The Economic Blind Spot Among Progressives

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A recent article in Buzzfeed, The Left Looks For Another Eric Holder, describes the issues important to nominally progressive organizations. Chris Geidner and Evan McMorris-Santoro interviewed a number of groups on their wish list for Eric Holder’s replacement as Attorney-General. The groups include the ACLU, the Center for American Progress, the NAACP, the American Constitution Society, and groups working for LGBT rights and minimum sentencing reform, and against restrictive voting laws. They all agreed that Holder is on their side on major issues, with the exception of National Security, espionage and internal spying.

What’s missing from that list is anything to do with economic issues. The Attorney General is responsible for prosecution of economic crimes and antitrust laws, and Holder made no effort whatsoever to enforce either. Not a single “progressive” organization mentioned these issues. There are no progressive organizations that deal with these issues available to be interviewed. That is symptomatic of the failure of the left to address economic issues in an organized way. The only issues of concern to the institutional left are the traditional democratic issues. They all accept the neoliberal credo as their own, and are totally unwilling to address even minor changes to the economic structure. Even the massive upheaval of the economic order exposed by the Great Crash weren’t enough to shake the faith of left institutions in the US version of capitalism.

As proof, consider this. Earlier this year, Thomas Piketty’s book, Capital in the Twenty-First Century, was a media sensation. It offers a detailed picture of wealth inequality in major countries around the world, and a tentative discussion of the dangers to democracy inherent in concentrated wealth. The book sold well, and may even have been read by operatives of both legacy parties, but it quickly disappeared in a cloud of murk. There is no point in describing the stupid response of the Republican party, which supports the 47% theory of Mitt Romney, and has no interest in the reality facing that 47% or the dying middle class. The Democrats saw the issue as “social mobility”, or as “income inequality”, and trotted out their sodden and meaningless programs for change, except, of course, for redressing the imbalance which has brought organized labor to its current low ebb. There is no organized way for Piketty’s data to penetrate the fog of institutional stupidity about economics.

This is not to denigrate the excellent work done on some issues by progressives, including those working for an increase in the minimum wage, like the SEIU, and those working on health care, like National Nurses United and Physicians for a National Health Program. I am especially impressed with the work done by the FACT Coalition which is working effectively towards tax reform:

The policy changes we seek include:

  • Requiring country-by-country reporting by multi-national corporations of the sales made, profits earned and taxes paid in every jurisdiction where an entity operates;
  • Eliminating loopholes in our tax system that incentivize corporations to shift profits and jobs offshore, to make sure that the corporations that benefit from all of the resources, protections and markets in the United States pay their fair share of taxes;
  • Strengthening, standardizing and enforcing anti-money laundering laws; and
  • Requiring ownership information of all business entities, trusts, foundations and charities – information that indicates who actually controls these entities – be made available to law enforcement and the public.

The organizations that support FACT are a diverse group, ranging from Citizens for Tax Justice to Global Witness. Their efforts directly confront some of the worst excesses of US capitalism, and international webs of support for corruption. It is vital work. And even so, it is an effort to tweak the system to serve a broader purpose, not an all-out attack at the roots of a system designed to serve the rich at the expense of everyone else and of the planet itself.

The fact is that progressives of all stripes have deliberately chosen to work inside the framework of US capitalism. They are only willing to put forward baby steps towards reform. There is no coherent defense against the efforts of the filthy rich to impose their will on every government and non-government organization in support of their drive to protect their existing wealth, and open the gates to exploitation of their wealth to create more wealth. For a particularly ugly demonstration, take a look at this discussion and the links it contains by the PBS ombudsman explaining the relationship between David Koch and the Boston and New York PBS channels. Nothing to see here, folks; David Koch is just fine with PBS. I’m sure it’s just a coincidence that NPR has now dismantled its environmental desk.

There are plenty of individuals doing excellent work on economic issues. David Dayen is an expert on all facets of the housing disaster created by Wall Street and their pig mortgage servicing subsidiaries and colleagues. Yves Smith and her writers provide excellent coverage of the greed and corruption on Wall Street. But when it came time to talk to the White House and the media about economic issues, there was not a single Organization that thought it was important to talk about the utter failure of Eric Holder and his worthless staff to lock up a single Wall Streeter for the crimes that led to the Great Crash, and to demand that this be a priority in the last two years of the Obama Administration.

We are left with just a few voices lost in the internets, with no organized power center, and therefore no constituency for massive change. That’s the way the neoliberals in charge of both parties want it, and that’s the way it is.

———–

I intend to keep writing about these crucial issues. Please help keep us running. Now, during our fund drive, is a great time to support pointed reporting on the structure of the economy and the theories that support it. If you can, do as I do, and support this site.

Thanks, Ed Walker

Please make a ten or twenty dollar contribution to support Firedoglake.

