Tuesday Reads

Good Morning!

The Tax Cuts for Billionaires (tm) program has passed and will keep all the scrooges making merry merry for a bit.  Unfortunately, the stimulus and capital investment will probably go outside the United States and a budget fight is on deck.   The next budget crisis is looming.  The Federal government will probably hit the debt ceiling in April.  There’s 50 other problem budgets out there also. CBS has an interesting state of the states piece up called “The Day Of Reckoning”.

Most states will have worse problems because they must balance their budget, they’re running cyclic deficits which happens when unemployment goes up and they can’t print money.  State budgets are overwhelmed with needs for state programs like food stamps and unemployment as well as SCHIP and other family safety net programs.  They are also underwhelmed by incoming revenues because demand for things is way off.  Federal tax cuts make this worse because many states–including here in Louisiana–base their income tax formulas on how much Federal Taxes have been paid. It’s tough for them to change the law at this point to reflect that Obama/McConnell Billionaire rescue plan ™.   States and municipalities must watch their bond ratings and compete with other states for investor funds.  This keeps them on a much tighter rein than the Feds.  Additionally, there was some stimulus money in the original Obama stimulus progam that is not being renewed and will run out.    All-in-all, 2011 will be a bad year for states. The worst is yet to come.

This situation has already worried Wall Street and  will undoubtedly cause an increase in unemployment as state and local workers are laid off to balance budgets.  One problem that we’ve had here in Louisiana is that state employment levels have been frozen in the clerical areas and the increased demand for unemployment has led to a 4 – 6 month backlog in processing unemployment benefits.   If you don’t have a rich relative or an emergency savings fund, you’re most likely going to find yourself out on the street.  It’s been the topic of many an investigative report in local TV.  I found that it’s not just in Louisiana.  It’s happened in Connecticut, Kansas, Rhode Island, and California too.

The states have been getting by on billions of dollars in federal stimulus funds, but the day of reckoning is at hand. The debt crisis is already making Wall Street nervous, and some believe that it could derail the recovery, cost a million public employees their jobs and require another big bailout package that no one in Washington wants to talk about.”The most alarming thing about the state issue is the level of complacency,” Meredith Whitney, one of the most respected financial analysts on Wall Street and one of the most influential women in American business, told correspondent Steve Kroft

Whitney made her reputation by warning that the big banks were in big trouble long before the 2008 collapse. Now, she’s warning about a financial meltdown in state and local governments.

“It has tentacles as wide as anything I’ve seen. I think next to housing this is the single most important issue in the United States, and certainly the largest threat to the U.S. economy,” she told Kroft.

Asked why people aren’t paying attention, Whitney said, “‘Cause they don’t pay attention until they have to.”

Whitney says it’s time to start.

This investigative report has examples of looming problems for California, Arizona and New Jersey.  If you live in any of these three states, you should be prepared for an incredible scale back of government services and possible tax hikes. Another state with serious problems is Illinois.  Illinois is already in the ‘deadbeat’ state category.  Here in Louisiana, severe budget cuts by “Bobby is for Bobby” Jindal have led to attempts to break all public service unions including the ones for teachers, state clerical workers, firefighters and police.  Here’s a list of targeted furloughs, layoffs, and firings in Louisiana as reported by WBRZ, a Baton Rouge TV station last month. If they’re not happening in your state already, they will undoubtedly be starting next year when the stimulus funds run out.  Prison guards are even on the list.  I wonder who will win the debtor’s prisons and poor house farms?  Halliburton perhaps?

There is one more major lame duck issue sitting on the docket.  Democratic senate leaders are hopeful they will get the START treaty ratified despite ongoing Republican obfuscation. Let’s hope they’ve got the votes they need.  Even Condoleeza Rice and Colin Powell are on board with ratification.

By the end of another tumultuous day, treaty backers said they could count more than the two-thirds majority required for approval in votes that could begin as early as Tuesday. The Senate mustered as many as 64 votes in defeating Republican amendments on Monday, just two short of what supporters need for final approval, and three senators who supported one of the amendments have already said they will vote for the treaty in the end.

The momentum building for the treaty came despite the announcements of the two top Senate Republican leaders, Mitch McConnell of Kentucky and Jon Kyl of Arizona, that they will vote against the treaty, known as New Start. Treaty supporters pressured wavering Republicans on Monday with an appeal by Adm. Mike Mullen, chairman of the Joint Chiefs of Staff and the nation’s top military officer, to approve the agreement.

