Beyond the Election and Right Wing Craziness

I’m pretty certain that we will be seeing a second term for Obama given all the recent polls on the states important to the electoral college, so I want to look ahead to two things that I think will dominate post-election politics.

The first item is more of a prognostication, even though its roots have been thoroughly debunked as a series of right wing lies meant to capture low information/low intelligence voters.  That’s the hoopla around the Benghazi consulate murders.  It’s evident that right wingers and low information voters have fallen for conspiracy theories.

The “Benghazi Default” right wing strategy is being looped on Fox and used as the default non-answer by Romney surrogates despite the memes having been debunked by media, the CIA,   Condoleeza Rice, and fact checkers.  Cannonfire does a great job of listing the information on that and there are many places in the media where you can find a list of the events and find a thorough list of the debunked right wing canards.  Here’s one from Juan Williams writing for The Hill.  The Benghazi canards have been so debunked that the media is basically ignoring them now and only brings it up when a Romney surrogate falls back on the “Benghazi Default” which is now the term for they’ve got nothing to say for Romney so they’re using the meme.  We now have a league of Benghazi Truthers out there with every other idiot set of truthers led by the likes of Donald Trump.  Benghazi Truthers get a two-fer.  They get to hit a Clinton and Obama. CDS and ODS twofer!!!

So, here’s my prognostication.  The Republican party will continue to have its internecine  issues with its crazy religious and teahadi right who will turn on Romney the day after the election as not being pristine enough.  They and the other flakes, nuts, and whackos left in a congress held hostage by Republican wingers will immediately start working on a plan to impeach POTUS on the Benghazi Default since they won’t have anything particularly real to say at that point.  I’d bet real money on this happening if I had any. It will get farther than it should given that the Senate will stop it eventually, but worse, it will impact policy discussions which is why it will be allowed by Republican leadership.  It will become a bargaining chip.

So, the second thing is something I want to spend more time on because it’s more of a ‘real’ threat to policy concerns and how the politics of a false impeachment could play into an Obama second term in much the way the same hoopla did in Bill Clinton’s second term.  That would be the idea that there is a “fiscal cliff” and that Obama will get back on the “Grand Bargain” train.  There is less likely to be outspoken criticism of these moves. There are already some folks with good policy instincts starting this conversation.

First off, Jonathan Chait goes after the “fiscal cliff” meme at the New York Magazine. I’ve mentioned that this is one thing I want to write about because I think it plays well into right wing paranoia and their stupid battle cry about pushing some huge future inter-generational debt scam.

I’ve written before that the legacy debt of social security has been following us since day one and that so far, there’s really been not one mention of it beyond scholarly journals because no one feels crippled by it.  The “fiscal cliff’ meme plays into economic ignorance and right wing paranoia and plays well into the agenda of Wall Street and billionaires.  This is being used to force a bigger scheme.  Namely, that Wall Street still has its eyes on our Social Security Funds and that unnecessarily strict changes to Social Security may happen to get at other things.

Starting in January, there will be a series of automatic tax hikes and spending cuts that greatly improve Obama’s bargaining leverage. If those policies stay unchanged for the entire year, they would harm the economy a great deal. But if they only stay in place for a few weeks, or even a few months, the impact would be minor. Likewise, if you don’t eat anything for three weeks you could die, but if 6 p.m. comes and goes without dinner on the table, you don’t need to be scared.

Yes, Obama will have some bargaining leverage and I’m more afraid that he’ll return to the “Grand Bargain” than to look for alternatives that won’t unravel the social safety nets. Robert Kuttner–writing for HuffPo--has some interesting things to say about this.

In the parlance of economists, the economy is stuck in what the economist Irving Fisher called a debt-deflation, where the continuing damage from a financial collapse acts as a lead weight on the recovery. The only entity that can blast the economy out of a debt deflation is more public spending — which of course cycles right back into the private economy.

So what is our president doing to shore up his support by reassuring voters that things will pick up in the next four years? More public investment, more jobs, more overhaul of the financial system, more relief for the mortgage mess, right?

Well, not exactly. While he gives lip service to these goals, Obama is preparing to do a major deal for deficit reduction, which will only add to the drag on the recovery. His administration has bought into the argument that the business elite and the money markets expect deficit reduction, and that it will also play well with the voters.