The Economic Blind Spot Among Progressives

Please support Firedoglake during our fund drive.

A recent article in Buzzfeed, The Left Looks For Another Eric Holder, describes the issues important to nominally progressive organizations. Chris Geidner and Evan McMorris-Santoro interviewed a number of groups on their wish list for Eric Holder’s replacement as Attorney-General. The groups include the ACLU, the Center for American Progress, the NAACP, the American Constitution Society, and groups working for LGBT rights and minimum sentencing reform, and against restrictive voting laws. They all agreed that Holder is on their side on major issues, with the exception of National Security, espionage and internal spying.

What’s missing from that list is anything to do with economic issues. The Attorney General is responsible for prosecution of economic crimes and antitrust laws, and Holder made no effort whatsoever to enforce either. Not a single “progressive” organization mentioned these issues. There are no progressive organizations that deal with these issues available to be interviewed. That is symptomatic of the failure of the left to address economic issues in an organized way. The only issues of concern to the institutional left are the traditional democratic issues. They all accept the neoliberal credo as their own, and are totally unwilling to address even minor changes to the economic structure. Even the massive upheaval of the economic order exposed by the Great Crash weren’t enough to shake the faith of left institutions in the US version of capitalism.

As proof, consider this. Earlier this year, Thomas Piketty’s book, Capital in the Twenty-First Century, was a media sensation. It offers a detailed picture of wealth inequality in major countries around the world, and a tentative discussion of the dangers to democracy inherent in concentrated wealth. The book sold well, and may even have been read by operatives of both legacy parties, but it quickly disappeared in a cloud of murk. There is no point in describing the stupid response of the Republican party, which supports the 47% theory of Mitt Romney, and has no interest in the reality facing that 47% or the dying middle class. The Democrats saw the issue as “social mobility”, or as “income inequality”, and trotted out their sodden and meaningless programs for change, except, of course, for redressing the imbalance which has brought organized labor to its current low ebb. There is no organized way for Piketty’s data to penetrate the fog of institutional stupidity about economics.

This is not to denigrate the excellent work done on some issues by progressives, including those working for an increase in the minimum wage, like the SEIU, and those working on health care, like National Nurses United and Physicians for a National Health Program. I am especially impressed with the work done by the FACT Coalition which is working effectively towards tax reform:

The policy changes we seek include:

  • Requiring country-by-country reporting by multi-national corporations of the sales made, profits earned and taxes paid in every jurisdiction where an entity operates;
  • Eliminating loopholes in our tax system that incentivize corporations to shift profits and jobs offshore, to make sure that the corporations that benefit from all of the resources, protections and markets in the United States pay their fair share of taxes;
  • Strengthening, standardizing and enforcing anti-money laundering laws; and
  • Requiring ownership information of all business entities, trusts, foundations and charities – information that indicates who actually controls these entities – be made available to law enforcement and the public.

The organizations that support FACT are a diverse group, ranging from Citizens for Tax Justice to Global Witness. Their efforts directly confront some of the worst excesses of US capitalism, and international webs of support for corruption. It is vital work. And even so, it is an effort to tweak the system to serve a broader purpose, not an all-out attack at the roots of a system designed to serve the rich at the expense of everyone else and of the planet itself.

The fact is that progressives of all stripes have deliberately chosen to work inside the framework of US capitalism. They are only willing to put forward baby steps towards reform. There is no coherent defense against the efforts of the filthy rich to impose their will on every government and non-government organization in support of their drive to protect their existing wealth, and open the gates to exploitation of their wealth to create more wealth. For a particularly ugly demonstration, take a look at this discussion and the links it contains by the PBS ombudsman explaining the relationship between David Koch and the Boston and New York PBS channels. Nothing to see here, folks; David Koch is just fine with PBS. I’m sure it’s just a coincidence that NPR has now dismantled its environmental desk.

There are plenty of individuals doing excellent work on economic issues. David Dayen is an expert on all facets of the housing disaster created by Wall Street and their pig mortgage servicing subsidiaries and colleagues. Yves Smith and her writers provide excellent coverage of the greed and corruption on Wall Street. But when it came time to talk to the White House and the media about economic issues, there was not a single Organization that thought it was important to talk about the utter failure of Eric Holder and his worthless staff to lock up a single Wall Streeter for the crimes that led to the Great Crash, and to demand that this be a priority in the last two years of the Obama Administration.

We are left with just a few voices lost in the internets, with no organized power center, and therefore no constituency for massive change. That’s the way the neoliberals in charge of both parties want it, and that’s the way it is.

———–

I intend to keep writing about these crucial issues. Please help keep us running. Now, during our fund drive, is a great time to support pointed reporting on the structure of the economy and the theories that support it. If you can, do as I do, and support this site.

