Monthly Archives: August 2016Image
“Voodoo Economics” by Moeromaru
By Judge Steve Russell
How about some macroeconomics for breakfast?
We should have increased taxes a long time ago to pay for those wars. Obama, at least, put the Afghanistan and Iraq wars back on the books.
The US has never had a war before in which we did not make any effort to pay as we fought. Even WWII, in which budget balancing was simply not possible, so we ran up the tab. Even then we made every reasonable effort to pay.
One way macroeconomics differs from micro is that, while you and I have to balance our budgets by at least the year and more prudently by the month, balancing the budget of a nation is not a goal worth much sacrifice to reach. In any given year, it simply does not matter. The number that tells us whether we are better or worse is the relationship of the increase in the national debt to the GDP. Even that is not an absolute cap when there’s an emergency.
Let’s say we go with the Obama method, which makes the deficit look way worse than the Bush method Obama inherited. Regardless of the political optics, it’s a more honest way to keep score.
We only talk about cutting the discretionary part of the budget. Foreign aid, food stamps, medical research.
Look at the numbers for yourself. Cutting the ENTIRE discretionary part of the budget would not make it balance. It would also cut off most of our access to “soft power,” leaving only the military option on the table.
If you want to balance the budget, you have to:
1. Raise taxes because we put two wars on the cuff.
2. Cut the “defense” budget substantially OR cut the entitlement programs.
I want to cut defense and I know exactly where to cut. We are building weapons systems our own generals don’t want and can’t use.
I do not think cutting the entitlement programs is necessary or desirable.
Medicare and Medicaid can cost less simply by repealing the Stupid Tax, imposed on us for letting the private insurance hogs in the creek and failing to negotiate with Big Pharma or allow Canadian drugs to compete.
Social Security is a big deal in more ways than one. Both candidates for POTUS promise not to cut benefits and there’s not only no need to cut benefits, the benefits need to be raised and expanded.
As an aside, the only reason the SS trust fund looks pretty safe right now is that those undocumented workers Mr. Trump wants to deport are putting in enough money they will never get back. You do realize, I hope, that if Social Security would share the fake numbers and the dead people that appear to be working with ICE, it would be really easy to go pick up those people who are paying for our benefits? There’s a big incentive for SS not to do that.
Anyway, the benefits need to be raised and expanded because:
1. A shocking percentage of Americans have no 401K, no IRA, no Roth. I have seen to it that all four of my kids do, but it was not easy to get them on the bus and most people’s kids are not doing it.
2. The rise of the gig economy means the fixed retirement benefit is a thing of the past.
3. You don’t deal with the problem of systemic unemployment by claiming it’s temporary or by making workers stay full time longer.
So, I say you lower the retirement age for partial benefits. Here in Sun City lots of people are still earning (and therefore paying into Social Security) while getting SS retirement. I have even had a couple of years when my earnings exceeded the lowest years of my SS earnings (when I was in school for seven years) and as a result my retirement benefit was raised!
How do you pay for it? Uncap the payroll tax. The first year I exceeded my cap was the year the Texas Legislature hitched the pay of County Court at Law judges to the pay of District Judges and allowed us to start hearing District Court cases. It was a big raise at the first of the year. Then, around September, I suddenly got another raise that really surprised me. I called human resources to ask where the money came from and was informed that I had exceeded the payroll tax cap and so there was no deduction for Social Security/Medicare. I was gobsmacked. I had not known there was a cap because I had never made enough money to hit it. (I hit the cap again in my second career when I moved from a third tier university to a first tier university and got a big raise.)
I’ve had plenty of time to think about the cap, and I understand the logic of it. It represents the limit on Social Security retirement benefits. If the cap were higher, guys like me would be paying in money that the actuarial odds say we would never get back out. You know what? That’s fine with me. The whole point of the SS program was that during the Depression there were people who had worked all their lives homeless and hungry. Avoiding that is a big value and having the benefits high enough to encourage geezers like me to go part time and make way for younger folks to be tenured is also a big value. (Not very many people get tenured at the level I was tenured. I was the only one in my hiring cohort who made tenure. That is because there are fewer positions as universities rely on more adjuncts and graduate students.)