In his recent off-the-record conversation with the editors and publisher of Iowa’s largest paper, theDes Moines Register, which was made public under pressure from that newspaper, Obama had this to say about deficit reduction:

I am absolutely confident that we can get what is the equivalent of the grand bargain that essentially I’ve been offering to the Republicans for a very long time, which is $2.50 worth of cuts for every dollar in spending, and work to reduce the costs of our health care programs.

And we can easily meet — “easily” is the wrong word — we can credibly meet the target that the Bowles-Simpson Commission established of $4 trillion in deficit reduction, and even more in the out-years, and we can stabilize our deficit-to-GDP ratio in a way that is really going to be a good foundation for long-term growth. Now, once we get that done, that takes a huge piece of business off the table.

Say what? Four trillion dollars of deficit-reduction, otherwise known as economic contraction. Really? If Obama strikes such a deal, it guarantees that a sluggish economy will continue.

This was the real story from that Des Moines Register interview and it’s the one that the media is ignoring while chasing its tail and the false meme of “Ro-mentum”. The Grand Bargain is basically the track to a continued slow, long, miserable, drug-out recovery.  It’s taking the UK path to economic malaise.  I’ve just linked you to a Bank of England (BOE) speech. That’s basically the UK’s version of the FED.  It compares the recoveries of the UK and the US.  The speech is actually called “Why is their recovery better than ours?”  The answer is that we’ve taken a slightly more Keynesian approach to recovery with a stimulus and a Bernanke monetary policy that recognizes the threat of deflation and sluggish growth.  They did a grand bargain sort’ve thing.  Their austerity program dealt them a huge blow.  It widened their federal deficit.  It led to worse unemployment and terrible growth.  The comparative graphs are astounding. I’ve placed the GDP one to the left.

The contrasting directions of employment trends raised uncertainty in the UK over the US during the latter half of the recovery, which weighed on consumption.

Fiscal policy, however, played an important role as well. Cumulatively, the UK government tightened fiscal policy by 3% more than the US government did – taking local governments and automatic stabilizers into account – and this had a material impact on consumption. This was particularly the case because a large chunk of the fiscal consolidation in 2010 and in 2011 took the form of a VAT increase, which has a high multiplier for households.

The fact that British real incomes were hit harder than American households’ incomes by energy price increases could be ascribed in large part to the past depreciation of Sterling, which also hit real incomes directly. All combined, these factors significantly dampened consumption growth in the UK, with knock on effects on investment and stockbuilding.

So, why would we follow this path to certain economic malaise?  Bill Black provides a great analysis.’

The Republican Party’s approach to convincing Obama to commit the Great Betrayal cleverly exploits three human weaknesses.  First, Obama wants to be considered a “centrist.”  Second, Obama yearns to be considered “bipartisan.”  These first two weaknesses are forms of vanity.  The siren song is “do this and you will become known as the President who acted as a statesman to cut across Party and ideological divides and make the hard choices essential to allowing America to continue to be a great nation – while ‘saving’ the safety net.”

The third weakness that the Republicans seek to exploit is fear – and the death of alternatives.  The mantra of European austerity proponents is “there is no alternative.”  The only choice is between austerity and collapse, and that means there is no real choice.  The Republican strategy is to create a series of “moral panics.”  As the name implies, this involves the creation of a special form of panic falsely premised on immorality.  (Think: “Reefer Madness” or Professor Hill causing River City, Iowans to believe that the arrival of pool hall demonstrated the imminent moral collapse of their children.)  The Great Betrayal can only occur if Obama succumbs to mindless (and innumerate) panic.

Chait believes that Obama will not fall for this.  Black obviously believes the President will still want to be seen as some one that will negotiate with Right Wing Terrorists in the name of bi-partisanship.  I don’t know.  Perhaps the incredible nasty attacks on the President during this campaign and the 4 years of obstruction and filibusters he endured during his first four years will drive him Chait’s direction.