Thanks, Ed Walker

Please make a ten or twenty dollar contribution to support Firedoglake.

Sensible Leadership On Economics In Real Life

Come let us worship together.

The past few weeks have seen an explosion in fear and panic in the media as the mid-term elections creep up on us, with as loathsome and stupid a crowd of Republicans as we could possibly imagine and the weak-kneed crowd of Democrats we always expect. Political ads are either vicious character attacks or fearmongering. If all you knew was our elections, you’d think we are a nation of whimpering children. The worst thing is that congressionals know they are horrible people, as they reveal in an article in Esquire. The majority of candidates in both parties are cowards, living in mortal fear of losing elections, and dumping their nightmares on the rest of us in ads and at debates. Their surrogates are a crowd of poop-throwing zoo animals. It makes me sick.

In this maelstrom of ugliness, I managed to find two signs of competence and even bravery, one from President Obama, and one from Fed Chair Janet Yellen. The President gave a speech at the Kellogg School of Management at Northwestern, and announced that trickle-down economics is a lie. This is from the White House transcript:

What’s the data? What’s the proof? If there were any credible argument that says when those at the top do well and eventually everybody else will do well, it would have borne itself out by now. We’d see data that that was true. It’s not.

American economic greatness has never trickled down from the top. It grows from a rising, thriving middle class and opportunity for working people. That’s what makes us different. (Applause.)

I’ll join that applause. Trickle-down as a theory was never anything but a public relations gimmick to justify the domination by the filthy rich; and for a select class of people with degrees in economics, like this intellectually dishonest but very rich guy, it provided a nominal justification for their unearned paychecks.

It’s good to see the President rejecting this nonsense, and doing it in front of a crowd likely to benefit from the theory.

Janet Yellen spoke at a Fed Conference on Economic Opportunity and Inequality at the Federal Reserve Bank of Boston. That’s remarkable in itself, that the Fed would host such a meeting. She sounds just like Thomas Piketty when she discusses inequality, probably because she has actually read the work of Piketty, Emmanuel Saez, Gabriel Zucman and Anthony B. Atkinson, whose work on income and wealth inequality is damning to US capitalism. Someone has; see footnote 2 for links to important papers: (more…)

Do Soak The Rich

Don’t Soak The Rich is the headline of an op-ed in the New York Times, written by Edward D. Kleinbard, a professor of law and business at the University of Southern California. In a similar vein, Vox ran an post by Cathie Jo Martin, professor of Political Science at Boston University and a doctoral student at Harvard, Alexander Hertel-Fernandez. Both explain that we shouldn’t impose higher taxes on the filthy rich. Instead, we should tax the hell out of the middle class to pay for programs that benefit the poor. That will solve inequality, these writers say, without disturbing our lords and masters. As Martin and Hertel-Fernandez put it, if you have progressive taxation, you get backlash from the rich and powerful who use their political power to find loopholes and lobby to create new loopholes. They don’t seem to notice that there is enormous anger in the middle of the income distribution about programs that benefit the poorest, anger that the elites use to protect themselves from higher taxes. Mike Konczal and Marshall Steinbaum dismember the Vox post in detail.

Here’s how Kleinbard phrases the tax issue:

It turns out that progressive fiscal outcomes do not require particularly progressive tax systems — just big ones, to support substantial government investment and insurance programs.

The better response to income disparity, then, is not to tax the rich more, but to boost revenue over all so that government can invest more, and offer higher quality social insurance programs.

Kleinbard isn’t relying on the arguments of Modern Money Theory to make his case: he says the government needs revenues to support the spending programs he favors. He doesn’t want to soak the rich, so he intends that increased revenues come from the middle of the income distribution. That leaves us with the bizarre notion that a nation that is willing to cut food stamps for the poorest part of the population will happily pay more taxes to fund some other programs that benefits the poor. It’s an astonishing argument.

I suspect that underlying goal of these writers is to impose a value-added tax, a tax on consumption used in Europe. VAT taxes are highly regressive: they increases taxes at the bottom of the income scale, low-income people who currently don’t pay income taxes (but do pay FICA and loads of state taxes already), and people on Social Security, among others, and have a much lower impact on the upper income people who don’t consume as much, and whose consumption of things like lobbying for tax cuts and other legislative favors is not covered. It also leaves untouched their massive increases in unrealized capital gains, which increases their future income and their ability to obtain legislative favors and dominate the rest of us.

Neither of these two articles explains why we shouldn’t raise taxes on the filthy rich. There’s a hint that it wouldn’t be fair to raise taxes on the filthy rich. Kleinbard writes “A chief executive who earns 200 times as much as her typical employee does not get 200 times the benefit from our investments in highways.” That’s true. She gets a lot more benefit than 200 times. Without those highways, she doesn’t have a job. That applies to the entire oligarchy.