Mississippi Governor Haley Barbour’s recent slip of the tongue will undoubtedly create issues should he decided to make a run for the presidency in 2012. Barbour gave an extensive interview that basically showed how many parts of the south have not changed.   The Mississippi governor praised a civic group that is–for all intent and purpose–a  white supremacist group  in the state.  He also made a comment about the things not being so bad during the civil rights era.  Kinda makes me think Trent Lott might have a better shot at the presidency than good ol’ Haley does.

Mississippi Gov. Haley Barbour says he doesn’t remember the Civil Rights era being “that bad,” citing his attendance at a Martin Luther King Jr. rally nearly 50 years ago.

“I just don’t remember it as being that bad,” Barbour (R), 63, told the conservative Weekly Standard, which did a lengthy profile on the governor. “I remember Martin Luther King came to town, in ’62. He spoke out at the old fairground and it was full of people, black and white.”

The profile also showed Barbour’s ignorance of the role of hate group in trying to maintain segregation.  The group has a long history of white supremacist activities and writings.

“You heard of the Citizens Councils? Up north they think it was like the KKK,” said Barbour. “Where I come from it was an organization of town leaders. In Yazoo City they passed a resolution that said anybody who started a chapter of the Klan would get their ass run out of town. If you had a job, you’d lose it. If you had a store, they’d see nobody shopped there. We didn’t have a problem with the Klan in Yazoo City.”

The White Citizens Council movement was founded in Mississippi in 1954, shortly after the Brown v. Board of Education Supreme Court decision that outlawed segregated public schools, and was dedicated to political activities opposing civil rights — notably boycotts of pro-civil rights individuals in Barbour’s hometown, as opposed to Barbour’s recollection of actions against the Klan. It was distinguished from the Klan by the public self-identification of its members, and its image of suits and ties as opposed to white robes and nooses.

If you check the Southern Poverty Law Center’s Hate map of Mississippi, you’ll see that they’ve identified approximately 25 hate groups there.  Many are in the area surrounding Yazoo.  You’ll see that the Council of Conservative Citizens is quite active around the area. Some of these groups have changed their name to sound more palatable but it’s the same old racist screeds. It wouldn’t take much for Barbour to learn about these folks.

The Council of Conservative Citizens (CCC) is the modern reincarnation of the old White Citizens Councils, which were formed in the 1950s and 1960s to battle school desegregation in the South. Created in 1985 from the mailing lists of its predecessor organization, the CCC, which initially tried to project a “mainstream” image, has evolved into a crudely white supremacist group whose website has run pictures comparing pop singer Michael Jackson to an ape and referred to blacks as “a retrograde species of humanity.” The group’s newspaper, Citizens Informer, regularly publishes articles condemning “race mixing,” decrying the evils of illegal immigration, and lamenting the decline of white, European civilization.

In Its Own Words

“God is the author of racism. God is the One who divided mankind into different types. … Mixing the races is rebelliousness against God.”
— Council of Conservative Citizens website, 2001

“We believe the United States is a European country and that Americans are part of the European people. … We therefore oppose the massive immigration of non-European and non-Western peoples into the United States that threatens to transform our nation into a non-European majority in our lifetime. We believe that illegal immigration must be stopped, if necessary by military force and placing troops on our national borders; that illegal aliens must be returned to their own countries; and that legal immigration must be severely restricted or halted through appropriate changes in our laws and policies. We also oppose all efforts to mix the races of mankind, to promote non-white races over the European-American people through so-called ‘affirmative action’ and similar measures, to destroy or denigrate the European-American heritage, including the heritage of the Southern people, and to force the integration of the races.”
—Statement of Principles, Citizens Informer, 2007

“Controlling immigration is about the security of this republic [terrorists illegally crossing the borders] and making sure countries like Mexico stop dumping their murderers, rapists, those carrying AIDS and other communicable diseases and gang members on America’s door step.”
—Devvy Kidd, Citizens Informer, 2006

Yup, nothing to see here.  Just about as benign as your local chamber of commerce or Elk’s Club. You’d think a governor would be familiar with terrorist and hate groups in his own state, wouldn’t you?

This Politico op-ed by Robert Kuttner is undoubtedly one of the first in the a number that will come up as Obama moves on Social Security. It’s called ‘Obama to blink first on Social Security’. Kuttner says that key senate Democrats and the White House are moving to embrace the Cat Food commission report AND cuts in social security. We’re supposed to hear about it in the State of the Union address coming up in January.

The idea is to pre-empt an even more draconian set of budget cuts likely to be proposed by the incoming House Budget Committee chairman, Rep. Paul Ryan (R-Wis.), as a condition of extending the debt ceiling. This is expected to hit in April.