So, enter my prediction of a pending impeachment charge no matter how frivolous.   I think we can all say that the CDS that drove the impeachment of President Clinton is only matched by the ODS that will drive the impeachment attempts on Obama.  Even Newt Ginrich–the architect of obstructing Clinton’s second term–has been using the Benghazi Default this week.   (That link goes to Hannity so be warned and get some eye bleach.)  No matter how much the evidence shows that this is a false narrative, the right and Fox keep hyping it in the same way that no amount of damnation by Chrysler, GM, Fact Checkers, and the media is stopping the Romney campaign from telling folks in Ohio that US jobs producing Jeeps are going to China.  These folks just live on lies and achieving their evil goals in any way possible.  They will see us all dead in the streets rather than give an inch.  Just look at what Rush Limbaugh is saying today about Chris Christie’s h/t to POTUS on FEMA’s response to Sandy.  They will never be moral actors.  NEVER.

So, will the political circus of a purely political impeachment movement by whacko Tea Baggers and other republican partisans create an atmosphere that warps the outcome of this serious policy discussion ?    Well, again, I’d put some serious money on watching a completely solvable situation go right into the right wing crapper as ODS goes to 11 the day after Romney loses.  Ladies and Gentlemen, Guard your Social Security well!   I wish I didn’t really believe this scenario is possible but unfortunately, I really do.

Monday Reads

Good Morning!

I’m finishing up a paper today that’s off to be published on Real Estate Investment Trusts (REITS). Don’t worry!  I won’t bore you with the details but it’s basically about locating speculation bubbles like the one that happened in real estate markets in the 2000s.  There were a lot of folks that made money off of that ride although most of us little guys lost a lot.  The reason I’m bringing it up is that my first read of the day is a Paul Krugman response to Allan Greenspan’s critique of Obama’s economic policy.  I just wanted to remind you of what a mess the first part of the century has been and that many of the pots and the kettles still appear to be confused about their true nature.  I mean, the entire mess has given me a great research agenda, but at what cost?

Greenspan’s tut tuts Obama’s ability to create economic chaos in the academic journal International Finance (pdf here). While most of us are still trying to figure out what went so horribly wrong, Greenspan is trying to pin the blame on the new guys. I’m going to quote his abstract because it’s just more of the same old same old  from one of the beasts that brought us to this mess and its worth the bask in the arrogance to just remember his access to power.  Greenspan says it’s too much government regulation and Obma activism that’s hampering the recovery and that he can prove it with bad, outdated statistical methods.  This comes from the man that gave Wall Street a lot of cheap money and no regulation so they could go hog wild.  The recovery may be tepid, the stock market may be recovering, but I’ll be damned if there’s any regulation left standing upon which he can float his argument. Oh, Krugman dismisses the methods by which Greenspan infers that it’s government activism and its inherent chaos that’s created a stale recovery.  To be honest, a first year doctoral student would use better methodology and know the literature better.  That really scares me, frankly. What did he do while at the Fed?  Reread The Fountainhead?

So, here’s the bubblemeister’s blowing you know what up you know where with techniques that wouldn’t get me published in a mimeographed neighborhood newsletter let alone International Finance. Why hasn’t this man retired to an island somewhere?

The US recovery from the 2008 financial and economic crisis has been disappointingly tepid. What is most notable in sifting through the variables that might conceivably account for the lacklustre rebound in
GDP growth and the persistence of high unemployment is the unusually low level of corporate illiquid long-term fixed asset investment. As a share of corporate liquid cash flow, it is at its lowest level since 1940.

This contrasts starkly with the robust recovery in the markets for liquid corporate securities. What, then, accounts for this exceptionally elevated level of illiquidity aversion? I break down the broad potential sources, and analyse them with standard regression techniques. I infer that a minimum of half and  possibly as much as three-fourths of the effect can be explained by the shock of vastly greater uncertainties embedded in the competitive, regulatory and financial  environments faced by businesses since the collapse of Lehman Brothers, deriving from the surge in government activism. This explanation is buttressed by comparison with similar conundrums experienced during the 1930s. I conclude that the current government activism is hampering what should be a broadbased robust economic recovery, driven in significant part by the positive wealth effect of a buoyant U.S. and global stock market.

So, here’s Paul Krugman with ‘Rantings of an Ex-Maestro’.

He’s no longer the Man Who Knows; he’s the man who presided over an economy careening to the worst economic crisis since the Great Depression — and who saw no evil, heard no evil, refused to do anything about subprime, insisted that derivatives made the financial system more stable, denied not only that there was a national housing bubble but that such a bubble was even possible.

