The US job market is in a deeper state of structural deterioration than the Obama administration and Republicans want to recognize. Let’s examine a few facts.
The total labor force is about 155 million. At current 10% unemployment rate, this means about 15.5 million Americans have no job today, amounting to a 7.5 million increase in unemployment since the crisis began. The 10% rate leaps into the double digit 18% range (or ± 20 million people affected) when adding “hidden unemployment” …. e.g., those who have given up looking for a job (and the rising long-term unemployed) or those who are involuntarily underemployed with part-time work but are looking for full-time work.This still excludes the added job financial misery of those working full-time jobs below the poverty line.
The ± 20 million Americans unemployed (7.5 million) plus hidden-underemployed (12.5 million) today means our economy has to generate at least 350,000 new jobs each month or 4.2 million/year to get back to a combined 5% unemployment rate by 2014! Full employment today is considered to be acceptable at a 5% unemployment rate.
What’s the Obama Administration’s answer to reach the 5% goal? The job creation expected from the American Recovery and Reinvestment Act calls for creating or saving 3.5 million jobs over a two year period, or less than 1.8 million/year, a rate of 150,000 jobs monthly vs. the 350,000 job generation required for both the unemployed and underemployed!
We can and must do much better. The currrent job situation is a potential national calamity waiting to get worse! The 150,000 jobs a month scenario will hardly help the systemically high economic misery index.
This job generation effort, while a start, has the omen of being grossly unrealistic and unproductive. As one writer noted, compare the small scope of the 2009 Recovery Act to Roosevelt’s New Deal public employment programs during the Great Depression when total unemployment rate reached 25% vs. an effective 18% rate today. With a labor force of 50 million. Roosevelt’s Fera, CWA, and WPA programs put 1 to 4 million people to work per month!
The policies of “Trickle Down” tax incentives for the rich under Reagan and Bush Jr. for productively generating new investments, taxable income, and jobs have long been proven a farcical charade. Roosevelt´s policy of arming the masses with jobs in times of severe economic breakdowns was the most pragmatic and powerful policy to increase general economic purchasing power …. the kind of purchasing power that “Trickles Up” in the form of revitalized self-esteem, confidence, and spending on consumer goods and services – harmoniously benefiting both the general public/less better off households and the corporations/ better off households. A similarly aggressive approach but on a tightly cooperative central and state government basis is direly needed today.
We should emulate a Marshall Plan spirit of financial committment to the jobless and underemployed that matches the generosity our government has shown to the greedy, squandering mismanagers of our deregulated financial institutions saved by an endless stream of taxpayer funds. These same firms can now revert to new versions of their financial skullduggery, arrogantly comfortable perpetuating the “moral hazard” of being financed by the Have Nots when the next crisis of “Too Big to Fail” inevitably occurs …. and new waves of job destruction!
I´m not advocating a government “make work” New Deal type job program that comes with its normal share of inefficiences. What is being advocated is a powerful public-private partnership that expedites the effective development of innovative, sustainable investments in dilapidated infrastructure particularly in areas of public transit, light rails systems, vastly upgraded water and sewer systems, protections against weather events, etc,. and investments in other “bottom up” comprehensive transition green technology – from fossil fuels to wind, solar, biofuels (e.g.,algae), and other green alternatives.
One expert has rightly said, “Virtually every system in our society must be redesigned from food, to transport, from one energy source to another, to health care, sanitation, agriculture, and manufacturing.” This especially applies, for example, to our modern food system.We are virtually eating fossil fuels. Most of us are unaware that food and industrial agriculture require more land and water , consume more fossil fuels, and thus contribute the most to biospheric entropic degradation than any other activity – exacerbated by rising population and food consumption levels. A researcher has calculated, “If everyone on this planet consumed food at the rate we do in the US, our agriculture would need to be capable of supporting 72 billion people” (world population today is 6 billion expected to reach 9 billion by 2050) !
Experts consider industrialized agriculture as the single largest threat to biodiversity. This is because the resources industrialized agriculture needs to feed the world – cheap energy, land, water and healthy soil managed by experienced farmers – are being depleted and shrunken dramatically. Poor people in developing countries like China and India and farmers in the US and Europe are leaving their farms. This all raises pressure for new thinking about agriculture …. such as reverting to much more labor intensive small organic farms with people experienced in managing the top soil and producing relatively fertilizer-pesticide free products for distribution over shorter distances.
Message? The Obama Administration and the Republicans had better get their wise heads together once and for ALL. Both had better dispense with the culturally dysfunctional vitrolic political dielectic immobilizing and compromising our society´s creative, pragmatic capacity to really solve our critical scale problems …. problems of permanent joblessness, manufacturing demise, degrading environment, agriculture, and costly fossil fuel dependence. We need new job growth initiatives that produce far more sustainable jobs than the current paltry two year Recovery Act goal of 150,000 new jobs per month.
My optimism, however, in our together Can Do talents, so evident in the Marshall Plan program, is sadly diminished. One reason for this can be illustrated in recent terrorist on-plane incident in Detroit. In no waste of time, the Netherlands (my country of residence) has already activated a full body coverage detection machine policy for travelers to the US. A Dutch firm is now in the process of manufacturing and shipping to meet urgent demand for its technically very high-quality body-detection machines for use in US airports.
What does this say about the US´s ineffective and unproactive laxity in timely and innovatively responding to a typical new job/generating manufacturing possibility in depressing economic times?
Euro Area (EA-16) Unemployment Rate Stable at 9.8% vs. US Rate of 10.0%
by Frank Thomas
Here is Eurostat’s December 1, 2009 reported seasonally-adjusted unemployment rates for Euro Area-16 countries plus other key EU-27 countries vs. the U.S.
The last 6-months EA-16 trend shows a marked slowing down in % unemployed and total number of unemployed which increased 1 million vs. 2.1 million the prior six month period. Unemployment levels for those under age 25 remains in the high 20-25% range for two-thirds of EA-16 countries as well as the U.S. Spain has the highest unemployment rate levels.
Following shows EA-16 stabilization in number and % increase of unemployed over last 12 month report period (Oct.2008 – Oct.2009):
It will be interesting to follow the employment recovery patterns of Europe and the US, each reflecting entirely different Social-Net systems, Stimulus package levels, Savings, and Consumption as a % of GDP. Above 12-month trend indicates that the overall % increases in unemployment are slowing down faster in EA-16 countries than in the U.S. If one included all the EU-27 countries, the same relative result would apply. Over the next 12 months, we shall see what the more meaningful trend is and implications of same.
The main reason that Spain is having such a serious unemployment problem in this severe recession is that the labor laws require a 30-42 week severance payment when dismissing a worker. So firms by necessity let people go in a recession but are very, very slow in taking on workers again given the high cost of dismissal. Other reasons include: Spain, unlike Holland, has never developed a refined flexible work market; and it is extremely vulnerable in economic slowdowns, particularly of the current dimension, to country's heavy dependence on the tourist business. Lastly, like Ireland, they went on a speculative binge in real commercial resort apartments/hotels/retail development.
________________________________________________________________ NOTE: These unemployment rates are based on the definition recommended by the International Labor Organization (ILO). Accordingly, Eurostat defines unemployed persons as persons aged 15-74 who:
- are without work - are available to start work within next two weeks - have actively sought employment at some time during the previous four weeks
Just about everything you'll hear coming out of Washington starting now is really about November's mid-term election. The gravitational pull of the midterms was already apparent last year, as Republicans marched in perfect lockstep to vote against whatever the President and Dems proposed (Republicans always have authoritarian discipline on their side, which is why they're Republicans) but you haven't seen anything yet.
The Dems have enough votes to enact health care -- the hurdle Bill Clinton failed to jump, contributing to the Republican takeover in 1994 -- but when it's enacted, expect the spin machines on both sides to be at full throttle. And because health care legislation won't be implemented for another three or four years (depending whether the House or Senate versions prevail), Americans won't be able to test the veracity of these wildly divergent claims. So don't count on health reform to help Dems next November -- nor harm them, either.
Foreign policy is just as unlikely to tip the scales. Sad to say, absent a draft most American families will read about American deaths in Afghanistan much the way they've absorb the U.S. body count in Iraq -- as news items rather than personal tragedies. Nor will Iran's nuclear capabilities, North Korea's missile launches, Pakistan's tumult, or Yemen's terrorists have much electoral effect -- unless terrorists commit an atrocity in America or on American travelers. Needless to say, China's decision about whether and how much to revalue its currency, although important, will affect the votes of about three Americans (and I think I know all of them).
Issue Number One -- the overriding concern that will determine more than anything how many seats the Dems lose next fall -- is jobs. If unemployment is 10 percent or more next November, the Dems are in danger of losing the House and will almost certainly be short of the 60 votes they need in the Senate.
But why would employment be 10 percent or above next November? Surely, you say, there are enough signs of recovery that we can count on a lower rate. Don't be so sure. Here are likely scenarios, with my probabilities:
Double-dip recession (10 percent likelihood). The commercial real estate market craters, carrying with it hundreds of regional banks and exposing how much junk is still on the books of major Wall Street banks. This triggers a long-awaited "correction" in the Dow and pushes the nation into another recession. Job losses rise. By November, the unemployment rate is back over 10 percent.
Stalled recovery (20 percent). Fearing inflation and overly confident of the strength of the recovery, the Fed stops buying up debt instruments and starts raising rates. These acts choke off the recovery. Unemployment remains at 10 percent.