Martin and Hertel-Fernandez claim that we can’t raise enough from the rich, but they don’t say why. They claim that “Emphasizing redistribution as the central principle for tax policy is needlessly divisive, leads to smaller government revenues overall, and thus misses the positive benefits that having more revenues can offer if invested wisely in promoting success for all.” The revenue part most likely isn’t true, as we learn from a fascinating paper from Piketty, Saez and Stantcheva. Here’s a discussion of the paper. Neither of the two articles mentions it.

Piketty describes the paper in Capital in the Twenty-First Century.

We found that the elasticity of executive pay is greater with respect to “luck” (that is, variations in earnings that cannot have been due to executive talent, because, for instance, other firms in the same sector did equally well) than with respect to “talent” (variations not explained by sector variables). … Furthermore, we found that elasticity with respect to luck – broadly speaking, the ability of executives to obtain raises not clearly justified by economic performance – was higher in countries where the top marginal tax rate was lower. 512.

That’s econ speak for “the rich get richer at the expense of the poorer”, which is a good reason to raise marginal tax rates immediately. But there’s another and deeper reason. The entire problem facing the US and other advanced countries is that the rich are seceding from the rest of us. They have so much money, and so much power, that they are free to strangle the economy in support of their desire for more money and power. That needs to end.

Neither Kleinbard nor Martin and Hertel-Fernandez are willing to talk about raw power. They apparently think the current distribution of wealth and income is natural and justified. It is neither. It has become an instrument of oppression for the lower class, and is sucking the life out of the middle class. The sooner it ends, the better for all of us, even if it makes the filthy rich sad. (more…)

Do Soak The Rich

Don’t Soak The Rich is the headline of an op-ed in the New York Times, written by Edward D. Kleinbard, a professor of law and business at the University of Southern California. In a similar vein, Vox ran an post by Cathie Jo Martin, professor of Political Science at Boston University and a doctoral student at Harvard, Alexander Hertel-Fernandez. Both explain that we shouldn’t impose higher taxes on the filthy rich. Instead, we should tax the hell out of the middle class to pay for programs that benefit the poor. That will solve inequality, these writers say, without disturbing our lords and masters. As Martin and Hertel-Fernandez put it, if you have progressive taxation, you get backlash from the rich and powerful who use their political power to find loopholes and lobby to create new loopholes. They don’t seem to notice that there is enormous anger in the middle of the income distribution about programs that benefit the poorest, anger that the elites use to protect themselves from higher taxes. Mike Konczal and Marshall Steinbaum dismember the Vox post in detail.

Here’s how Kleinbard phrases the tax issue:

It turns out that progressive fiscal outcomes do not require particularly progressive tax systems — just big ones, to support substantial government investment and insurance programs.

The better response to income disparity, then, is not to tax the rich more, but to boost revenue over all so that government can invest more, and offer higher quality social insurance programs.

Kleinbard isn’t relying on the arguments of Modern Money Theory to make his case: he says the government needs revenues to support the spending programs he favors. He doesn’t want to soak the rich, so he intends that increased revenues come from the middle of the income distribution. That leaves us with the bizarre notion that a nation that is willing to cut food stamps for the poorest part of the population will happily pay more taxes to fund some other programs that benefits the poor. It’s an astonishing argument.

I suspect that underlying goal of these writers is to impose a value-added tax, a tax on consumption used in Europe. VAT taxes are highly regressive: they increases taxes at the bottom of the income scale, low-income people who currently don’t pay income taxes (but do pay FICA and loads of state taxes already), and people on Social Security, among others, and have a much lower impact on the upper income people who don’t consume as much, and whose consumption of things like lobbying for tax cuts and other legislative favors is not covered. It also leaves untouched their massive increases in unrealized capital gains, which increases their future income and their ability to obtain legislative favors and dominate the rest of us.

Neither of these two articles explains why we shouldn’t raise taxes on the filthy rich. There’s a hint that it wouldn’t be fair to raise taxes on the filthy rich. Kleinbard writes “A chief executive who earns 200 times as much as her typical employee does not get 200 times the benefit from our investments in highways.” That’s true. She gets a lot more benefit than 200 times. Without those highways, she doesn’t have a job. That applies to the entire oligarchy.

Martin and Hertel-Fernandez claim that we can’t raise enough from the rich, but they don’t say why. They claim that “Emphasizing redistribution as the central principle for tax policy is needlessly divisive, leads to smaller government revenues overall, and thus misses the positive benefits that having more revenues can offer if invested wisely in promoting success for all.” The revenue part most likely isn’t true, as we learn from a fascinating paper from Piketty, Saez and Stantcheva. Here’s a discussion of the paper. Neither of the two articles mentions it.

Piketty describes the paper in Capital in the Twenty-First Century.