If he wants to redeem himself through hard and serious reflection about how he got it so wrong, fine — and I’d be interested in listening. If he thinks he can still lecture us from his pedestal of wisdom, he’s wasting our time.

Brad Delong actually does some analysis over at his blog Grasping Reality.

I don’t see how this hangs together in any coherent fashion at all.

If businesses are unwilling to invest in illiquid capital out of the fear that government action will impair the value of their investments, businesses must also fear that government action will impair the value of their existing illiquid investments. What is the value of their existing illiquid investments? The value of their existing illiquid investments is nothing more than the stock market value of their companies–liquid stock market value is, in the last analysis, nothing more than the cash flows proceeding from the illiquid investments that companies have made that generate the profits.

A much better and more sensible explanation for the relatively high value that the stock market places on existing illiquid corporate assets and the relatively low value that companies place on illiquid investments to expand their fixed capital is precisely that capacity utilization is low–so why spend more money now building factories when doing so would be more expensive and only add to your idle capacity?

And, indeed, if you ask people running businesses what is their single most important problem, they say that it is not (as they sometimes say it is) taxes; they say that it is not (as they said it was at the start of 2000) the cost and quality of labor; it is not (as they said it was in 2004) the availability and cost of insurance; it is not (as they briefly said it was at the start of 1993) government requirements. What do they say their biggest problem is? Poor sales.

Yup, it’s pretty basic.  You gotta have customers and those customers gotta have jobs and decent paychecks.  That’s the problem right now.

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Greenshoots or False Spring?

Miss Strawberry with the Winners of the Strawberry Bakeoff

Miss Strawberry with the Winners of the Strawberry Bakeoff

I woke up this morning to a chill in the air.  When I came back home from university today it was a chilly 60 in the house. There’s a frost warning for the North Shore and I had to put the heater back on and pull at the flannels.  I walked the dog in a fleece jacket and had to put socks on.  This weekend was just warm, sunny, and great and the Strawberry Festival was in  full swing?  WTF happened here in Southeastern Louisiana?   One day I’m basking in the first hint of a warm sun enjoying fresh strawberry shortcake and the next I’m hoping that the magnolia blossoms are safe.  Yes, there’s  a Strawberry Queen, a Strawberry Ball, and Strawberry Royalty.  If you gotta work somewhere, it might as well be the Strawberry Capitol of the Word.

So, having been raised in the Great Flyover and spent most of my childhood watching my Dad’s business sell F-150s to the local farmers, I know a lot about a false spring.  That’s when Mother Nature messes with you by giving you just enough spring to think the worst of winter is over and then hits you with the cold blast of reality.  Thankfully, my cold blast didn’t include the blizzard that hit the heartland, but it is a cold blast.  That’s why I’m having so much fun with the economic word-de-jour.  That would be Ben Bernanke’s “green shoots”.   An Ivy-leaguer from South Carolina should know about about false springs.  Bloomberg picks at the analogy too in Bernanke ‘Green Shoots’ May Signal False Spring Amid Job Losses.

April 6 (Bloomberg) — It will be months before it’s clear whether what Federal Reserve Chairman Ben S. Bernanke calls the U.S. economy’s “green shoots” represent the early onset of recovery, or a false spring.

The Labor Department’s April 3 report that the economy shed an additional 663,000 jobs last month, while the unemployment rate rose to 8.5 percent, will be followed by months more of bad-news headlines, economists say. The recession, now in its 17th month, has already cost 5.1 million Americans their jobs, the worst drop in the postwar era; unemployment may hit 9.4 percent this year, according to the median estimate in a Bloomberg News survey, and may top out above 10 percent in 2010.

The risk is that the jobs picture turns even more bleak than forecast or the drumbeat of bad news still to come causes consumers, whose spending has firmed up in recent months, to hunker down again.

“If something happens to spook consumers and they crawl back into their tortoise shells, that would be terrible news,” says Alan Blinder, former Fed vice chairman and now an economics professor at Princeton University.

Consumer spending, which accounts for more than 70 percent of the economy, rose 0.2 percent in February after climbing 1 percent in January, breaking a six-month string of declines.

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