Monday, December 9, 2013

How the Too Big To Fail Banks are driving America broke while pullingwool over pundits eyes

Like most conservatives in sheep’s clothing, Robert J. Samuelson of the Washington Post appears to be delivering sage advice on the woes of world, and has a handy prescription for their fixing.  Today he pontificates (again) on the fact that America is aging, and this aging is THE driver of government spending, which in turn in A MAJOR CAUSE of our economic woes:

We are locked in a generational war, which will get worse before it gets better. Indeed, it may not get better for a long time. No one wants to admit this, because it’s ugly and unwelcome. Parents are supposed to care for their children, and children are supposed to care for their aging parents. For families, these collective obligations may work. But what makes sense for families doesn’t always succeed for society as a whole. The clash of generations is intensifying.

Sounds frightening!  This, we are told is the reason Detroit is backrupt, this is the driver of ever increasing government spending and debt; This has led to heartfelt but bad decision making by shifty and risk averse decisions:

The explanation for this is politics. For states and localities, benefit cuts affect government workers — a powerful but small group — while at the federal level, it’s all the elderly, a huge group that includes everyone’s parents and grandparents. As a result, the combat has been lopsided. Political leaders of both parties have avoided distasteful choices. Younger Americans have generally been clueless about how shifting demographics threaten their future government services and taxes.

Expect when it isn’t (all about politics or generational warfare).  Take elder care – like many Conservatives Mr. Samuleson is appalled, nay apoplectic, that Social Security, Medicare, and Medicaid account for 44% of total federal spending.  Yet, and slo like other conservatives, he NEGLECTS to tell readers that all three are self-funded from payroll taxes; that Congress regularly reassigns monies collected for these three to the regular federal budget; and that if Congress paid back everything actually owed to these program they’d be solvent indefinitely. Once you understand this – which any  Third Grader with Google could have told Mr. Samuelson – then you understand why these programs have been exempt from deficit reduction talks and mini-bargains up to this point.   For those not yet awake enough to grasp the point – Social Security, Medicare, and Medicaid DO NOT add to the National Debt or the Deficit; they are routinely raided by Congress to make both those things lower.

Rather, the federal deficit is caused by the well documents differences in income tax collection and federal spending on the discretionary side.  Again, remember that in total (including the payroll taxes mentioned above) America’s Exceptional Government only takes in 2/3rds of what it needs to operate.  The rest, which creates the debt by accumulating deficits, is on one big giant monetary credit card.  Conservatives want to pay the credit card off by slashing spending on the Mandatory Expenses (those very same Social Security, Medicare, and Medicaid) whose surpluses have kept deficits (and thus debt) at lower than actual levels for years.  The more sensible approach – until recently the Liberal Approach as well – would be to close tax loopholes in the income tax (and possible raise top end rates) while eliminating the income cap on what can be taxed to support Social Security, Medicare and Medicaid.  I personally include in these reforms the need to get rid of  “Carried Interest” as an income category – this is how investment bankers, high power stock brokers, and financiaers who broke our economy in 2008 pay lower actual tax rates the you and I do as wage earners, even though that “carried interest” is their principle form of income.

First and foremost, Detroit suffered from an unprecedented loss of public revenue. As I’ve previously reported, this was brought on by many factors. The most obvious of those were the recession and free-trade-related deindustrialization, both of which decimated the city’s manufacturing job base and drove population out of the city. On top of that, the state of Michigan reduced its revenue sharing with the city.

Second, the city and state spent — and is still spending — big money on wasteful corporate subsidies to politically connected private interests. That includes a reaffirmed commitment to spend $283 million — or more than the city’s entire annual budget shortfall — on a new professional hockey arena. Such profligate expenditures have drained revenues out of city coffers.

But perhaps the least discussed factor is the financing cost associated with a series of Wall Street-engineered debt deals back in 2005 and 2006. These schemes crafted by UBS and Bank of America’s Merrill Lynch were supposed to reduce pension fund obligations by using derivatives to try to “synthetically” convert variable-rate interest instruments into fixed-rate contracts.

Like many cities, Detroit got sold down the river by large (Too Big To Fail) banks, on everything from municipal bonds to interest rate swaps that mad the banks big bucks, but left Detroit hurting. 