Jobless recovery (40 percent). The stimulus remains in full force, the Fed keeps interest rates low, firms replace inventories and expand production. But with the average workweek hovering around 33 hours, employers don't add new jobs; they just have current workers put in more hours. Result: No drop in unemployment.
Solid recovery (20 percent). Demand surges, employers decide to expand capacity. But they don't add American jobs. Now that foreign workers have access to much of the same equipment and can be linked up to the U.S. so cheaply through the Internet, employers outsource abroad. Result: No drop in unemployment.
Strong recovery (10 percent). The recovery is strong enough for employers to start hiring American workers. Many jobless Americans who have been too discouraged to look for work to begin looking again. But because the BLS household survey (on which the official level of unemployment is based) depends on how many Americans are looking for work, the paradoxical result is for unemployment to remain in double digits.
In other words, I think the chances of unemployment being 10 percent next November are overwhelmingly high. But although voters are acutely sensitive to the rate of unemployment, they're also influenced by the direction employment is heading. If it looks like jobs are coming back, they may forgive a high absolute level of unemployment -- even one as high as 10 percent. But if it looks like jobs aren't coming back, that we may be stuck with a high level of joblessness for years, voters will take out even more of their anxieties on Democrats next November.
The irony, of course, is that Republicans want to cut spending and reduce the deficit. If they had their way, we'd have double-digit unemployment as far as the eye can see.
The best that can be said for 2009 is that it could have been worse, that we pulled back from the precipice on which we seemed to be perched in late 2008, and that 2010 will almost surely be better for most countries around the world. The world has also learned some valuable lessons, though at great cost both to current and future prosperity - costs that were unnecessarily high given that we should already have learned them.
The first lesson is that markets are not self-correcting. Indeed, without adequate regulation, they are prone to excess. In 2009, we again saw why Adam Smith's invisible hand often appeared invisible: it is not there. The bankers' pursuit of self-interest (greed) did not lead to the well-being of society; it did not even serve their shareholders and bondholders well. It certainly did not serve homeowners who are losing their homes, workers who have lost their jobs, retirees who have seen their retirement funds vanish, or taxpayers who paid hundreds of billions of dollars to bail out the banks.
Under the threat of a collapse of the entire system, the safety net - intended to help unfortunate individuals meet the exigencies of life - was generously extended to commercial banks, then to investment banks, insurance firms, auto companies, even car-loan companies. Never has so much money been transferred from so many to so few.
We are accustomed to thinking of government transferring money from the well off to the poor. Here it was the poor and average transferring money to the rich. Already heavily burdened taxpayers saw their money - intended to help banks lend so that the economy could be revived - go to pay outsized bonuses and dividends. Dividends are supposed to be a share of profits; here it was simply a share of government largesse.
The justification was that bailing out the banks, however messily, would enable a resumption of lending. That has not happened. All that happened was that average taxpayers gave money to the very institutions that had been gouging them for years - through predatory lending, usurious credit-card interest rates, and non-transparent fees.
The bailout exposed deep hypocrisy all around. Those who had preached fiscal restraint when it came to small welfare programs for the poor now clamored for the world's largest welfare program. Those who had argued for free market's virtue of "transparency" ended up creating financial systems so opaque that banks could not make sense of their own balance sheets. And then the government, too, was induced to engage in decreasingly transparent forms of bailout to cover up its largesse to the banks. Those who had argued for "accountability" and "responsibility" now sought debt forgiveness for the financial sector.
The second important lesson involves understanding why markets often do not work the way they are meant to. There are many reasons for market failures. In this case, too-big-to-fail financial institutions had perverse incentives: if they gambled and succeeded, they walked off with the profits; if they lost, the taxpayer would pay. Moreover, when information is imperfect, markets often do not work well - and information imperfections are central in finance. Externalities are pervasive: the failure of one bank imposed costs on others, and failures in the financial system imposed costs on taxpayers and workers all over the world.
The third lesson is that Keynesian policies do work. Countries, like Australia, that implemented large, well-designed stimulus programs early emerged from the crisis faster. Other countries succumbed to the old orthodoxy pushed by the financial wizards who got us into this mess in the first place.
Whenever an economy goes into recession, deficits appear, as tax revenues fall faster than expenditures. The old orthodoxy held that one had to cut the deficit - raise taxes or cut expenditures - to "restore confidence." But those policies almost always reduced aggregate demand, pushed the economy into a deeper slump, and further undermined confidence - most recently when the International Monetary Fund insisted on them in East Asia in the 1990's.
The fourth lesson is that there is more to monetary policy than just fighting inflation. Excessive focus on inflation meant that some central banks ignored what was happening to their financial markets. The costs of mild inflation are miniscule compared to the costs imposed on economies when central banks allow asset bubbles to grow unchecked.
The fifth lesson is that not all innovation leads to a more efficient and productive economy - let alone a better society. Private incentives matter, and if they are not well aligned with social returns, the result can be excessive risk taking, excessively shortsighted behavior, and distorted innovation. For example, while the benefits of many of the financial-engineering innovations of recent years are hard to prove, let alone quantify, the costs associated with them - both economic and social - are apparent and enormous.
Indeed, financial engineering did not create products that would help ordinary citizens manage the simple risk of home ownership - with the consequence that millions have lost their homes, and millions more are likely to do so. Instead, innovation was directed at perfecting the exploitation of those who are less educated, and at circumventing the regulations and accounting standards that were designed to make markets more efficient and stable. As a result, financial markets, which are supposed to manage risk and allocate capital efficiently, created risk and misallocated wildly.
We will soon find out whether we have learned the lessons of this crisis any better than we should have learned the same lessons from previous crises.
Regrettably, unless the United States and other advanced industrial countries make much greater progress on financial-sector reforms in 2010 we may find ourselves faced with another opportunity to learn them.
The author is an Economics Nobel laureate and university professor at Columbia University. He has many books, including Globalization and Its Discontents and The Roaring Nineties, to his credit. His latest book, Freefall, will be published in January.
Economists, policymakers will be chewing on lessons of the Aughts for years
By Neil Irwin
updated 2:49 a.m. PT,Sat., Jan. 2, 2010
For most of the past 70 years, the U.S. economy has grown at a steady clip, generating perpetually higher incomes and wealth for American households. But since 2000, the story is starkly different.
The past decade was the worst for the U.S. economy in modern times, a sharp reversal from a long period of prosperity that is leading economists and policymakers to fundamentally rethink the underpinnings of the nation's growth.
It was, according to a wide range of data, a lost decade for American workers. The decade began in a moment of triumphalism — there was a current of thought among economists in 1999 that recessions were a thing of the past. By the end, there were two, bookends to a debt-driven expansion that was neither robust nor sustainable.
There has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well.
Middle-income households made less in 2008, when adjusted for inflation, than they did in 1999 — and the number is sure to have declined further during a difficult 2009. The Aughts were the first decade of falling median incomes since figures were first compiled in the 1960s.
And the net worth of American households — the value of their houses, retirement funds and other assets minus debts — has also declined when adjusted for inflation, compared with sharp gains in every previous decade since data were initially collected in the 1950s.
"This was the first business cycle where a working-age household ended up worse at the end of it than the beginning, and this in spite of substantial growth in productivity, which should have been able to improve everyone's well-being," said Lawrence Mishel, president of the Economic Policy Institute, a liberal think tank.
Sobering reality The miserable economic track record is, in part, a quirk of timing. The 1990s ended near the top of a stock market and investment bubble. Three months after champagne corks popped to celebrate the dawn of the year 2000, the market turned south, a recession soon following. The decade finished near the trough of a severe recession.
But beyond these dramatic ups and downs lies an even more sobering reality: long-term economic stagnation. The trillions of dollars that poured into housing investment and consumer spending in the first part of the decade distorted economic activity.
Capital was funneled to build mini-mansions in Sun Belt suburbs, many of which now sit empty, rather than toward industrial machines or other business investment that might generate economic output and jobs for years to come.
"The problem is that we mismanaged the macroeconomy, and that got us in big trouble," said Nariman Behravesh, chief economist at IHS Global Insight. "The big bad thing that happened was that, in the U.S. and parts of Europe, we let housing bubbles get out of control. That came back to haunt us big-time."
The housing bubble both caused, and was enabled by, a boom in indebtedness. Total household debt rose 117 percent from 1999 to its peak in early 2008, according to Federal Reserve data, as Americans borrowed to buy ever more expensive homes and to support consumption more generally.
'Risky behavior' Consumers weren't the only ones. The same turn to debt played out in commercial real estate and at financial firms. It resulted in a corporate buyout boom that often produced little of lasting value. It is a truism of finance that for businesses, relying heavily on borrowed money makes the good times better but the bad times far worse. The same thing, as it turns out, could be said of the nation as a whole.
The first decade of the new century was an experiment in what happens when an economy comes to rely heavily on borrowed money.
"A big part of what happened this decade was that people engaged in excessively risky behavior without realizing the risks associated," said Karen Dynan, co-director of economic studies at the Brookings Institution. "It's true not just among consumers but among regulators, financial institutions, lenders, everyone."
The experiment has ended badly. While the stock market bubble that popped in 2000 caused only a mild recession, the housing and credit bubble has had a much greater punch — driving the unemployment rate to a high, so far, of 10.2 percent, compared with a peak of 6.3 percent following the last such downturn.