White House strategists believe this can also give Obama “credit” for getting serious about deficit reduction — now more urgent with the nearly $900 billion increase in the deficit via the tax cut deal.

How to put this politely? For a Democratic president, this approach is bad economics and worse politics.

For starters, cutting Social Security as part of a deficit reduction deal is needless — since Social Security is in surplus for the next 27 years. The move also gives away the single most potent distinction between Democrats and Republicans — Democrats defend your Social Security, and Republicans keep trying to undermine it.

If you think the Democratic base feels betrayed by Obama’s tax-cut deal, just imagine the mayhem when Obama proposes to cut the Democrats’ signature program.

Sen. Al Franken (D-Minn.) compared Obama’s tax deal to punting on first down. A pre-emptive cut in Social Security is forfeiting the game before kickoff.

Hey, Al, I got an idea.  Why don’t you and the others fight him just for once?  Frankly no deal is better than the deals he’s been negotiating for us.  Don’t hold your nose and vote for this one like you did with the Tax Cut for Billionaires (tm) plan.  Please?

Altogether now,  “We are so F’d”.

What’s on your reading and blogging list today?

Empowering a Failed Hypothesis

One of my neighbors is a public defender who is a New Orleanian by birth and fits all the standard eccentricities of New Orleanians.  He spent some time in the Navy during the Vietnam period.   Now my friend is very liberal, but one of his buddies from the Navy time that visits frequently is not.  The buddy lives in rural Washington state and teaches in a small college there.  How he every managed to get a gig teaching economics with just an MBA still boggles my mind, but that is the deal.  When you do a stint in actual economics–not just managerial economics and your basic theory classes–you spend a lot of time proving theoretical models.  By the time you get farther in a program and have completed your first few econometrics courses, you’re taught how to empirically validate or destroy other folk’s academic work and their models.

One of the easiest groups of hypotheses to shoot down empirically came from the Reagan years. The results were pretty astounding–we would call that highly significant to what ever statistic was used–so much that David Stockman and Bruce Bartlett gave those hypotheses up rather quickly and they were key architects of the Reagan Economic Revolution. You can’t find a’ conservative’ economist in the sense of Reaganomics unless it’s one at the Heritage Foundation that is paid to deliberately ignore the facts.  In which case, that explains why they’re no place else BUT the Heritage Foundation.

Or they’re like my friend’s buddy who still goes back to the 1980s and pulls out old articles about things like the Laffer curve and teaches it because he wants to show all “opinions”.  That’s what he says to me any way, when I ask him why he teaches a failed hypothesis.  Frankly, he teaches it because he wants others to share his hopes and wishes that the silly thing is true.   Because he’s not had the rigorous training to prepare to do actual economics, he just teaches want he wants to teach.  He also hasn’t gone through publish or perish where you don’t get to have opinions without peer-reviewed facts.   This drives me nuts.  You can’t teach theory or empirical evidence or the scientific approach by clinging to a failed hypothesis.  This makes you an intellectual flat earther.

What we currently have right now is a president that is giving the Flat Earth Society the primary voice in NASA policy and funding when it comes to economic policy.   Paul Krugman has an op-ed from this weekend that firmly states that Obama has empowered the economics version of the Flat Earth Society.  His op ed is called ‘When Zombies Win.’ It’s exactly what needs to be said.

First, the original Obama stimulus plan was anything but text book Keynesian economics and can’t be seen as a way to shout fail on Keynesian theory.  It was more based in Reagan philosophy and those failed hypotheses than any neoKeynsian model.  While I’ve continually called the Supply Side wishful thinking as a failed hypothesis, Krugman is more direct.  He refers to it as failed doctrine.

For the fact is that the Obama stimulus — which itself was almost 40 percent tax cuts — was far too cautious to turn the economy around. And that’s not 20-20 hindsight: many economists, myself included, warned from the beginning that the plan was grossly inadequate. Put it this way: A policy under which government employment actually fell, under which government spending on goods and services grew more slowly than during the Bush years, hardly constitutes a test of Keynesian economics.

Now, maybe it wasn’t possible for President Obama to get more in the face of Congressional skepticism about government. But even if that’s true, it only demonstrates the continuing hold of a failed doctrine over our politics.

I wrote repeatedly at the time–no Nobel winning economist am I either–that the stimulus was bound to be way too little to be of any use.  You can read me screaming ‘Tax Cuts Don’t Cut It or Cure It’  from January 2006, 2009 where I quote John Mishell’s study that talks about how the Bush tax cuts didn’t grow jobs and didn’t grow the economy.  As a matter of fact I have many posts up along that line.   Here’s one covering the FT’s Martin Wolf where I talk about the same thing and it’s even called ‘Still Too Little and WAY TOO Republican” from January 17, 2009. You can search my archives during that time period and find I’m very consistent at writing how the Obama stimulus would fail and that it was primarily because it was based on tax cuts.