Nobody who busts out the top of the cap right now is a likely candidate for living under the bridge but in return for having the top end of their income taxed these folks get the maximum benefit on retirement and—as important if not more so—they are protected by Social Security disability insurance.
This is not a poor country, but our infrastructure has begun to look like we are a poor country.
The economic downturn under Carter combined with the Iran hostage crisis brought us the Reagan Revolution and since then we’ve been going farther and farther in the hole. It’s a choice to have wars without paying for them. It’s a choice to allow private insurance to skim a profit off health care—a choice made by only one other industrialized country in the world, Switzerland, under greatly different circumstances.
Our debt problem is entirely self-inflicted by our disastrous experiment with what the first President Bush correctly called “voodoo economics.” The discredited dogma of supply side economics remains in the GOP platform and every budget their alleged policy wonk, Paul Ryan, has produced.
Took office January 1981. Total debt: $848 billion
Left office January 1989. Total debt: $2,698 billion
Percent change in total debt: +218%
George H.W. Bush:
Took office January 1989. Total debt: $2,698 billion
Left office 20 January 1993. Total debt: $4,188 billion
Percent change in total debt: +55%
Took office 20 January 1993. Total debt: $4,188 billion
Left office 20 January 2001. Total debt: $5,728 billion
Percent change in total debt: +37%
George W. Bush:
Took office 20 January 2001. Total debt: $5,728 billion
Left office 20 January 2009. Total debt: $10,627 billion
Percent change in total debt: +86%
2001 +2.19 %
Took office 20 January 2009. Total debt: $10,627 billion
Total debt (as of the end of April 2011): $14,288 billion
Percent change in total debt: +34%
This is as far as the debt figures go, but I’ll continue with GDP just so we’ll have a clue:
to May 2016=+3.29
I’m aware that for apples to apples I should break out the debt by year but there are time limitations.
Note the anemic recovery and understand those numbers could be very robust if Congress could see fit to fix our roads and bridges and electrical grid. We would be borrowing money from ourselves to do it, but at a time when interest rates are at historic lows.
As it is, we still have to fix that stuff and the economy is not likely to have a major power up because the Great Recession was worldwide and our recovery has been much more robust than the rest of the world because we have the reserve currency and it’s a money magnet. We are doing better than the rest of the world, so there’s no basis to think there’s a turbocharger coming.
By fixing our infrastructure, we turbocharge ourselves. Those GDP numbers go up along with the debt numbers, but the with a tax increase it would be easy to keep the debt rise under the GDP rise.
THEN, the next time we have a budget surplus and the choices are a tax cut (Bush) or pay down the debt (Gore) THAT’S when we pay down the debt.
1935 Vanity Fair cover
By Judge Steve Russell
I do wish the election were today, but it’s not, and two months is an eternity in a national election. So Ms. Clinton would be foolish to be making decorating decisions about the White House just yet. Anyway, she should let Bill do that.
But let’s suppose, just suppose, that nobody can persuade Mr. Trump to pull out of his death spiral. Suppose an outcome of LBJ-AU H2O or Reagan-Mondale proportions.
The first problem is that Trump is laying the groundwork to claim the result is illegitimate and revolution would be a rational response. Trump is no Al Gore, tamping down ego for the sake of the country.
There are several ways that could play out. None are good for the country but none are good for the GOP either.
Which leaves me wondering….at what point do we have a historic realignment? Do the center-right voters get a new home or do they become Democrats and try to jerk that party to the right?
I’m no fan of the two party system but I can’t see a path to a parliamentary system and I am a fan of having elections.
The country is split, and always has been in my lifetime. If there must be two parties with some relation to reality, then one will occupy the center-right like Eisenhower and the other will occupy the center-left like Obama.
Outliers on both sides would duke it out with the party mainstream in primaries and some issues would be mainstreamed because of those primary fights.
The problem with that scenario is there is such a gulf between the GOP elite, the “donor class,” and the bulk of the voters.
Here’s what I think happened and is happening. We are still fighting over the New Deal.