The impact of the real estate crash has been broad. Among middle-income families, 69 percent owned a home in 2007, more than four times the proportion owning stocks. And as the housing meltdown cascaded through credit markets, the banking system was buffeted, rocking the whole financial system on which the world's economy rests.
Economists and policymakers will be chewing on the lessons of the Aughts for many years to come; the events of the past two years alone are enough to launch a thousand economics dissertations. If past periods of economic trauma are a guide, this research will yield a deeper understanding of how to manage the economy.
The Great Depression of the 1930s led to new insights about the impact a financial collapse can have. The primary lesson — espoused by Ben S. Bernanke as an academic before acting on it as Fed chairman — was "Don't let the financial system collapse."
The Great Inflation of the 1970s brought a rethinking of what drives inflation, such that economists now put a premium on maintaining the credibility of central banks and keeping inflation expectations in check.
The lessons of the Bubble Decade are still being formed. At the Federal Reserve, the major lesson that top officials have taken is that bank regulation shouldn't occur in a vacuum; rather than monitor how individual institutions are doing, bank supervisors should try to understand the risks and frailties that the banking system creates for the economy as a whole — and manage those risks.
Fed leaders have been more skeptical of the idea that they should routinely raise interest rates to try to pop bubbles. "I can't rule out circumstances in which additional monetary policy actions specifically targeted at perceived asset price or credit imbalances and vulnerabilities" would be advisable, Fed Vice Chairman Donald L. Kohn said in a recent speech.
"But given the bluntness of monetary policy as a tool for addressing developments that could lead to financial instability, the side effects of using policy for this purpose, and other difficulties, such circumstances are likely to be very rare."
And the question of how Washington can prevent a recurrence is an overarching theme in the Obama administration's efforts to overhaul the financial system and support growth through investments in clean energy and other areas. "One of our challenges now," President Obama said in November, "is how do we get what I call a post-bubble growth model, one that is sustainable."
The financial crisis is, for all practical purposes, over, and forecasters are now generally expecting the job market to turn around early in 2010 and begin creating jobs. The task ahead for the next generation of economists is to figure out how, in a decade that began with such economic promise, things went so wrong.
Paul Krugman recently penned an insightful article where he argues that the 1999-2009 decade should be called the "Big Zero" decade because over the course of ten years there was no real job growth or notable "progress" in tackling any of the nation's problems. But Krugman's view, I'm afraid, is overly optimistic. What we had in the 2000s was far, far worse than a "Big Zero." The last ten years have been so miserable for the United States that a "Big Zero" would be an immeasurable improvement compared to what we got. If we could freeze time and move the country back to January 1999 it would be like hitting the jackpot! With all its squandered wealth, wasted lives, despoiled environment, growing inequality, and a Supreme Court stacked to favor corporate power, a "Big Zero" is a distant, unattainable goal.
Ronald Reagan was president from 1981 to 1989, leading many historians and journalists to call the 1980s the "Reagan Era" or the "Age of Reagan." George W. Bush served from 2001 to 2009, but is it fair to us to refer to the 2000s as the "W. Era?" I don't think so.
It was the decade when the country experienced the corporate take-over of everything -- every value, every human interaction, every institution.
Bush stacked the Supreme Court with two relatively young Justices who can be counted on, in perpetuity, to rule against people and in favor of corporations every time their interests clash. He also stuffed the federal judiciary with torture enthusiasts, religious fanatics, and corporate servants.
It was a decade when a new Gilded Age took hold led by Robber Barons far worse and rapacious than any of those associated with the turn of the last century. Goldman Sachs' CEO Lloyd Blankfein, without irony, told the press that his financial behemoth was doing "God's work," just like John D. Rockefeller said over a century ago: "I believe the power to make money is a gift from God."
It was a decade where corporate advertising reached new levels with "word of mouth" marketing and "reality" TV shows that are little more than commercials posing as "television shows."
In November 1999, President Bill Clinton repealed the Glass-Steagall Act by signing the odious Gramm-Leach-Bliley Act that deregulated, once and for all, the financial sector. Clinton, Newt Gingrich, Bob Dole, Alan Greenspan, and Robert Rubin lit the fuse that exploded the American economy ten wretched years later traumatizing the nation and sapping its lifeblood.
There was a "War on Terror" and "video news releases" to manipulate the public. In the past ten years the nation's two dominant political parties finally merged to represent essentially the same corporate interests. It was the decade when the ideological viewpoint of the National Association of Manufacturers, which was formed in 1895 to trash workers' pensions as "handouts," came to dominate the economic policies of both parties. Labor unions took it in the chin suffering setback after setback as real wages declined, unemployment rose, and pensions dwindled.
It was the decade of Enron and Worldcom and Global Crossing and Tyco and all those other corporate criminal rackets. Joe Lieberman, who received campaign donations from Enron, held a hearing where he tisk-tisked the practices that his own cheerleading for deregulation helped cause. And don't forget Blackwater and Haliburton and all the other war profiteers that made a killing, and the wars themselves we'll be paying for in overt pay-outs and hidden social costs for many decades to come. Death on the installment plan we might call it.
It was the decade when the "race to the bottom" resulting from "free trade" deals like NAFTA and the WTO came to apotheosis. The outsourcing and international trade imbalances hollowed out the American economy, eliminated whole categories of manufacturing jobs, and pushed the U.S. on a trajectory less like Europe and more like Mexico. China owns us.
During the 2000 campaign there was a running joke that George W. Bush got so much record-breaking corporate campaign cash that he wasn't really a human being seeking the presidency but a corporation. We can call the 2000s the "Worse Than Zero" decade or the "Big Zero," or anything we wish, but what characterized it most for me was the near total control of corporations, especially over our civic institutions. All of the terrible economic and governing ideas from the Reagan era crested and then crashed in the last eighteen months leaving something far less than "zero" in their wake.
Maybe we knew, at some unconscious, instinctive level, that it would be an era best forgotten. Whatever the reason, we got through the first decade of the new millennium without ever agreeing on what to call it. The aughts? The naughties? Whatever. (Yes, I know that strictly speaking the millennium didn’t begin until 2001. Do we really care?)
But from an economic point of view, I’d suggest that we call the decade past the Big Zero. It was a decade in which nothing good happened, and none of the optimistic things we were supposed to believe turned out to be true.
It was a decade with basically zero job creation. O.K., the headline employment number for December 2009 will be slightly higher than that for December 1999, but only slightly. And private-sector employment has actually declined — the first decade on record in which that happened.
It was a decade with zero economic gains for the typical family. Actually, even at the height of the alleged “Bush boom,” in 2007, median household income adjusted for inflation was lower than it had been in 1999. And you know what happened next.
It was a decade of zero gains for homeowners, even if they bought early: right now housing prices, adjusted for inflation, are roughly back to where they were at the beginning of the decade. And for those who bought in the decade’s middle years — when all the serious people ridiculed warnings that housing prices made no sense, that we were in the middle of a gigantic bubble — well, I feel your pain. Almost a quarter of all mortgages in America, and 45 percent of mortgages in Florida, are underwater, with owners owing more than their houses are worth.
Last and least for most Americans — but a big deal for retirement accounts, not to mention the talking heads on financial TV — it was a decade of zero gains for stocks, even without taking inflation into account. Remember the excitement when the Dow first topped 10,000, and best-selling books like “Dow 36,000” predicted that the good times would just keep rolling? Well, that was back in 1999. Last week the market closed at 10,520.
So there was a whole lot of nothing going on in measures of economic progress or success. Funny how that happened.
For as the decade began, there was an overwhelming sense of economic triumphalism in America’s business and political establishments, a belief that we — more than anyone else in the world — knew what we were doing.
Let me quote from a speech that Lawrence Summers, then deputy Treasury secretary (and now the Obama administration’s top economist), gave in 1999. “If you ask why the American financial system succeeds,” he said, “at least my reading of the history would be that there is no innovation more important than that of generally accepted accounting principles: it means that every investor gets to see information presented on a comparable basis; that there is discipline on company managements in the way they report and monitor their activities.” And he went on to declare that there is “an ongoing process that really is what makes our capital market work and work as stably as it does.”
So here’s what Mr. Summers — and, to be fair, just about everyone in a policy-making position at the time — believed in 1999: America has honest corporate accounting; this lets investors make good decisions, and also forces management to behave responsibly; and the result is a stable, well-functioning financial system.
What percentage of all this turned out to be true? Zero.
What was truly impressive about the decade past, however, was our unwillingness, as a nation, to learn from our mistakes.
Even as the dot-com bubble deflated, credulous bankers and investors began inflating a new bubble in housing. Even after famous, admired companies like Enron and WorldCom were revealed to have been Potemkin corporations with facades built out of creative accounting, analysts and investors believed banks’ claims about their own financial strength and bought into the hype about investments they didn’t understand. Even after triggering a global economic collapse, and having to be rescued at taxpayers’ expense, bankers wasted no time going right back to the culture of giant bonuses and excessive leverage.
Then there are the politicians. Even now, it’s hard to get Democrats, President Obama included, to deliver a full-throated critique of the practices that got us into the mess we’re in. And as for the Republicans: now that their policies of tax cuts and deregulation have led us into an economic quagmire, their prescription for recovery is — tax cuts and deregulation.
So let’s bid a not at all fond farewell to the Big Zero — the decade in which we achieved nothing and learned nothing. Will the next decade be better? Stay tuned. Oh, and happy New Year.