We found that the elasticity of executive pay is greater with respect to “luck” (that is, variations in earnings that cannot have been due to executive talent, because, for instance, other firms in the same sector did equally well) than with respect to “talent” (variations not explained by sector variables). … Furthermore, we found that elasticity with respect to luck – broadly speaking, the ability of executives to obtain raises not clearly justified by economic performance – was higher in countries where the top marginal tax rate was lower. 512.

That’s econ speak for “the rich get richer at the expense of the poorer”, which is a good reason to raise marginal tax rates immediately. But there’s another and deeper reason. The entire problem facing the US and other advanced countries is that the rich are seceding from the rest of us. They have so much money, and so much power, that they are free to strangle the economy in support of their desire for more money and power. That needs to end.

Neither Kleinbard nor Martin and Hertel-Fernandez are willing to talk about raw power. They apparently think the current distribution of wealth and income is natural and justified. It is neither. It has become an instrument of oppression for the lower class, and is sucking the life out of the middle class. The sooner it ends, the better for all of us, even if it makes the filthy rich sad. (more…)

Obama Says Our Businesses Are Punishing Workers


The latest reports on employment are out, and gave President Obama a chance to step out of his role as War Cheerleader and into his real role in this country, cheerleading for the economy. In his weekly address to the country, he explains that

Last month, our businesses added 236,000 new jobs. The unemployment rate fell to under six percent for the first time in more than six years. Over the past 55 months, our businesses have added 10.3 million new jobs.

Just exactly whose businesses are these? They sure aren’t ours in any useful sense of the word, now are they? They belong to the rich and powerful. They belong to people whose opinions and desires are infinitely more important than those of the long-term unemployed and the people who were thrown out of work and found new jobs months later at a fraction of what they were previously producing and being paid.

Obama continues with this:

But most folks still haven’t seen a raise in over a decade. It’s time to stop punishing some of the hardest-working Americans.

Last year, Lloyd Blankfein spoke at the Bill and Hillary Clinton lovefest and explained that Capitalism had raised many people out of poverty, presumably referring to developing nations. As to the US, he praised you unemployed and underemployed people for “accepting a higher unemployment rate” over the then five, now six years since he and his vulture buddies crashed the economy in search of money. President Obama thanks you too. As he put it, “progress has been hard”. By hard he means Not Hard for the filthy rich. He means hard for millions who lost their jobs, got their unemployment benefits cut, got cheated out of their homes in fraudulent foreclosures; for other millions who ran up enormous debts to educate their children, paid taxes, worked their butts off to save their jobs; and all those millions who saw their kids going to schools where class size jumped by 50% because of teacher layoffs, drove on roads and bridges full of potholes and worse; all in the service of saving the cheating rich from the consequences of their insatiable greed.

Yes, it’s been hard for them. But Obama and Blankfein are grateful, because thanks to your misery, Our Businesses have never been more profitable, the share of money going to the top 1% is reaching the peaks of the Gilded Age, the amount of taxes paid by Our Businesses is at historic lows, and generally, the richest among us are fat and happy, so thanks again.

But suddenly out of nowhere, Obama admits what everyone knows. Our Businesses are punishing us. They want us to work for nothing, or as little as is necessary to keep us alive.

Obama admits that this economy isn’t about fairness or social justice. It’s about power, the power to punish. That power has been handed to Our Businesses. They have a free hand to punish hard-working citizens, because they and they alone have the power to give people jobs, and they and they alone have the power to determine what they will pay you.

Obama and Congress decided that there wouldn’t be any other job source. Specifically, they decided there would be no government hiring, and no government building or infrastructure repair or any other useful public employment. They decided that they would cut government hiring and they succeeded in shrinking government. In the six years since the Great Crash, government jobs at all levels have declined to the levels of about 2006. That gives even more power to Our Businesses to pay you as little as they can.

Obama and his administration, Congress and the Courts have done nothing to offset the power of Our Businesses to punish you. In fact, in a case going to the Supreme Court, Obama’s Labor Department takes the position that if you work a 12 hour shift for Amazon, and then your temp agency demands you stick around for another 25 minutes so they can screen you to make sure you didn’t steal from Amazon, they don’t have to pay you for that time. Obama takes the side of the US Chamber of Commerce.

It’s all about discipline. Our Businesses need to discipline the workers of the world, or they won’t work. So “our” government gives them the power to decide whether you work and whether you eat. Then the two jointly blame you if you don’t work hard enough, or can’t find a job. That’s your fault, so no food for you.

Obama has a fix for this problem. He says raise the minimum wage. That is anathema to the conservatives of both parties, because it’s anathema to Our Businesses, and apparently to the bulk of the citizens of this country, who keep electing the same congressionals, all of whom are independent contractors for Our Businesses.