Before the New Deal, class distinctions in the US were clear and both parties were unabashed about the class interests they primarily represented. On the GOP side, the Taft faction vanquished the Roosevelt faction and the progressives decamped for the Democratic Party.
The dominance of the working class party, the Democrats, was never a given. There was too much Horatio Alger in American drinking water. Too many people conflated social mobility with necessity to care for and feed big business.
The Republicans went on a long and lucrative roll and the stock market blew a bubble of monumental proportions that did not just go “pop” in 1929. It went “boom!”
The middle class and the working class plunged into poverty together and even the wolves of Wall Street ended up skinny. As Will Rogers famously said, “they had to wait in line to rent a window to jump out of.”
Tens of thousands of people just disappeared in the Great Depression, leaving on on rumors of jobs–often by rail–and never returning. Pauper’s cemeteries sprang up around the well known places for hopping on freight trains. Boarding a moving train is dangerous business. Those lucky enough to have jobs with the railroad would find bodies in empty boxcars, frozen to death or starved.
In those days, nobody carried picture ID.
In those days, if your bank went belly up, your money was gone. 4,000 banks failed in 1933 alone, of at least 10,000 over the decade. $140 billion evaporated. Mortgage foreclosures happened every day, putting people out of their homes and farmers off their land.
This is why public opinion seriously differed over whether robbing a bank was a real crime, and many who took on bank robbery as a profession became folk heroes.
The Depression was world wide. In Europe, it stoked the rise of fascism.
In Russia, Lenin kicked off the Comintern in 1919. There really was a Communist conspiracy to seek world domination, but there was nothing secret about it. One of the primary goals of the Third International (Comintern) was to deny leadership to socialists.
After Stalin cut a deal with Hitler, Leon Trotsky founded the Fourth International.
None of these movements–Nazism, Italian Fascism, the Comintern, the Fourth International–meant any goodwill for capitalism of the US variety. The working class in the US was in no mood to play defense for the greedheads who blew the economy up.
Herbert Hoover, a man of good personal qualities but elected on the canard that sustains Donald Trump–that “government should run like a business”—could feel the country’s pain but was clueless what to do about it.
The shantytowns erected by homeless Americans were called, uncharitably, Hoovervilles. My own grandparents squatted in a condemned building with no utilities.
If you look up “change election” in a political science text, it probably should take you to 1932.
The New Deal consisted of many, many laws we take for granted today. The US went into the Great Depression as a capitalist country and came out as a mixed economy. Republicans saw each one of those laws as a razor at the throat of capitalism.
The GOP line on recovery from the Depression is that WWII made it happen. If that were so, it would be a substantial upside to an awful calamity, but most sane economists could parse the aggregate demand curve before war spending hit and see that the New Deal was getting us out of the ditch, save for the brief period when FDR was persuaded to take the pedal off the metal in the interest of balancing the budget.
The one sense in which WWII rescued the economy was that it made the budget balancers STFU because it was an existential emergency.
FDR cleaned Hoover’s plow so completely that we didn’t see another Republican POTUS until the war hero Dwight Eisenhower was persuaded to run as a Republican rather than as a Democrat. It was necessary for Eisenhower, with his “middle way,” to wrest control from the Taft conservatives.
Ike refused to dismantle the New Deal. He did nibble around the edges with reforms that tacked to the right like Taft-Hartley. Ike’s conservative brother Edgar wrote him a letter accusing the POTUS of selling out to the New Deal. Ike famously replied:
“Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. . . . [But] their number is negligible and they are stupid.”
These sorts of remarks led to the John Birch Society–right wing crazies funded by the father of our contemporary Koch Brothers–insisting that Eisenhower was a Communist.
William F. Buckley, who founded National Review as the organ of American conservatism, read the Birchers out of the GOP because of their attempts to Red-bait Eisenhower.
The New Deal remained safe until the Reagan Revolution. The New Deal had engineered the greatest redistribution of wealth from the haves to the have nots in the history of the nation.