Copyright 2009 The New York Times Company
Paul Krugman is professor of Economics and International Affairs at Princeton University and a regular columnist for The New York Times. Krugman was the 2008 recipient of the Nobel Prize in Economics. He is the author of numerous books, including The Conscience of A Liberal, and his most recent, The Return of Depression Economics.
In September 2008, as the worst of the financial crisis engulfed Wall Street, George W. Bush issued a warning: "This sucker could go down." Around the same time, as Congress hashed out a bailout bill, New Hampshire Sen. Judd Gregg, the leading Republican negotiator of the bill, warned that "if we do not do this, the trauma, the chaos and the disruption to everyday Americans' lives will be overwhelming, and that's a price we can't afford to risk paying."
In less than a year, Wall Street was back. The five largest remaining banks are today larger, their executives and traders richer, their strategies of placing large bets with other people's money no less bold than before the meltdown. The possibility of new regulations emanating from Congress has barely inhibited the Street's exuberance.
But if Wall Street is back on top, the everyday lives of large numbers of Americans continue to be subject to overwhelming trauma, chaos and disruption.
It is commonplace among policymakers to fervently and sincerely believe that Wall Street's financial health is not only a precondition for a prosperous real economy but that when the former thrives, the latter will necessarily follow. Few fictions of modern economic life are more assiduously defended than the central importance of the Street to the well-being of the rest of us, as has been proved in 2009.
Inhabitants of the real economy are dependent on the financial economy to borrow money. But their overwhelming reliance on Wall Street is a relatively recent phenomenon. Back when middle-class Americans earned enough to be able to save more of their incomes, they borrowed from one another, largely through local and regional banks. Small businesses also did.
It's easy to understand economic policymakers being seduced by the great flows of wealth created among Wall Streeters, from whom they invariably seek advice. One of the basic assumptions of capitalism is that anyone paid huge sums of money must be very smart.
But if 2009 has proved anything, it's that the bailout of Wall Street didn't trickle down to Main Street. Mortgage delinquencies continue to rise. Small businesses can't get credit. And people everywhere, it seems, are worried about losing their jobs. Wall Street is the only place where money is flowing and pay is escalating. Top executives and traders on the Street will soon be splitting about $25 billion in bonuses (despite Goldman Sachs' decision, made with an eye toward public relations, to defer bonuses for its 30 top players).
The real locus of the problem was never the financial economy to begin with, and the bailout of Wall Street was a sideshow. The real problem was on Main Street, in the real economy. Before the crash, much of America had fallen deeply into unsustainable debt because it had no other way to maintain its standard of living. That's because for so many years almost all the gains of economic growth had been going to a relatively small number of people at the top.
President Obama and his economic team have been telling Americans we'll have to save more in future years, spend less and borrow less from the rest of the world, especially from China. This is necessary and inevitable, they say, in order to "rebalance" global financial flows. China has saved too much and consumed too little, while we have done the reverse.
In truth, most Americans did not spend too much in recent years, relative to the increasing size of the overall American economy. They spent too much only in relation to their declining portion of its gains. Had their portion kept up -- had the people at the top of corporate America, Wall Street banks and hedge funds not taken a disproportionate share -- most Americans would not have felt the necessity to borrow so much.
The year 2009 will be remembered as the year when Main Street got hit hard. Don't expect 2010 to be much better -- that is, if you live in the real economy. The administration is telling Americans that jobs will return next year, and we'll be in a recovery. I hope they're right. But I doubt it. Too many Americans have lost their jobs, incomes, homes and savings. That means most of us won't have the purchasing power to buy nearly all the goods and services the economy is capable of producing. And without enough demand, the economy can't get out of the doldrums.
As long as income and wealth keep concentrating at the top, and the great divide between America's have-mores and have-lesses continues to widen, the Great Recession won't end -- at least not in the real economy.
In late October 2007, as the financial markets were starting to come unglued, a Goldman Sachs trader, Jonathan M. Egol, received very good news. At 37, he was named a managing director at the firm.
Mr. Egol, a Princeton graduate, had risen to prominence inside the bank by creating mortgage-related securities, named Abacus, that were at first intended to protect Goldman from investment losses if the housing market collapsed. As the market soured, Goldman created even more of these securities, enabling it to pocket huge profits.
Goldman’s own clients who bought them, however, were less fortunate.
Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments, according to former Goldman employees with direct knowledge of the deals who asked not to be identified because they have confidentiality agreements with the firm.
Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner.
How these disastrously performing securities were devised is now the subject of scrutiny by investigators in Congress, at the Securities and Exchange Commission and at the Financial Industry Regulatory Authority, Wall Street’s self-regulatory organization, according to people briefed on the investigations. Those involved with the inquiries declined to comment.
While the investigations are in the early phases, authorities appear to be looking at whether securities laws or rules of fair dealing were violated by firms that created and sold these mortgage-linked debt instruments and then bet against the clients who purchased them, people briefed on the matter say.
One focus of the inquiry is whether the firms creating the securities purposely helped to select especially risky mortgage-linked assets that would be most likely to crater, setting their clients up to lose billions of dollars if the housing market imploded.
Some securities packaged by Goldman and Tricadia ended up being so vulnerable that they soured within months of being created.
Goldman and other Wall Street firms maintain there is nothing improper about synthetic C.D.O.’s, saying that they typically employ many trading techniques to hedge investments and protect against losses. They add that many prudent investors often do the same. Goldman used these securities initially to offset any potential losses stemming from its positive bets on mortgage securities.
But Goldman and other firms eventually used the C.D.O.’s to place unusually large negative bets that were not mainly for hedging purposes, and investors and industry experts say that put the firms at odds with their own clients’ interests.
“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”
Investment banks were not alone in reaping rich rewards by placing trades against synthetic C.D.O.’s. Some hedge funds also benefited, including Paulson & Company, according to former Goldman workers and people at other banks familiar with that firm’s trading.
Michael DuVally, a Goldman Sachs spokesman, declined to make Mr. Egol available for comment. But Mr. DuVally said many of the C.D.O.’s created by Wall Street were made to satisfy client demand for such products, which the clients thought would produce profits because they had an optimistic view of the housing market. In addition, he said that clients knew Goldman might be betting against mortgages linked to the securities, and that the buyers of synthetic mortgage C.D.O.’s were large, sophisticated investors, he said.
The creation and sale of synthetic C.D.O.’s helped make the financial crisis worse than it might otherwise have been, effectively multiplying losses by providing more securities to bet against. Some $8 billion in these securities remain on the books at American International Group, the giant insurer rescued by the government in September 2008.
From 2005 through 2007, at least $108 billion in these securities was issued, according to Dealogic, a financial data firm. And the actual volume was much higher because synthetic C.D.O.’s and other customized trades are unregulated and often not reported to any financial exchange or market.
Goldman Saw It Coming
Before the financial crisis, many investors — large American and European banks, pension funds, insurance companies and even some hedge funds — failed to recognize that overextended borrowers would default on their mortgages, and they kept increasing their investments in mortgage-related securities. As the mortgage market collapsed, they suffered steep losses.
A handful of investors and Wall Street traders, however, anticipated the crisis. In 2006, Wall Street had introduced a new index, called the ABX, that became a way to invest in the direction of mortgage securities. The index allowed traders to bet on or against pools of mortgages with different risk characteristics, just as stock indexes enable traders to bet on whether the overall stock market, or technology stocks or bank stocks, will go up or down.
Goldman, among others on Wall Street, has said since the collapse that it made big money by using the ABX to bet against the housing market. Worried about a housing bubble, top Goldman executives decided in December 2006 to change the firm’s overall stance on the mortgage market, from positive to negative, though it did not disclose that publicly.
Even before then, however, pockets of the investment bank had also started using C.D.O.’s to place bets against mortgage securities, in some cases to hedge the firm’s mortgage investments, as protection against a fall in housing prices and an increase in defaults.
Mr. Egol was a prime mover behind these securities. Beginning in 2004, with housing prices soaring and the mortgage mania in full swing, Mr. Egol began creating the deals known as Abacus. From 2004 to 2008, Goldman issued 25 Abacus deals, according to Bloomberg, with a total value of $10.9 billion.
Abacus allowed investors to bet for or against the mortgage securities that were linked to the deal. The C.D.O.’s didn’t contain actual mortgages. Instead, they consisted of credit-default swaps, a type of insurance that pays out when a borrower defaults. These swaps made it much easier to place large bets on mortgage failures.
Spend like there's no tomorrow. Encourage your citizens to spend like there's no tomorrow. Borrow as much money as you can. Lower taxes so that there's less money coming in, and then borrow more to fill the gap. Export all the good jobs thinking that the economy will continue to function well based on 'do you want fries with that?' jobs. Turn the banks into casinos. In good times lower taxes never figuring that there will ever be bad times so that you might need to build up a reserve. In bad times lower taxes so that businesses can create jobs. Never learn anything from the past (like the existence of boom bust cycles).
Encourage citizens to consume more even when they have run out of money. When they run out of money, encourage them to borrow in order to consume more. Allow multinational corporations to get away without paying taxes. Allow corporations to set up in your state without paying state or local taxes. Create a dysfunctional government that allows a minority to filibuster any meaningful legislation. Polarize your people in two different camps. Create a right wing fiction talk machine that encourages people to believe fairy tales so that the real stealing can go on behind their backs. Encourage people to buy guns.