Here’s the obscene part. The same group of paid shill economists who got us into this mess are now screaming that the Fed needs to raise interest rates. That’s a surefire way to punish workers. Just look at this chart. That’s right. Whenever the labor share increases, we get a recession, and the labor share drops. That’s the final straw. All three branches of government despise workers, and so does the Fed. This economic system has failed almost all of us. We, not Our Businesses, are going to suffer.

 

Obama Says Our Businesses Are Punishing Workers


The latest reports on employment are out, and gave President Obama a chance to step out of his role as War Cheerleader and into his real role in this country, cheerleading for the economy. In his weekly address to the country, he explains that

Last month, our businesses added 236,000 new jobs. The unemployment rate fell to under six percent for the first time in more than six years. Over the past 55 months, our businesses have added 10.3 million new jobs.

Just exactly whose businesses are these? They sure aren’t ours in any useful sense of the word, now are they? They belong to the rich and powerful. They belong to people whose opinions and desires are infinitely more important than those of the long-term unemployed and the people who were thrown out of work and found new jobs months later at a fraction of what they were previously producing and being paid.

Obama continues with this:

But most folks still haven’t seen a raise in over a decade. It’s time to stop punishing some of the hardest-working Americans.

Last year, Lloyd Blankfein spoke at the Bill and Hillary Clinton lovefest and explained that Capitalism had raised many people out of poverty, presumably referring to developing nations. As to the US, he praised you unemployed and underemployed people for “accepting a higher unemployment rate” over the then five, now six years since he and his vulture buddies crashed the economy in search of money. President Obama thanks you too. As he put it, “progress has been hard”. By hard he means Not Hard for the filthy rich. He means hard for millions who lost their jobs, got their unemployment benefits cut, got cheated out of their homes in fraudulent foreclosures; for other millions who ran up enormous debts to educate their children, paid taxes, worked their butts off to save their jobs; and all those millions who saw their kids going to schools where class size jumped by 50% because of teacher layoffs, drove on roads and bridges full of potholes and worse; all in the service of saving the cheating rich from the consequences of their insatiable greed.

Yes, it’s been hard for them. But Obama and Blankfein are grateful, because thanks to your misery, Our Businesses have never been more profitable, the share of money going to the top 1% is reaching the peaks of the Gilded Age, the amount of taxes paid by Our Businesses is at historic lows, and generally, the richest among us are fat and happy, so thanks again.

But suddenly out of nowhere, Obama admits what everyone knows. Our Businesses are punishing us. They want us to work for nothing, or as little as is necessary to keep us alive.

Obama admits that this economy isn’t about fairness or social justice. It’s about power, the power to punish. That power has been handed to Our Businesses. They have a free hand to punish hard-working citizens, because they and they alone have the power to give people jobs, and they and they alone have the power to determine what they will pay you. (more…)

Holding Politicians Accountable

Carmen Segarra
Carmen Segarra’s tapes and her story show an ugly picture of regulatory capture. They make it obvious that the people who work in the supervisory branch of the Federal Reserve Board are acting in their own interest, and not the interest of good banking supervision. Dan Wright covered the story for FDL, and Peterr discussed the initial disclosure through the Segarra lawsuit last year. This American Life has posted a transcript of the Segarra episode, and it is shocking. We all owe a debt of gratitude to Segarra and to Jake Bernstein and others at ProPublica for this story.

There is a history of academic discussion of the problem of capture of the regulators of the financial sector. Here’s a 2005 paper by Daniel C. Hardy of the International Monetary Fund that discusses the literature and the nature of the problem. The purpose of the paper was to build up a mathematical model of regulatory capture and to use it to see what happens. We’ll just skip to his conclusions, since there is some reason to think that the model is just meant to formalize his intuitions about regulatory capture.

Regulatory capture in banking is not entirely bad. The regulations favored by banks and other financial institutions may promote financial stability and thus largely coincide with what would promote overall welfare and efficiency; this possibility is shown in the model. Once financial institutions are convinced that regulation is in their interest, it may be relatively easy to introduce worthwhile new measures. Thus, effective financial sector reform may require efforts to educate institutions about their “enlightened self interest.”

It’s a shame to spoil the flow of a good fairy tale model with its real-world outcomes, but it’s a fact that instead of sparkly unicorns, we got the Great Crash. The paper is an example of garbage economics justifying the erosion of government accountability. Neoliberal economists tell us that the financial sector is just responding to economic incentives when it tries and always succeeds at capturing its regulators, so we should get rid of regulators and let the market solve the problems.

Here’s the real moral of the tale. Politicians just can’t bear the thought of holding politicians, generals, rich cheats and frauds in the bloated financial sector, or any other authority figure accountable. President Obama is just the latest incarnation of this principle, that the rich and powerful are not to be punished. As a nation, we are so exceptional, and our leaders are so exceptional that to hold them accountable for the horrifying damage they do is simply unimaginable.