Current estimates put 1/4th of the city’s budget shortfall – which has necessitated this bankruptcy filing – squarely in the hands of servicing interest and fees on the interest rate swaps along.  In fact (a set of inconvenient things that, again grade school kids with search engines could help Mr. Samuelson find):

Commissioned by the think tank Demos, the new report out today from former investment banker Wallace Turbeville shows that contrary to the myths about a bloated municipal government overspending on lavish social services, Detroit’s “overall expenses have declined over the last five years” by $419 million thanks to the city “laying off more than 2,350 workers, cutting worker pay, and reducing future healthcare and future benefit accruals for workers.” Today, Turbeville notes that “Detroit has a significantly smaller workforce per capita than comparable cities.” Yet, those draconian cuts still left the city with an annual $198 million shortfall because of three big problems — none of which has anything to do with supposedly greedy public workers and their allegedly overly “generous” pension benefits.

Like it or not, spinning the same, worn out lie doesn’t make it true – and Mr. Samuelson should be ashamed of himself for taking these lies to a national platform.  Someone of his supposed intelligence and moxie would do far better to look at the REAL FACTS, and lead us all to better, more informed judgments about the real causes of a crisis.  Until he and other like him do, our Country is doomed to make the same mistakes we’ve always made in public and government budget policy, and therefore we’re doomed to hurt many of our fellow citizens unnecessarily in the process.

Tuesday, December 3, 2013

Confronting American Racism - Are we any further along because of one movie?

Over at Ordinary times, my friend Mike Dwyer poses this important question about the newish movie 12 Years a Slave:

I ask the question, does this film bring us any closer to an understanding of American slavery? Perhaps. It is such a foreign concept to the modern mind that it may be impossible to bridge that gap but 12 Years A Slave is important because it tries to do just that.

Frankly, slavery as practiced then may be a foreign concept to the mind, but only if the mind is closed both to history  and modern news reporting.  How many stories have we seen on CNN, how many Bravo network docu-dramas about rescued children in the sex trade, how many raids of houses for foreign workers held against their will in the US?  What it different now is that slavery is not a major underpinning of the economic success of a large part of our country, and where it exists it is generally discovered, condemned and prosecuted.  I certainly hope this important piece moves our National discourse along, but as one of Mike's commentors notes:

I think part of the “close to home” issue is that we never really rectified slavery. Or even made meaningful efforts to attempt to do so. “White guilt” persists in large part because little genuine effort has been made to assuage it. I mean, there was 40 acres and a mule, reconstruction… and what else? Affirmative action? Kinda-sorta? I mean, our government hasn’t even offered an apology.
As long as we nibble around the edges of slavery, it will remain a pernicious force in American society, both culturally and economically. And that is a reason to keep at it, whether we've answered Mike's question or not.

Monday, December 2, 2013

Say What You Will - the Semantic Art of Running Away From Real Economic Consequences.

Modern political discourse – or what passes for it anyway – seems to be mostly about semantics, and not really about substantive discussion and debate to find solutions.  Today’s 113th Do Nothing Congress (as I hope History will remember them) spends more time parsing what is “revenue” and what isn’t then they do actually proposing policy and legal solutions to the nation’s problems (like 40 plus votes to repeal the Affordable Care Act in the House without a single vote on an alternative).
So, along comes Robert Samuelson in the Washington Post to politely suggest that the final piece holding us back from prosperity in our country is the semantics of what to call our economy. 

Among our problems is a failure of economic language. We lack the words and concepts to describe observable reality. By conventional wisdom, the Great Recession is long over. “Recession” connotes shrinking output. “Expansion” signifies the opposite. That’s how the National Bureau of Economic Research, a group of academic economists, defines business cycles. Following this logic, the bureau determined the economy stopped contracting in mid-2009. Yet, most Americans — 53 percent, says a recent National Journal/Allstate survey — think we’re still in recession, by which they doubtlessly mean “bad times.”

It’s a tempting argument – if our “real” problem economically right now is we don’t know what to call our current decline (if it is even a decline), then the clear solution is to present different language.  The implicit benefit is that if we can better describe the “real world” as we see it, then we can get at those mysterious “causes” that keep Americans from being “confident” and recreating the post-WWII growth era into which so many of them were born.  Samuelson then postulates that if we got the terminology right, we’d be able to overcome a condition in which:

The problem might not be a dearth of investments so much as a surplus of risk aversion. For that, candidates abound: the traumatic impact of the Great Recession on confidence; a backlash against globalization, reduced cross-border investments by multinational firms; uncertain government policies; aging societies burdened by diminishing innovation and costly welfare states.