Start wars everywhere and anywhere based on the slightest pretext. Allow the "enemy" to blow up equipment costing millions of dollars with a $10. improvised device. Try to make people think that you're helping them when you're blowing up innocent civilians and dropping bombs on wedding parties. Never really end a war. Instead create a permanent prescence by establishing a world wide network of military bases that have to be funded year after year in perpetuity. Meanwhile, borrow the money for all the military expenditures from a country whose political system represents one that justified almost 50 years of previous military expenditures. Allow this country to flood your markets with products while protecting their own markets.
Create an economy based on health care and financial transactions and cheap foreign made imported goods. Encourage your corporations to export jobs while encouraging your citizens to go back to school to get more edumacated imbuing them with the notion that the reason they don't have a job is that they're not well enough edumacated or bright enough. Encourage them to take out massive loans to finance their edumacation. Imbue them with the ethic that any lack of a job is due to personal failings and not society's fault. After all the government never guaranteed them a job. Nor did any of the corporations which control the government. It's up to them to find one, and the successful usually do. Any other result is due to personal failings - lack of a sufficient work ethic or sufficient intelligence.
While overseeing the diminution of jobs and the concomitant run-up in stock prices, praise Wall Street for 'bringing the economy back' to where it was before the recession. Spend trillions if necessary bailing out failing financial institutions while being parsimonious about helping average Joe citizens. Instead, kick them out of their houses when they can't pay their mortgages because they've lost their jobs (due to personal failings). Foreclosure becomes a tool to provide cheap houses for real estate investors. Ensure that those who have lost jobs are kept afloat temporarily until their jobless benefits run out. Then, unfortunately, they will have to be consigned to the streets where they will swell the ranks of the homeless especially those that for some reason can't be taken in by a relative. Go from a two job family to a one job extended family.
While your country is going down the tubes, encourage your citizens to buy more guns. Spend money on building more prisons to house at great expense those convicted of minor crimes like smoking dope. Meanwhile, let dope flow freely over your borders creating a boom industry in gun exports to foreign drug dealers. But let drugs, people and money cross the borders with impunity. Instead of beefing up the borders, spend your money funding foreign wars and occupations. The relatively unprotected sieve-like borders can then be used by terrorists smuggling in weapons side by side with the drug dealers smuggling them out. Once the prisoners have served their time for minor offenses, turn them out to the street where they will remain unemployed because of their criminal background and low credit rating.
Let banks determine the social morality like a $30. slap on the wrist for being one day late in their payments. Meanwhile, use your media to encourage people to be immoral by glorifying crime shows and dwelling on guns and violence. Fill the airwaves with mindless drivel and let your large corporations fund news shows thereby guaranteeing that nothing critical of large corporations will ever be aired. Have them fund Public Broadcasting too for the same reason. Have your politicians take money from large corporations either through campaign donations or from promise of a job after 'public service' (nothing in writing though just a wink wink). Prosecute those who write their bribes down on the back of a napkin or take money and put it in their freezer. These politicians need to be weeded out on a survival of the fittest basis. Have lobbyists write the laws because most laws are too complicated for politicians to understand while corporations can afford high powered lawyers who have the expertise. Pay your President one one hundredth or one one thousandth of what a CEO of a major corporation makes. Then have him summon the CEOs to the White House only to be told they're too busy to come. After all they're financial giants compared to him.
While encouraging corporations to cut jobs and export jobs in order to get their stock prices up, make it clear that unemployed workers are in that situation due to their own personal failure and lack of responsibility or they're not smart enough or their work ethic is lacking. Act like no one could have possibly predicted that exporting jobs and cutting jobs in order to drive up stock prices would result in a situation of widespread joblessness. That couldn't have possibly been foreseen much like flying airplanes into tall buildings could'nt have possibly been imagined prior to 9/11. Act really surprised when bailing out banks doesn't lead to job creation. Make up excuses why this phenomenon is so like 'job creation is a lagging indicator.' A lagging indicator of what - that there are no jobs? They will only find out later that the lagging indicator that there are no jobs is an indicator that there are no jobs. Low information types will not understand this gobbledegook anyway since they're too concerned about what Tiger Woods, Lindsay Lohan, Paris Hilton and Brittany Spears are up to in their dysfunctional lives. Offer them distractions galore in order to keep low information voters inundated with low information. Make sure every magazine at the supermarket check-out counter has the word 'sex' displayed prominently several times on its cover and points out who is cheating with whom.
Make the only source of entry level jobs be military employment. That ensures that there will be an adequate supply of young men and women to fight interminable wars and staff innumerable military bases. This should be the primary jobs program. No one need to go without a job when all they need to do is join the military. There are even good benefits like health care and edumacation. One stands to be in a position to get a good job when they get out because veterans are the first ones hired. Except for those who end up homeless for some reason. But they can even get signing bonuses much like professional athletes. With them they can go out and buy a new pick-up thereby fulfilling two patriotic duties with one stone.
So having gone into debt to fight wars and having borrowed the money from a country whose political system is similar to your former arch enemy's, you are now in the position of having let your former arch enemy morph into your banker. Now you need to go on bended knee to beg your banker to tinker with their currency instead of fixing the problem by investing in jobs here at home and protecting those jobs with tariffs. But having bought free trade hook, line and sinker from Alan Greenspan and Milton Friedman and having preached it to the rest of the world, you can't really do that without looking foolish. And countries, especially proud ones, like people, don't want to go around looking foolish especially when they think that they are the greatest and best thing that ever happened to the world. A proud nation cannot do such as that. Instead a proud nation must stick to its guns even when it means that other nations are secretly eating its lunch and gaining economic supremacy without even firing a shot while the proud nation lets its million dollar 'buffaloes' be blown up by $10. improvised explosive devices in a nation that will never be a rival for number one status and has virtually no resources. But out of pride we must keep fighting. To pull out would be an admission of failure and we have to win at all costs. We must win! So we must go to our former arch enemy turned banker and beg for more money so we can continue to fight and lose more million dollar buffaloes and have our young men and women come back with missing limbs and traumatic head injuries if they come back at all.
A country whose GDP is based on consumption is a country built on sand whereas a country whose GDP is based on production is a country built on a rock. You make a country go broke by basing GDP on consumption while exporting the production to other countries where labor is cheaper and environmental standards and taxes are lower. Then having exported your jobs to that country, you ask to borrow money from them. You end up paying so much interest on the debt that there is no money left to bail out the cities or states or to pay unemployment benefits. There is only money to bail out the banks and that money is largely created out of thin air. But you can't create money out of thin air to help miserable people. They must learn to fend for themselves. They must have the experience of learning to live without a job or a house and in many cases without a family. This experience will be invaluable in case they ever have to face such a situation again. It's all about being resilient, bouncing back, being resourceful. It teaches life skills like how to collect cans and bottles and redeeming them for cash at recycling centers. It teaches that one can always get by if one is resourceful enough. Or one can join the military.
Who is against jobs in the United States? The big banks, Wall Street, the Council on Foreign Relations, the Business Roundtable, the United States Chamber of Commerce, the National Retail Federation, Corporate America, the President of the United States, Congress of the United States. Everyone is crying for jobs, but no one seems to understand why there aren't any. And the reason for those opposing jobs is money.
Beginning in 1973, big banks made most of their profit outside of the United States. Industries off-shoring, investing, banks financing the investments, transfer fees, fees and interest on the loans made for bigger profits. Long since, the big banks under the leadership of David Rockefeller have led the way to off-shore and make a bigger profit. Goldman Sachs, AIG, Citicorp and Wall Street, conspiring for a bailout and now using it for bonuses, make more money from the off-shored operations.
The Council on Foreign Relations ought to be renamed the Council on Making Money. A recent PEW poll reported fully 85% of Americans said that protecting United States jobs should be a top foreign policy priority. But only 21% of the Council on Foreign Relations agrees. Financial interests organized the Business Roundtable to continue off-shore investment and profit. The local Chamber is for Main Street America, but Tom Donahue and the United States Chamber have sold out to the financial interests and oppose jobs and producing in the United States. Thirty years ago, hundreds of thousands of Arrow shirts produced in China were a best seller in the United States. But at Christmastime, the Chinese supply ran short and the retail stores had to order the same shirt from New Jersey. They made 20% less profit on the New Jersey shirt. Retailers are all for profit from imports and against domestic production and jobs in America.
Corporate America would fight any initiative by the President, the Congress, or the government to create jobs in the United States. That is, production that faces competition offshore. In globalization, U. S. production can't make a profit, can't survive. Its competition will off-shore the same article for a lesser price, putting you out of business. Moreover, Corporate America doesn't have to bother with labor in China. The China government controls labor and you don't have to worry about a work stoppage or minimum wage. All they have is a maximum wage.
And Corporate America doesn't have to worry with clean air and clean water or the environment in China. Nor does it have to worry with OSHA and all of its safety rules. Many times the factory building is furnished and you don't have to worry with capital costs. If you make a profit, you can just reinvest it in an additional operation and not have to pay any U. S. income tax. If the operation fails, walk away with no legacy costs. Corporate America bitterly opposes its government protecting and strengthening the U. S. economy because producing again in America will put the executives back to work. They can send a Jaycee to China to watch the quality control daily and sit on the 32nd floor on Sixth Avenue with the internet, keeping check, and, leaving early for a massage and drinks. With production in China they don't have to work.