In the wake of the invasion of the Bay of Pigs in Cuba, the head of the CIA, Allen Dulles, and two top CIA officials were forced to resign. That may be the last example of political accountability. William Westmoreland killed off millions of people in Southeast Asia, including thousands of US troops, but he retired with his rank and honors. Richard Nixon, Henry Kissinger, and dozens of Reagan and Bush I appointees, all walked away with money and honors despite their crimes against humanity. One example will suffice: the Iran-Contra CIA careerists who allowed the streets of this country to be flooded with cheap cocaine and crack to aid the destruction of the government of Nicaragua, which has never recovered.

Bill Clinton had a chance to pursue accountability for these and other crimes of the Reagan-Bush era, but he didn’t. Barack Obama had a chance to do the same for the torture and murders committed under the Bush II administration, but he didn’t. They both told us that the nation needed to look forward, not backward. They told us that the problems were under control, and that they wouldn’t make the same mistakes. But the problems weren’t solved by their ascension to power. For that matter, the Bushes and Reagan didn’t hold anyone accountable for the failures of the preceding Democratic administrations.

In fact, the elites now know that they are in power, and that they will not be held accountable. The killer cop in Ferguson is free, and the remaining cops identify with him, attacking the people while wearing their “I am Darren Wilson” armbands and black tape over their nametags. The Carmen Segarra tapes, of events long after the Great Crash, show that Mike Silva Goldman Sachs to get away with coopting the Fed’s reputation in a transaction designed to hide the weakness of another bank. Silva is now an employee of GE Capital. Sucking up is a good career choice.

There’s a piece at Salon discussing polls showing that Barack Obama’s support among liberals has dropped. If you read through the comments, you’ll see that people realize the huge problems created for him by the Republicans and their huge noise machine, but there is a strong thread of recognition that his problems hang from a single failure: the inability to bring himself to hold the financial sector accountable for the misery it inflicted on all of us. I wrote about this in January 2011, when it became obvious that he and the captured Attorney General, Eric Holder, weren’t going to prosecute anyone on Wall Street; and the post holds up well with time. Now these criminals walk the streets with our money falling out of their pockets, free, and still in control of the pretend regulators at the Fed.

We have only one way to hold politicians accountable. If we vote for the lesser of two evils, we are not holding either accountable.

Borrow From the Rich for Wars That Benefit the Rich

This is how you get into wars.

The US war machine is cranking up again, to the delight of the warmongers and bedwetters who dominate the foreign policy establishment, and the arms industry that supports them. This chart from Government Executive shows the vote to approve the plan “to arm and train “vetted” Syrian rebels as part of the US efforts to fight the extremist group ISIL” (scarequotes are in the original by Tim Fernholz). The President requested $500 million for this purpose. Congress authorized the action, but the New York Times doesn’t give a dollar figure for the amount authorized, and doesn’t explain where the money is coming from. However much money we plan to throw at our new proxy army, it is certain that Congress has no intention of raising taxes to pay for it. We certainly have alternatives, at least in principle, for funding, but Congress intends to spend borrowed money. Our political world would implode if those toads chose to pay for it by raising taxes on the filthy rich, or learning something new about Modern Money Theory.

The long history of borrowing to pay for wars continues, and we all know who benefits: the filthy rich. They are the ones who drive the wars, because they want something from them. Who controls the New World? Ask about the French and Indian Wars. Who controls African colonies? Who controls India? Who rules in France, Germany, Sweden, England, Italy? Who benefits from maintaining the powers in any country?

This chart shows the history of the national debt of England according to a United Kingdom website, Intergenerational Foundation, which provides this history.

Britain (though it was, strictly speaking, England at the time) has had a national debt since 1692, when the Bank of England was founded. Until that point, kings and queens had simply raised taxes in order to finance their expenditure, particularly on warfare. But William of Orange, following the Glorious Revolution, was struggling to raise enough money to build the navy he desired. Several rich Londoners got together, decided to lend the money to the government, and the national debt was born.

… For most of the lifetime of the Bank of England, money was only borrowed in order to pay for continental warfare – this provided the sole justification that 18th century statesmen saw as sufficient to borrow money against the future. Indeed, the above chart … shows that throughout the 18th and 19th centuries, the national debt usually rose during wartime and fell during peacetime.

Thomas Piketty discusses this history in Capital in the Twenty-First Century. Here is his figure 3.3, showing the massive increase in public debt as a percentage of national income from 1700 to 2010. Public debt rose to nearly 200% of national income by 1810, and gradually fell over the next century, as the governments ran surpluses to pay off the debt through taxation.