It’s really quite a logical situation and one the most flawed precepts sits right there in the Obama-McConnell tax travesty.  There’s a huge tax write off in the bill for companies buying new equipment.  This is something completely ineffective because it just helps the few companies that would’ve done that any way.  The majority of companies are hurting for customers.  No amount of tax write offs for equipment or even employees is going to make them expand if they don’t have customers or revenue.  In fact, my guess will be that an academic study some where down the line will show that the majority of those tax cuts were used by corporations who expanded in emerging markets instead of here.  That’s because that’s where the inflation, growth and action is and there’s nothing in the bill that says tax benefits stay here.

Krugman also talks about something I spoke to recently in that nearly every Republican put in charge of some committee dealing with some aspect of the economy is so far out there on doctrine and short on economic theory and evidence that we’re bound to see more of the same stuff that tanked us the last time out.  The Republicans sitting on the Financial Crisis panel just put out their financial version of the Earth is Flat manual last week.  They said it was too much regulation which is pretty much the exact opposite of everything that every empirical study has shown us.  Here’s one I keep pushing called “Slapped in the Face by  the Invisible Hand” because it’s nontechnical in nature. Krugman called the release of the document ‘Wall Street Whitewash’.

So, Krugman’s op ed from this weekend isn’t astounding in that we all know what neoKeynisans like Stiglitz, and Blinder, Sachs and Krugman have been saying for months now.   Now that I’ve read BB’s morning links, I’m even getting a better feel for the source of my weekend wonderment on Krugman’s bottom line.  Krugman was one of a group called before the President in an attempt to get them to STFU.  The deal is this.  The Nobel Peace Prize may now be given on an ‘aspirational’ basis, but the Nobel Prize for economics is not.  Stiglitz and Krugman earned their Nobel Prizes. I admit to having empirically tested some of Blinder’s models doing my first Masters in Economics so I’m very familiar with his contributions to the literature.  These economists live in a world of peer review where there’s a very dim view of people who cling to failed hypotheses.

So, here’s the wonderment from Krugman’s December 19, 2010 op-ed.

President Obama, by contrast, has consistently tried to reach across the aisle by lending cover to right-wing myths. He has praised Reagan for restoring American dynamism (when was the last time you heard a Republican praising F.D.R.?), adopted G.O.P. rhetoric about the need for the government to tighten its belt even in the face of recession, offered symbolic freezes on spending and federal wages.

None of this stopped the right from denouncing him as a socialist. But it helped empower bad ideas, in ways that can do quite immediate harm. Right now Mr. Obama is hailing the tax-cut deal as a boost to the economy — but Republicans are already talking about spending cuts that would offset any positive effects from the deal. And how effectively can he oppose these demands, when he himself has embraced the rhetoric of belt-tightening?

Yes, politics is the art of the possible. We all understand the need to deal with one’s political enemies. But it’s one thing to make deals to advance your goals; it’s another to open the door to zombie ideas. When you do that, the zombies end up eating your brain — and quite possibly your economy too.

What is even more significant is that this horrible tax bill was put forward so as not to stall things like START.  So, what is the status of the START Treaty and the Republicans who said they’d play ball if the Tax Cuts for Billionaires program was passed.  Has this eased the hostage crisis?

Well, the vote is supposed to be held tomorrow so we shall see. But, this is quote is fresh from the AFP 4 hours ago from the moment I’ve hit the publish button.

Democrats expressed astonishment that top Republicans continued to oppose ratification when virtually every present and past foreign policy or national security heavyweight backed the move, regardless of their political stripes.

In that same announcement, Mitch McConnell was quoted as saying he’d vote against it the ratification. So is John Kyl. Collin Powell and Condoleeza Rice support the ratification of this treaty.  This is what you get when you negotiate with terrorists; domestic or otherwise.

This President has consistently used the failed dogma of Reaganomics in economic policy.  It makes no difference if the wackiest of the right wing say he is a socialist.  The evidence clearly points to his obsession with failed tax cut dogma.  I don’t know if his reasons are political or if–deep down–he is a Republican in Democrat Clothing.  All I know is that we can no longer empower a failed hypothesis.   I certainly hope that Michael Hirsch’s list of  ‘Disillusionati’ continue to expose this economic policy for what it really is.

UPDATE via commenter waldenpond at TL.

File this under we told you so,

love, the Sky Dancing Cassandras