EVERY ACT OF GOVERNMENT REDISTRIBUTES WEALTH. It matters not how limited you think government ought to be, it can’t pave a road or hire a firefighter or deliver the mail without taxing and spending. Taxing and spending is everything governments do and every time they do it, wealth is moved from A to B.
By convincing the working class that they live in a classless society of limitless opportunity and government should never redistribute wealth or pick winners and losers, Reagan engineered the second largest redistribution of wealth in US history–from the bottom to the top.
The Reagan Revolution was such a political force of nature that it begat Bill Clinton’s political vehicle, the Democratic Leadership Council. Clinton signed the bill that tore down the Glass-Steagall Act, the firewall between investment banking and commercial banking that had worked so well since the New Deal.
The New Deal gave us the Federal Deposit Insurance Corporation, funded not by taxpayer money but by assessments on commercial banks. Thanks to the FDIC, when banks started failing during the Great Recession, the government auditors typically moved in at quitting time on a Friday and the failed bank was reopened under a new name by Monday and no depositors lost a dime.
Investment banks did not have to pay the FDIC assessments but they were free to gamble with other people’s money…but the gamblers were uninsured, and investment operations were separated from commercial operations and both were separated from insurance.
Gambling? Yes, with collateralized debt obligations (CDOs) and a de facto insurance called Credit Default Swaps. They were trading in CDOs backed by subprime mortgages leveraged 30-1 and hedged with Credit Default Swaps. Unfortunately, they were also gambling with depositor money from the commercial operations, dragging the whole banking system down.
Some of the smartest graduates of the best business schools devoted themselves to designing and then buying and selling leveraged debt instruments so complex auditors had trouble understanding them.
Because the investment banks had been allowed to get their hooks into commercial banking, we the taxpayers had to bail them out. Remember TARP? Troubled Assets Relief Program. The assets were troubled because their true value was concealed and they were leveraged and hedged with Credit Default Swaps written by banks that also were connected to the real economy.
The perpetrators of this nonsense called themselves “masters of the universe.” I am not making that up.
TARP wound up compensating the suckers…er, buyers..of the Credit Default Swaps at 100 cents on the dollar.
And the people who signed those predatory mortgages?
They got foreclosed. If they were not kicked out of their homes, it would cause “moral hazard,” doncha know?
The US is still politically divided over the New Deal.
The Democrats favor New Deal programs.
The Republicans oppose the New Deal. They oppose it with numbers they gained by taking in three waves of homeless Democrats.
1. The Dixiecrats turned to the GOP in last ditch defense of Jim Crow laws.
2. Evangelical Christians alarmed by birth control, abortion, and gay rights became Republicans.
3. Finally, neoconservatives seduced by the idea of extending our time as the only superpower with the principal tactic of making war on countries easily beaten for the purpose of demonstrating our willingness to protect our hegemony by force.
So…if it’s time for a realignment on the level of Whigs to Republicans, how does it happen? Who goes where and why?
Or do the Republicans satisfy themselves with all the state governments they control?
I realize I’ve run my mouth for so long people may have forgotten the question, but it was what will a realignment look like? Are we going to continue fighting over what’s left of the New Deal? Or can there be a modern vision of conservatism that means more than lower taxes and smaller government and privatize everything: pensions, prisons, drinking water. Take government out of the business of governing. Then it will be off your back.
If that’s all conservatism has to offer, I’m not sure what conservatives can do but continue to stand for small government as long as it’s big enough to make sure every woman is forced to carry every pregnancy to term and watch Social Security be destroyed by refusing to adjust to the gig economy.
Then we’ll be free like we were when Hoover was POTUS.
The top 1/10th of 1 percent will finally have enough money to make America great again.
By Lynn Parramore, Senior Research Analyst at the Institute for New Economic Thinking. Originally published at the Institute for New Economic Thinking website
Outrage over how big money influences American politics has been boiling over this political season, energizing the campaigns of GOP nominee Donald Trump and former Democratic candidate Sen. Bernie Sanders alike. Citizens have long suspected that “We the People” increasingly means “We the Rich” at election time.
Yet surprisingly, two generations of social scientists have insisted that wallets don’t matter that much in American politics. Elections are really about giving the people what they want. Money, they claim, has negligible impact on elections.
