moving up from the Chicago area. He also noted that a lot of the construction was, well, kinda cheesey and the designs wasted space and were goind to be huge energy hogs.

    Well, at the time I knew the media income — and way more than one half of the population was in no position to afford the new median house price. And I specifically meant and used median, not average.

    Today? Shouldn’t economists be able to look at the median income and predict where prices will have to end up?

  5. jawbone says:

    Heh, just heard Mark Zandi on NewsHour say that he thinks housing prices will bottom out by the end of next year — around the time of the election? Oh, my, what great timing, if that happens, eh, Obama?

    The other guest said housing prices will bump along the bottom for a couple more years…. And on one of the evening MCM news broadcasts, an expert predicted that, when taking inflation into account, housing prices will likely be lower 10-20 years from now (iirc).

    I have had such awful timing concerning my own sale-purchase-and now wanting to sell to get away from the local high NJ property taxes. This year my propterty taxes will be higher than my mortgage on a monthly basis. And our Repub Guv Chris “We cannot raise taxes on the rich!” Christie means just what he said. There are more of us little people than there are of the rich, so we must be taxed a bit more and more and more….


  6. Sima says:

    Grim, grim, grim. I better get these house repairs done soon, before all my investments drop again.

    I think we are in a Depression like the Great Depression. It took place over years, and I think we have years to go. I expect it to get much worse before the elite realize they have to give a little.

  7. dakinikat says:

    Study finds many corporations pay effective tax rate of zero

    In all, CTJ found that two-thirds of the 12 companies in the analysis, which come from a wide range of industries, had an overall negative effective tax rate between 2008 and 2010. (When the group says negative rate, it means the companies got a tax benefit — not necessarily that the business got a check from the government.)

    The Treasury Department, CTJ added, would have collected roughly $60 billion from the 12 companies over those three years if they had paid the top 35 percent rate.

    General Electric came in with the lowest tax rate of the dozen, -61.3 percent over those three years, after The New York Times earlier reported that it had paid no 2010 taxes and claimed a $3.2 billion tax benefit for that year. Jeffrey Immelt, GE’s chief executive, is the chairman of President Obama’s Council on Jobs and Competitiveness.

    But seven other companies — American Electric Power, Dupont, Verizon, Boeing, Wells Fargo, FedEx and Honeywell — had tax rates between -0.7 percent and -9.2 percent, according to CTJ.

    IBM (3.8 percent effective rate over the three years) and United Technologies (10 percent) were the only two of the dozen to have a positive effective rate all three years. ExxonMobil had the highest effective rate of the 12, at 14.2 percent, and Yahoo came in at 8.7 percent.

    This is a lower tax rate than even poorest Americans pay if you consider payroll as well as income taxes and then there’s sales taxes and state income and property taxes.

    absolutely shameful!!!

  8. dakinikat says:

    Goldman Sachs ‘Too Big’ to Face Criminal Prosecution, Hintz Says

    Goldman Sachs Group Inc. won’t face criminal prosecution related to sales of mortgage-linked securities because such a move could threaten the U.S. financial system, according to Brad Hintz, an analyst at Sanford C. Bernstein & Co.

    The U.S. Department of Justice, which is reviewing a Senate subcommittee report that alleged Goldman Sachs misled clients before the financial crisis, will avoid jeopardizing the fifth- largest U.S. bank by assets because it’s viewed as “too big to fail,” Hintz wrote in note to clients today.

    “If an alleged violation is identified during a Goldman investigation, we expect a reasoned response from the Justice Department,” Hintz wrote. “In a worst case environment, we would expect a ‘too big to fail’ bank such as Goldman to be offered a deferred-prosecution agreement, pay a significant fine and submit to a federal monitor in lieu of a criminal charge.”

    unfuggin believable!

    • bostonboomer says:

      That is disgusting!!

    • Sima says:

      I want the proverbial heads to roll! Someone should go to jail. I mean they bust people and send them to jail for an ounce of pot, for stealing something little, but not for stealing billions? Really???

      It’s that old, kill one person you are a murderer, kill 1,000,000 and you are a statesman thing, right?