As Commander-in-Chief, the President dithered for months over the number of troops. But he can't equip the troops except for the favor of a foreign country. The War Production Act of 1950 requires the President to make sure that we can produce in- country those articles necessary for our national defense. Enforcing this law would limit the campaign contributions. Under Section 201 of the trade laws, the President is supposed to take action, like impose tariffs or quotas, when a certain production is endangered. Not only endangered, our automobile production has been bankrupted. But all the President does is give Detroit bailout welfare. The President doesn't want to limit the campaign contributions.
The same with Congress. Senator Byron Dorgan of North Dakota long ago tried to allocate the tax incentive for foreign jobs and production to domestic jobs and production. The Business Roundtable and the U. S. Chamber fought it like a tiger and killed it.
As the President said in his West Point talk, there is fierce competition in international trade and globalization. All countries move to protect and build their economies while the United States goes out of business. The one advantage that the U.S. has is its richest market in the world. It is fast becoming the poorest market and the U.S. is losing any clout to maintain a strong economy.
The economy is in the hands of Summers, Bernanke and Geithner. Campaign contributions are in the hands of David Axelrod and Rahm Emanuel. The poor President is smart, diligent and working his head off campaigning. But he is inexperienced and not governing, and the Congress is in a Mexican standoff over an archaic filibuster rule that reveres democracy by the minority.
Of course, the media, which knows this and keeps it top secret, is owned by big business.
If I don't meet you in the breadline, my children will.
Meritocracy, the notion that those who are the brightest, most talented and hardworking should get ahead in society, is a tacit adjunct to democracy, capitalism and the American way. Shouldn't the best and the brightest prevail and assume leadership positions in society not to mention reap the most financial rewards? Shouldn't society promote and shower honors and prizes on people who by dint of their achievements and accomplishments have shown that they deserve preeminence?
In "Smile Southern California, You're the Center of the Universe," author James Flanigan extolls the virtues of such people and goes on and on about the talented people who have built businesses and created fortunes for themselves. Such people as Charles Woo who founded Megatoys. Today, Megatoys does $100 million in annual sales and employs 200 to 400 people depending on the season. Revolutionary ways of combining entrepreneurialism, capital markets, supply chains, computers and the latest technology result in vibrant contributions to the new economy and promise the best of all possible worlds. Or so it seems until you lift the carpet and find all the dirt that's been swept beneath it. And many of these wonderful people who have created billions in wealth (mainly for themselves) later go on to become philanthropists giving a lot of it away. What could be a more ideal scenario? The best and the brightest work hard, become entrepreneurs, start businesses, develop new products, employ people, create wealth, contribute to increased GDP, become philanthropists. This is the promise of capitalism. Isn't it all wonderful?
The problem with such a world view is that it doesn't take into account the masses of people who don't have the prodigious talent or work ethic of these few with 190 IQs who are capable of working 18 hour days. Tremendously talented workaholics will undoubtedly create value and get ahead in the workplace and the marketplace. But where does this leave average Joes who don't possess the talent or the smarts or the work ethic? You might say, forget them, they are the laggards, the C students, the less talented, the less deserving. Well, acknowledging the contributions of the best and the brightest, a society nevertheless has to take into account and provide for all its members, not only the most prolific and the most productive. A society that doesn't becomes a hierarchical, top down society relegating the less talented to inferior positions of economic and financial well-being. And such a society verges on fascism and corporatism when the less talented are exploited by the more knowledgable and powerful and used as cannon fodder or workplace fodder. Although society needs to let the talented do their thing, it is not a good idea to give them ultimate control or they will get into a position to lord it over the merely average.
Meritocracy can easily create aristocracy and even turn into fascism unless it is leavened by a respect for all human beings whether of high or low endowments and achievements. There is certainly a spectrum of human talents and abilities, but not all rewards should go to the most talented with a few crumbs from the table going to those of more modest talents and abilities. Everyone except the most physically and mentally disabled can make a contribution and deserves respect and acknowledgment, not just the most talented. Sweeping the floors is a necessary function and the person who does it deserves recognition for that and not merely condescension. And a compassionate society provides a comfortable place for everyone to dwell in not just the most intelligent who are sometimes the most ruthless. Societies lacking compassion and based on meritiocracy alone soon veer into fascism. The Germany of Adolph Hitler is a good example. It was a society not lacking in brilliant achievements and talented and hardworking individuals. If Hitler had died before the invasion of Poland in 1939, he would have gone down as one of the world's greatest individuals. But a belief in German triumphalism, exceptionalism and social Darwinism taken to extremes turned German society into an inhuman and compassionless monster. The least talented, the disabled, as well as the least German, the Jews, were earmarked for elimination.
Flanagan goes on detailing the stories of other rags to riches immigrants such as Sabrina Kay who made millions in the fashion industry. A second generation Korean immigrant, she was able to borrow $500,000. from her parents to open California Design College in 1991. She sold out in 2003 for $15 million. I guess it takes money to make money, but not all entrepreneurs have needed parental handouts. Some like Irwin Jacobs, who founded Qualcomm and whose father was a taxi driver, started out with little except a college education. Nevertheless, the question arises what about the employees and workers that the budding millionaires and billionaires have used along the way. In many cases they have been sweatshop workers in foreign countries who have worked for peanuts while creating fortunes for their employers. That's the dirty little secret of meritocracy - the meritocrats have been talented enough to exploit less talented people along the way. And this holds especially true for immigrants with ties to their old countries where people are desperate for work. So jobs are exported there. Flanagan sees nothing wrong with this because the high value jobs are still here in America. Except that they aren't; they're being shipped overseas as well where well educated individuals are willing to work for less. Even if all high value jobs stayed in the US, the question is begged as to what about those workers who aren't capable of doing the high value jobs but whose jobs have been shipped overseas. Flanagan blithely ignores this part of the equation as he waxes romantic over wealth creation and entrepreneurialism which is assumed to, but often doesn't, trickle down to the merely average.
While in some cases the most talented such as Bill Gates have been amply rewarded for their efforts, there are other cases in which the most talented lost out to those better organized in the corporate format. Take Robert Armstrong, for example, the inventor of FM. He also invented the Super-regenerative circuit (patented 1922), and the Super Heterodyne receiver (patented 1918). The superheterodyne receiver makes AM and FM radio as we know them possible, and is probably the single greatest invention affecting radio of all time. It makes tuning a radio possible. Each radio station has a different carrier frequency, and the superheterodyne receiver allows the information riding on the carrier to be stripped off when the radio is tuned to a particular station.
But RCA CEO, David Sarnoff, a Russian immigrant, conspired to have Armstrong's FM radio put out of business partly because RCA was so heavily invested in AM and partly because it would interfere with the launch of television by RCA after WW II. RCA lobbied the FCC to change the frequency allotment for FM, which it did, thus making all of Armstrong's radios and radio stations obsolete overnight. Most experts believe that FM technology was set back decades by the FCC decision. What a little lobbying can do! Armstrong would see no personal rewards for all his work and all his genius. He'd expected royalties on the manufacture of FM receivers. He expected to negotiate contracts with FM broadcasters. He also expected royalties on every TV set sold - in the U.S. and, eventually, abroad, for TV's sound system was his - FM.
But that wasn't going to happen. RCA tried to circumvent Armstrong's patents, and began producing televisions with his sound system, but paying him nothing, and then, finally, offering him $1 million for a non-exclusionary license. It was something like a scene from the Old West, the rich rancher going to his upstart competitor next door and saying, "I'm going to give you $1 million for your spread. Do you want me to pay you, or do you want me to pay your widow?"
In 1948, Armstrong turned to the courts - charging open theft, infringement on five of his basic FM patents. RCA responded with an army of lawyers who tied him up for six years with trickery, truth-twisting, evasion, procrastination, spoliation, and botheration. Armstrong went broke with legal expenses and was outspent and outargued by RCA corporate resources and their team of attorneys. Armstrong lost his marriage and eventually committed suicide. Meritocracy sometimes produces ghastly results. Arguably the best and the brightest, Armstrong lost out to corporate chicanery. In his case meritocracy yielded to corporate power.
A similar fate was visted on Philo Farnsworth, the inventor of television, at the hands (again) of David Sarnoff and his RCA corporate lawyers. So meritocracy isn't all it's cracked up to be especially when corporations are arrayed against individual inventors and entrepreneurs. The corporate form overpowers and dominates them. And if this can happen to talented individuals, how much more likely is it to happen to individuals who are less talented?
Even in the best of all possible meritocracies, a high degree of inequality will eventually obtain. If most of the rewards go to a small minority of very talented individuals, they will come to have economic and political domination over the vast majority of average Joes. The only way to forestall this eventuality is for government to step in and prevent it by seeing to it that society's rewards are distributed more equitably and evenly, by seeing to it that all financial rewards do not go to the most talented and hardworking, by enforcing an ethic of sharing through redistributing some of the spoils and wealth creation to society as a whole and not just to private interests no matter how meritorious they are.