That was a good line for Cold War propaganda, and good for tenure, too. Corporate titans seized upon it to argue that their money should be freer to flow into political campaigns. Not only billionaires, but academics, too, argued that more money in elections meant more democracy.
Even today, many academics and pundits still insist that money matters less to political outcomes than ordinary citizens think, even as business executives throw down mind-boggling sums to dine with politicians and Super Pacs spring up like mushrooms. The few dissenters from this consensus, like Noam Chomsky, are ignored in the U.S. as “unpersons,” though they are enormously respected abroad.
This is a scandal. It has stymied efforts at campaign finance reform and weakened American democracy.
Political scientist Thomas Ferguson, Director of Research at the Institute for New Economic Thinking (INET), has spent a career setting the record straight with clear empirical evidence in a field where such research has been shockingly rare. Ever since his 1995 book Golden Rule: The Investment Theory of Party Competition blasted through received academic wisdom by showing how wealthy individuals and businesses strategically invest in political parties for the biggest pay off, Ferguson has been the man to seek when you really wanted to know how elections work and who controls them.
White collar criminologist William K. Black and others still recall Ferguson’s famous warning, issued long before the nominating convention in 2008, that the contributions from big finance piling up in Barack Obama’s campaign war chest meant that his promises of sweeping reforms of finance were not to be believed. In 2014, he foresaw the unraveling of America’s two major political parties and predicted that voters feeling betrayed would increasingly abandon both.
“Want a happy ending?” he quips. “See a Disney movie.”
In recent years, Ferguson has often worked with two other talented researchers, Paul Jorgensen and Jie Chen. The three have tracked the generous funding of Obama by high tech businesses engaged in spying on the American public and the waves of money from polluters into the Republican Party.
Spend Money, Win Votes
Now the researchers have turned their attention on political money in Congressional elections in a new paper for (INET).
They begin with a simple question: What are the facts about total campaign spending and election outcomes? As they write: “We can pool all spending by and on behalf of candidates and then examine whether relative, not absolute, differences in total outlays are related” to the differences in votes received by the major political parties.
Their answer is stunning: there is strong, direct link between what the major political parties spend and the percentage of votes they win – far stronger than all the airy dismissals of the role of money in elections would ever lead you to think, and certainly stronger than anything you read in your poli sci class.
They show the strength of this relationship through a simple graph. The line going out to the right in the graph shows the Democratic percentage of the total money flowing into the race for the major parties and runs from 0 to 100 percent. The vertical line shows the percentage of the major party vote that the Democrats won. Dots represent individual House races in 2012.
As Ferguson, Jorgensen, and Chen sum up:
At the bottom left Democrats spend almost no money and get virtually no votes; at the top right, they spend nearly all the money and garner virtually all the ballots, calculated as proportions of totals for the major parties.
If money and voting outcomes were unrelated, then the dots representing individual House races in 2012 would be scattered all over the square. If they were perfectly related, the dots would all cluster tightly on a line.
Not only in 2012, but in every election for which the data exists (from 1980 to 2012), Ferguson, Jorgensen, and Chen found that the graphs came out with neat, straight lines, with minimal scattering of dots. The link is clear: when the Democrats spend more than Republicans, their candidates win. When Republicans spend more than Democrats, they win.
There was but one exception, the Senate races of 1982, when Senator William Proxmire, whose disdain for fundraising was legendary but who still won elections, brought down the average. Otherwise, with alarming regularity, Democrats and Republicans candidates’ share of the vote was correlated, to an astonishing degree, with the amount money spent in the campaign.
Nothing like this graph has ever made its way into a political science textbook. That it now exists sure should change what Ferguson, Jorgensen, and Chen call the “optics” of the campaign finance discussion. But will it?
Does Money Just Follow Popular Candidates?
Political scientists have long had way out of admitting the implications for democracy of such a direct a relationship between politics and money: the idea that the wealthy tend to spend on the most popular Congressional candidates. Their “influence,” the thinking goes, is thus nothing more than a reflection the will of the people. They don’t force any outcome other than the one that voters would choose. Political scientists call this idea “reciprocal causality.”