It all sounds cozy and nice, right?  The problem is that Mr. Samuelson, like so many on the Right side of the political aisle (where Mr. Samuelson sits his own protestations not withstanding), is unwilling to grasp a fundamental – and easily described truth of our current economic situation:

 The problem, then, is not machines, which are doing a great deal to boost productivity; the problem is that the benefits from increased productivity no longer accrue to workers. In a provocative paper earlier this year, Josh Bivens and Mishel argued that the gains for the richest 1 percent were due to “rent-seeking” behavior by CEOs and financial professions, not competitive markets. As John Kenneth Galbraith said, “The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil.” The newly minted rich want to blame robots for declining wages at the bottom and their innate superiority for their disproportionate share of the income. But these excuses mask their theft of productivity gains that rightfully belong to the rest of us.

Put another way, when real wages decline against spending power in most jobs as the increased “productivity” in the economy goes to a small group of investors (also known by the counter intuitive term “rentiers”) and isn’t spread across the workforce, that loss of productivity contributes to the further erosion of wages by driving down demand for goods and services.  It also contributes to stampedes at Walmart on Black Friday in which people are killed for deep discounts on consumer goods.  Powerful economic elites probably lament the disorder that all this creates (hence their walled communities and bulletproof houses) but at the end of the day they seem to think many of those at the bottom have earned it.  

The ultra simple version is you can't solve demand side economic problems with supply side approaches or solutions.  But we've been trying ever since David Stockman helped President Reagan create the now infamous (and discredited by Stockman no less) Voodoo economics approach.

Cast against all this – and interestingly so given the professed Catholicism of so many conservative pundits and politicians – are the recent writings of Pope Francis.  Ever the Jesuit (and thus dedicated to the state of the nation’s poor and down trodden as few others are) his recent The Joy of the Gospel calls all this out for the heartless and discordant pursuit it is:

The great danger in today’s world, pervaded as it is by consumerism, is the desolation and anguish born of a complacent yet covetous heart, the feverish pursuit of frivolous pleasures, and a blunted conscience. Whenever our interior life becomes caught up in its own interests and concerns, there is no longer room for others, no place for the poor.

As E. J. Dionne reminds us in today’s Washington Post:

His apostolic exhortation, “The Joy of the Gospel,” is drawing wide and deserved attention for its denunciation of “trickle-down” economics as a system that “expresses a crude and naive trust in the goodness of those wielding economic power.” It’s a view that “has never been confirmed by the facts” and has created “a globalization of indifference.” Will those conservative Catholics who have long championed tax-cutting for the wealthy acknowledge the moral conundrum that Francis has put before them?

But American liberals and conservatives alike might be discomfited by the pope’s criticism of “the individualism of our postmodern and globalized era,” since each side defends its own favorite forms of individualism. Francis mourns “a vacuum left by secularist rationalism,” not a phrase that will sit well with all on the left.

Mr. Dionne is right, of course, that many so-called Liberals have also made their beds with the gods and goddesses of the Market – how else to explain our current “Democratic” President’s interest in placating Wall Street (by not prosecuting them for their crimes in the court of public opinion, to say nothing of the actual courts).  Mr. Dionne goes on:

The difference is that a concern for the poor and a condemnation of economic injustice are at the very heart of Francis’s mission. “In this system, which tends to devour everything which stands in the way of increased profits,” he writes, “whatever is fragile, like the environment, is defenseless before the interests of a deified market, which become the only rule.” Can you imagine an American liberal who would dare say such things?

Well, as a liberal who has written similar words, why yes, Mr. Dionne, I can imagine it very well thanks you.

But to point is still well made – we as a Nation, a society, and as individuals do indeed have the language we need to accurately describe the world in front of us.  We don’t need to adopt the cumbersome semantic twisting of those who refuse to acknowledge the failures of clinging to economic myths simply because those myths both bolster our socio-cultural myths and shield those who have worked actively against the coming to fruition of our full potential personally and nationally.  If a Jesuit Pope from South America can accurately call out America’s ever failing supply-side experiment, using readily available words (and not in his native language), why can’t you Mr. Samuelson?