While I would agree that more of society's rewards should go to those who have contributed more to society, we have to look at the meaning of the word "contribution." Is it really a contribution to society if the rewards from an endeavor go exclusively to the private entity that created it? No, that is a contribution not to society but to self. It would be a contribution to society if society, meaning the public, reaped some of the financial rewards as well. This means that any creation cannot be exclusively owned by the creator. If there needs to be a rationale for this, it is that the creator was enabled by society in the first place whether by the educational system or some other publicly provided good or service. Therefore, a meritocracy needs to be leavened by wealth sharing which is usually accomplished through taxation although cooperative enterprises are possible which share wealth directly. Luck is a big factor in who reaps rewards from an invention as most inventions such as the telephone had multiple inventors, namely, Alexander Graham Bell, Elisha Gray, Paul la Cour, Antonio Meucci and others. In most cases only one got to the patent office first and got the credit.
Does this mean that a corporatrion like Microsoft, for instance, has to go out and hire people who will be mediocre at their jobs. Not at all. It just means that work should not be the complete basis of income. Those who are unable to do a good job are better left unemployed, but still need to be provided for. If they are truly incompetent, it is better to pay them to stay out of the work force rather than to screw it up. But they can't be left to wither on the streets. This is the difference between a compassionate society and fascism.
To sum up, wealth needs to be redistributed to some extent so that those who are not the best, brightest and most talented share in it in order to prevent a large degree of inequality and so that meritocracy doesn't veer into corporatocracy and fascism.
Barack Obama ran for president as a man of the people, standing up to Wall Street as the global economy melted down in that fateful fall of 2008. He pushed a tax plan to soak the rich, ripped NAFTA for hurting the middle class and tore into John McCain for supporting a bankruptcy bill that sided with wealthy bankers "at the expense of hardworking Americans." Obama may not have run to the left of Samuel Gompers or Cesar Chavez, but it's not like you saw him on the campaign trail flanked by bankers from Citigroup and Goldman Sachs. What inspired supporters who pushed him to his historic win was the sense that a genuine outsider was finally breaking into an exclusive club, that walls were being torn down, that things were, for lack of a better or more specific term, changing.
Then he got elected.
What's taken place in the year since Obama won the presidency has turned out to be one of the most dramatic political about-faces in our history. Elected in the midst of a crushing economic crisis brought on by a decade of orgiastic deregulation and unchecked greed, Obama had a clear mandate to rein in Wall Street and remake the entire structure of the American economy. What he did instead was ship even his most marginally progressive campaign advisers off to various bureaucratic Siberias, while packing the key economic positions in his White House with the very people who caused the crisis in the first place. This new team of bubble-fattened ex-bankers and laissez-faire intellectuals then proceeded to sell us all out, instituting a massive, trickle-up bailout and systematically gutting regulatory reform from the inside.
How could Obama let this happen? Is he just a rookie in the political big leagues, hoodwinked by Beltway old-timers? Or is the vacillating, ineffectual servant of banking interests we've been seeing on TV this fall who Obama really is?
Whatever the president's real motives are, the extensive series of loophole-rich financial "reforms" that the Democrats are currently pushing may ultimately do more harm than good. In fact, some parts of the new reforms border on insanity, threatening to vastly amplify Wall Street's political power by institutionalizing the taxpayer's role as a welfare provider for the financial-services industry. At one point in the debate, Obama's top economic advisers demanded the power to award future bailouts without even going to Congress for approval — and without providing taxpayers a single dime in equity on the deals.
How did we get here? It started just moments after the election — and almost nobody noticed.
'Just look at the timeline of the Citigroup deal," says one leading Democratic consultant. "Just look at it. It's fucking amazing. Amazing! And nobody said a thing about it."
Barack Obama was still just the president-elect when it happened, but the revolting and inexcusable $306 billion bailout that Citigroup received was the first major act of his presidency. In order to grasp the full horror of what took place, however, one needs to go back a few weeks before the actual bailout — to November 5th, 2008, the day after Obama's election.
That was the day the jubilant Obama campaign announced its transition team. Though many of the names were familiar — former Bill Clinton chief of staff John Podesta, long-time Obama confidante Valerie Jarrett — the list was most notable for who was not on it, especially on the economic side. Austan Goolsbee, a University of Chicago economist who had served as one of Obama's chief advisers during the campaign, didn't make the cut. Neither did Karen Kornbluh, who had served as Obama's policy director and was instrumental in crafting the Democratic Party's platform. Both had emphasized populist themes during the campaign: Kornbluh was known for pushing Democrats to focus on the plight of the poor and middle class, while Goolsbee was an aggressive critic of Wall Street, declaring that AIG executives should receive "a Nobel Prize — for evil."
But come November 5th, both were banished from Obama's inner circle — and replaced with a group of Wall Street bankers. Leading the search for the president's new economic team was his close friend and Harvard Law classmate Michael Froman, a high-ranking executive at Citigroup. During the campaign, Froman had emerged as one of Obama's biggest fundraisers, bundling $200,000 in contributions and introducing the candidate to a host of heavy hitters — chief among them his mentor Bob Rubin, the former co-chairman of Goldman Sachs who served as Treasury secretary under Bill Clinton. Froman had served as chief of staff to Rubin at Treasury, and had followed his boss when Rubin left the Clinton administration to serve as a senior counselor to Citigroup (a massive new financial conglomerate created by deregulatory moves pushed through by Rubin himself).
Incredibly, Froman did not resign from the bank when he went to work for Obama: He remained in the employ of Citigroup for two more months, even as he helped appoint the very people who would shape the future of his own firm. And to help him pick Obama's economic team, Froman brought in none other than Jamie Rubin, who happens to be Bob Rubin's son. At the time, Jamie's dad was still earning roughly $15 million a year working for Citigroup, which was in the midst of a collapse brought on in part because Rubin had pushed the bank to invest heavily in mortgage-backed CDOs and other risky instruments.
Now here's where it gets really interesting. It's three weeks after the election. You have a lame-duck president in George W. Bush — still nominally in charge, but in reality already halfway to the golf-and-O'Doul's portion of his career and more than happy to vacate the scene. Left to deal with the still-reeling economy are lame-duck Treasury Secretary Henry Paulson, a former head of Goldman Sachs, and New York Fed chief Timothy Geithner, who served under Bob Rubin in the Clinton White House. Running Obama's economic team are a still-employed Citigroup executive and the son of another Citigroup executive, who himself joined Obama's transition team that same month.
So on November 23rd, 2008, a deal is announced in which the government will bail out Rubin's messes at Citigroup with a massive buffet of taxpayer-funded cash and guarantees. It is a terrible deal for the government, almost universally panned by all serious economists, an outrage to anyone who pays taxes. Under the deal, the bank gets $20 billion in cash, on top of the $25 billion it had already received just weeks before as part of the Troubled Asset Relief Program. But that's just the appetizer. The government also agrees to charge taxpayers for up to $277 billion in losses on troubled Citi assets, many of them those toxic CDOs that Rubin had pushed Citi to invest in. No Citi executives are replaced, and few restrictions are placed on their compensation. It's the sweetheart deal of the century, putting generations of working-stiff taxpayers on the hook to pay off Bob Rubin's fuck-up-rich tenure at Citi. "If you had any doubts at all about the primacy of Wall Street over Main Street," former labor secretary Robert Reich declares when the bailout is announced, "your doubts should be laid to rest."
It is bad enough that one of Bob Rubin's former protégés from the Clinton years, the New York Fed chief Geithner, is intimately involved in the negotiations, which unsurprisingly leave the Federal Reserve massively exposed to future Citi losses. But the real stunner comes only hours after the bailout deal is struck, when the Obama transition team makes a cheerful announcement: Timothy Geithner is going to be Barack Obama's Treasury secretary!
Geithner, in other words, is hired to head the U.S. Treasury by an executive from Citigroup — Michael Froman — before the ink is even dry on a massive government giveaway to Citigroup that Geithner himself was instrumental in delivering. In the annals of brazen political swindles, this one has to go in the all-time Fuck-the-Optics Hall of Fame.
Wall Street loved the Citi bailout and the Geithner nomination so much that the Dow immediately posted its biggest two-day jump since 1987, rising 11.8 percent. Citi shares jumped 58 percent in a single day, and JP Morgan Chase, Merrill Lynch and Morgan Stanley soared more than 20 percent, as Wall Street embraced the news that the government's bailout generosity would not die with George W. Bush and Hank Paulson. "Geithner assures a smooth transition between the Bush administration and that of Obama, because he's already co-managing what's happening now," observed Stephen Leeb, president of Leeb Capital Management.
Left unnoticed, however, was the fact that Geithner had been hired by a sitting Citigroup executive who still had a big bonus coming despite his proximity to Obama. In January 2009, just over a month after the bailout, Citigroup paid Froman a year-end bonus of $2.25 million. But as outrageous as it was, that payoff would prove to be chump change for the banker crowd, who were about to get everything they wanted — and more — from the new president.
The irony of Bob Rubin: He's an unapologetic arch-capitalist demagogue whose very career is proof that a free-market meritocracy is a myth. Much like Alan Greenspan, a staggeringly incompetent economic forecaster who was worshipped by four decades of politicians because he once dated Barbara Walters, Rubin has been held in awe by the American political elite for nearly 20 years despite having fucked up virtually every project he ever got his hands on. He went from running Goldman Sachs (1990-1992) to the Clinton White House (1993-1999) to Citigroup (1999-2009), leaving behind a trail of historic gaffes that somehow boosted his stature every step of the way.