A quick review doesn’t reveal much about who paid taxes or how. (more…)

Letting the Rich Take All The Money


Robert Shiller, who was awarded the 2013 Economics Nobel prize, offered his explanation of the current state of hostilities in the world, comparing it to the 1930s.

The current world situation is not nearly so dire, but there are parallels, particularly to 1937. Now, as then, people have been disappointed for a long time, and many are despairing. They are becoming more fearful for their long-term economic future. And such fears can have severe consequences.

The consequences he talks about are the mess in Ukraine and the upheavals in Russia. It isn’t that people don’t have enough, it’s that they fear they are losing out. He discusses a 2005 book by Benjamin Friedman, The Moral Consequences of Economic Growth. The problem, he says, is that people are unhappy when they do not see themselves having an opportunity to better their lives.

Shiller talks about Ukraine and Russia, but it works here as well, and may make even more sense. The middle class has been deteriorating for decades, and lately the deterioration is increasing, as the 2013 Survey of Consumer Finances makes clear. Stagnation and insecurity, and the rising cost of things that matter most, food, education and medical care, make people unhappy. Mental doors long closed by social opprobrium reopen, allowing the expression of racism, virulent sexism, and loathing for the poor.

We get a similar approach in the norm-based economics described by George Akerloff in his 2007 Presidential Address to the American Economic Association:

Studs Terkel’s Working (1972) captures in a single volume much of the ethnographic findings summarized by Hodson. Terkel interviews people from many different occupations about their feelings about their jobs and concludes that people “search for daily meaning as well as daily bread.” (1972, p. xi). Some of the interviewees are successful in this search: like the stone mason, who cruises his Indiana county and basks in pride as he not infrequently passes his past work. At the opposite extreme is an Illinois steelworker, whose work denies him the dignity he seeks. He takes out his frustration at work by being disrespectful, and, in after hours, by getting into tavern brawls. Most workers are somewhere between these extremes, but in all cases, following Terkel, they have a feeling for how they should behave at work. It’s not just about the money; it is also about living up to an ideal about who they think they should be.

Yves Smith discusses Shiller’s article here and I hope you will read her excellent post. She points to this important article by Yasha Levine, a sharp explanation of the origins of capitalism and its effects on ordinary people. For further reading, let me suggest this 1985 essay by Alan Brinkley, Richard Hofstadter’s The Age of Reform: A Reconsideration, which examines populism and progressivism, looking at the reactionary content of the former, and Hofstadter’s suggestion that the progressive elites were motivated by a loss of status in the aggressively money-centered capitalism that emerged from the 19th Century.

Taking the two extremes Akerloff describes, the stonemason and the steel worker, it’s easy to see how the miserable state of labor in the US today might tilt many people towards the steelworker’s responses. We can see a huge rise in racism in the responses to Ferguson, where the killer cop raised thousands of dollars to enable him to stay in hiding, and the comments about his activities ranged from acceptance to praise. Liberals rapidly ran away from the overt racism that dominates the lives of African-Americans in St. Louis to a discussion of police militarization which might affect them if their protests moved off Twitter and into action, and the use of courts to fill up municipal coffers with traffic fines, which might affect any of us in our own communities.

The most obvious thing about Akerloff and Shiller is that neither discusses the role of raw economic and political power in the creation of the current morass, not just here but around the world. The interests of the rich have always dominated, but from time to time, their rapacity was tempered to some extent by the forces of democracy or in earlier times, by noblesse oblige. That has rotted away. The justifications for obscene wealth and capture of all of the profits from production have been stripped away as well. Who thinks Lloyd Blankfein is doing God’s Work? Who thinks the jackasses who run any business are doing anything beyond lining their own pockets at the expense of everyone else? Who thinks the toads in Congress care about the day to day interests of the regular people of this country? Who thinks the Supreme Court is anything but a bunch of political hacks bent on protecting the rich at the expense of everyone else? And worse, the status of liberal academics and intellectuals is falling, especially as measured by their pay. If Hofstadter is right, the setting is ripe for trouble.

Hard working decent people can’t make a living, can’t get ahead, don’t benefit from the labor and loss of time that go into work, have no sense of security in their jobs or in their health, and don’t see how their children will have better lives. They want to blame someone, and the social barriers that kept the collective id behind bars have dropped, leaving them free to blame those they’ve always blamed: the poor and sick, the immigrant, and the liberal intellectuals who reject their values and their beliefs. The airwaves are full of Fox News and worse encouraging these prejudices. If Hofstadter is wrong, and economic woes are the moving factor, the setting is ripe for trouble.

Elections don’t change things, the rich and the political elites win either way. Legislation doesn’t change things, the Supreme Court stands like a wall against change that might impact the rich and the political elites, just like it did in the 1930s. It’s getting to be more than public relations and war-mongering can hide.

Maybe someone should think about how we can make life better for everyone, even if it means the rich don’t get all the money.
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