Ferguson, Jorgensen, and Chen tackle this issue head on. They use a cutting-edge method invented by Dutch statistician Peter Ebbes and recently studied by Irene Hueter in another new INET paper. The researchers find that while reciprocal causation happens, its extent is not large: money’s effect is direct and powerful.
They confirm their conclusion by using another method now widely employed in finance and economics: they look at published gambling odds on the chances of a Republican takeover of the House in 1994. These are relevant because a huge wave of money swept the Republicans to victory in that election, but the odds never moved very much. The relative lack of change rules out the idea that soaring expectations of victory drove the wave. But the wave, when it came, nevertheless produced a big change in the electoral outcome, just as a money-driven “investment theory” of political parties would predict.
Eccentric Gazillionaires or Big Corporations Driving Elections?
Their paper closes by examining the notion that right wing politics in America has been driven by donations piling up from eccentric entrepreneurs like investor and conservative mega-donor Foster Friess — the sort of people who are widely imagined to populate the Forbes 400 list of wealthiest Americans – rather than mainline big business corporations, such as those on the Fortune 500 list.
On the contrary, the researchers find that “a simple count of firms and investors on Forbes show that the largest American corporations support Tea Party Congressional candidates and organizations supporting the movement, such as Freedom Works, at much higher rates than Forbes 400 members. Even making due allowances for Dark Money, the difference is substantial.”
Evidently American big business firms are not centrist, as many pundits would have it. As Ferguson and his colleagues put it:
Stories that the steady rightward drift of the American political universe is somehow the work of exceptionally ideological individual entrepreneurs are huge over-simplifications. If the center is not holding in American society – and it rather plainly is not – America’s largest companies are as implicated as anyone else; indeed, perhaps more so.
This state of affairs explains why economic inequality has grown into a crisis, with social unrest amplified by economic distress. Because of this money-driven system — which has been getting worse since 1970s up to the current dysfunctional mess — when the rich don’t feel like paying taxes, we all suffer. Infrastructure collapses, schoolchildren and sick people suffer, and hard-working citizens are robbed of their fair share of the country’s prosperity and end their lives struggling keep body and soul together.
Ferguson, Jorgensen, and Chen conclude:
It goes without saying that this news is not reassuring; particularly in elections below the federal level – in states and local elections, we suspect, money has come to dominate outcomes to a frightening degree, not least because it is unlikely that the Republican advantage is offset there to the degree that it has been in recent federal elections. If it turns out that the U.S. has entered a Post-Democratic age, the situation will not be improved by social scientists behaving like ostriches. It is time economics, political science, and history recognize the reality of industrial and financial blocs within parties and acknowledge money’s powerful effects on elections.
If mainstream social scientists are not pursuing the truth, what exactly are they pursuing? Whatever it is, it does not appear to be good for democracy.
D.N.C. Headquarters Mobbed by Republican Refugees Seeking Asylum
WASHINGTON, D.C. (The Borowitz Report)—A humanitarian crisis has been unfolding over the past week as Republican refugees seeking asylum have overrun the Democratic National Committee headquarters, in Washington, D.C.
D.N.C. staffers have confirmed that they were woefully unprepared for the masses of desperate Republicans who have shown up at the D.N.C.’s door, looking for safe harbor.
“These people have been brutalized for months and have decided to risk everything to save themselves and their families,” D.N.C. staffer Tracy Klugian said. “When they tell you their stories, they are absolutely heartbreaking.”
Meg Whitman, who is sixty, said she left her entire life as a Republican behind after witnessing unspeakable horrors under the new G.O.P. regime.
Taking comfort from a blanket and a cup of coffee provided by D.N.C. staffers, Whitman appeared to be in a state of shock about where life under a failed state had brought her.
“I never thought I’d find myself in a place like this,” she said as she took in the unfamiliar surroundings of the D.N.C. headquarters. “Still, anything has to be better than where I came from.”
When asked if she had any regrets about her decision to flee, Whitman choked back tears before responding. “I had no choice,” she said. “There is no respect for human life there.”