As Treasury secretary under Clinton, Rubin was the driving force behind two monstrous deregulatory actions that would be primary causes of last year's financial crisis: the repeal of the Glass-Steagall Act (passed specifically to legalize the Citigroup megamerger) and the deregulation of the derivatives market. Having set that time bomb, Rubin left government to join Citi, which promptly expressed its gratitude by giving him $126 million in compensation over the next eight years (they don't call it bribery in this country when they give you the money post factum). After urging management to amp up its risky investments in toxic vehicles, a strategy that very nearly destroyed the company, Rubin blamed Citi's board for his screw-ups and complained that he had been underpaid to boot. "I bet there's not a single year where I couldn't have gone somewhere else and made more," he said.
Despite being perhaps more responsible for last year's crash than any other single living person — his colossally stupid decisions at both the highest levels of government and the management of a private financial superpower make him unique — Rubin was the man Barack Obama chose to build his White House around.
There are four main ways to be connected to Bob Rubin: through Goldman Sachs, the Clinton administration, Citigroup and, finally, the Hamilton Project, a think tank Rubin spearheaded under the auspices of the Brookings Institute to promote his philosophy of balanced budgets, free trade and financial deregulation. The team Obama put in place to run his economic policy after his inauguration was dominated by people who boasted connections to at least one of these four institutions — so much so that the White House now looks like a backstage party for an episode of Bob Rubin, This Is Your Life!
At Treasury, there is Geithner, who worked under Rubin in the Clinton years. Serving as Geithner's "counselor" — a made-up post not subject to Senate confirmation — is Lewis Alexander, the former chief economist of Citigroup, who advised Citi back in 2007 that the upcoming housing crash was nothing to worry about. Two other top Geithner "counselors" — Gene Sperling and Lael Brainard — worked under Rubin at the National Economic Council, the key group that coordinates all economic policymaking for the White House.
As director of the NEC, meanwhile, Obama installed economic czar Larry Summers, who had served as Rubin's protégé at Treasury. Just below Summers is Jason Furman, who worked for Rubin in the Clinton White House and was one of the first directors of Rubin's Hamilton Project. The appointment of Furman — a persistent advocate of free-trade agreements like NAFTA and the author of droolingly pro-globalization reports with titles like "Walmart: A Progressive Success Story" — provided one of the first clues that Obama had only been posturing when he promised crowds of struggling Midwesterners during the campaign that he would renegotiate NAFTA, which facilitated the flight of blue-collar jobs to other countries. "NAFTA's shortcomings were evident when signed, and we must now amend the agreement to fix them," Obama declared. A few months after hiring Furman to help shape its economic policy, however, the White House quietly quashed any talk of renegotiating the trade deal. "The president has said we will look at all of our options, but I think they can be addressed without having to reopen the agreement," U.S. Trade Representative Ronald Kirk told reporters in a little-publicized conference call last April.
The announcement was not so surprising, given who Obama hired to serve alongside Furman at the NEC: management consultant Diana Farrell, who worked under Rubin at Goldman Sachs. In 2003, Farrell was the author of an infamous paper in which she argued that sending American jobs overseas might be "as beneficial to the U.S. as to the destination country, probably more so."
Joining Summers, Furman and Farrell at the NEC is Froman, who by then had been formally appointed to a unique position: He is not only Obama's international finance adviser at the National Economic Council, he simultaneously serves as deputy national security adviser at the National Security Council. The twin posts give Froman a direct line to the president, putting him in a position to coordinate Obama's international economic policy during a crisis. He'll have help from David Lipton, another joint appointee to the economics and security councils who worked with Rubin at Treasury and Citigroup, and from Jacob Lew, a former Citi colleague of Rubin's whom Obama named as deputy director at the State Department to focus on international finance.
Over at the Commodity Futures Trading Commission, which is supposed to regulate derivatives trading, Obama appointed Gary Gensler, a former Goldman banker who worked under Rubin in the Clinton White House. Gensler had been instrumental in helping to pass the infamous Commodity Futures Modernization Act of 2000, which prevented regulation of derivative instruments like CDOs and credit-default swaps that played such a big role in cratering the economy last year. And as head of the powerful Office of Management and Budget, Obama named Peter Orszag, who served as the first director of Rubin's Hamilton Project. Orszag once succinctly summed up the project's ideology as a sort of liberal spin on trickle-down Reaganomics: "Market competition and globalization generate significant economic benefits."
Taken together, the rash of appointments with ties to Bob Rubin may well represent the most sweeping influence by a single Wall Street insider in the history of government. "Rather than having a team of rivals, they've got a team of Rubins," says Steven Clemons, director of the American Strategy Program at the New America Foundation. "You see that in policy choices that have resuscitated — but not reformed — Wall Street."
While Rubin's allies and acolytes got all the important jobs in the Obama administration, the academics and progressives got banished to semi-meaningless, even comical roles. Kornbluh was rewarded for being the chief policy architect of Obama's meteoric rise by being outfitted with a pith helmet and booted across the ocean to Paris, where she now serves as America's never-again-to-be-seen-on-TV ambassador to the Organization for Economic Cooperation and Development. Goolsbee, meanwhile, was appointed as staff director of the President's Economic Recovery Advisory Board, a kind of dumping ground for Wall Street critics who had assisted Obama during the campaign; one top Democrat calls the panel "Siberia."
Joining Goolsbee as chairman of the PERAB gulag is former Fed chief Paul Volcker, who back in March 2008 helped candidate Obama write a speech declaring that the deregulatory efforts of the Eighties and Nineties had "excused and even embraced an ethic of greed, corner-cutting, insider dealing, things that have always threatened the long-term stability of our economic system." That speech met with rapturous applause, but the commission Obama gave Volcker to manage is so toothless that it didn't even meet for the first time until last May. The lone progressive in the White House, economist Jared Bernstein, holds the impressive-sounding title of chief economist and national policy adviser — except that the man he is advising is Joe Biden, who seems more interested in foreign policy than financial reform.
The significance of all of these appointments isn't that the Wall Street types are now in a position to provide direct favors to their former employers. It's that, with one or two exceptions, they collectively offer a microcosm of what the Democratic Party has come to stand for in the 21st century. Virtually all of the Rubinites brought in to manage the economy under Obama share the same fundamental political philosophy carefully articulated for years by the Hamilton Project: Expand the safety net to protect the poor, but let Wall Street do whatever it wants. "Bob Rubin, these guys, they're classic limousine liberals," says David Sirota, a former Democratic strategist. "These are basically people who have made shitloads of money in the speculative economy, but they want to call themselves good Democrats because they're willing to give a little more to the poor. That's the model for this Democratic Party: Let the rich do their thing, but give a fraction more to everyone else."
Even the members of Obama's economic team who have spent most of their lives in public office have managed to make small fortunes on Wall Street. The president's economic czar, Larry Summers, was paid more than $5.2 million in 2008 alone as a managing director of the hedge fund D.E. Shaw, and pocketed an additional $2.7 million in speaking fees from a smorgasbord of future bailout recipients, including Goldman Sachs and Citigroup. At Treasury, Geithner's aide Gene Sperling earned a staggering $887,727 from Goldman Sachs last year for performing the punch-line-worthy service of "advice on charitable giving." Sperling's fellow Treasury appointee, Mark Patterson, received $637,492 as a full-time lobbyist for Goldman Sachs, and another top Geithner aide, Lee Sachs, made more than $3 million working for a New York hedge fund called Mariner Investment Group. The list goes on and on. Even Obama's chief of staff, Rahm Emanuel, who has been out of government for only 30 months of his adult life, managed to collect $18 million during his private-sector stint with a Wall Street firm called Wasserstein-Perella.
The point is that an economic team made up exclusively of callous millionaire-assholes has absolutely zero interest in reforming the gamed system that made them rich in the first place. "You can't expect these people to do anything other than protect Wall Street," says Rep. Cliff Stearns, a Republican from Florida. That thinking was clear from Obama's first address to Congress, when he stressed the importance of getting Americans to borrow like crazy again. "Credit is the lifeblood of the economy," he declared, pledging "the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money." A president elected on a platform of change was announcing, in so many words, that he planned to change nothing fundamental when it came to the economy. Rather than doing what FDR had done during the Great Depression and institute stringent new rules to curb financial abuses, Obama planned to institutionalize the policy, firmly established during the Bush years, of keeping a few megafirms rich at the expense of everyone else.
Obama hasn't always toed the Rubin line when it comes to economic policy. Despite being surrounded by a team that is powerfully opposed to deficit spending — balanced budgets and deficit reduction have always been central to the Rubin way of thinking — Obama came out of the gate with a huge stimulus plan designed to kick-start the economy and address the job losses brought on by the 2008 crisis. "You have to give him credit there," says Sen. Bernie Sanders, an advocate of using government resources to address unemployment. "It's a very significant piece of legislation, and $787 billion is a lot of money."
But whatever jobs the stimulus has created or preserved so far — 640,329, according to an absurdly precise and already debunked calculation by the White House — the aid that Obama has provided to real people has been dwarfed in size and scope by the taxpayer money that has been handed over to America's financial giants. "They spent $75 billion on mortgage relief, but come on — look at how much they gave Wall Street," says a leading Democratic strategist. Neil Barofsky, the inspector general charged with overseeing TARP, estimates that the total cost of the Wall Street bailouts could eventually reach $23.7 trillion. And while the government continues to dole out big money to big banks, Obama and his team of Rubinites have done almost nothing to reform the warped financial system responsible for imploding the global economy in the first place.
The push for reform seemed to get off to a promising start. In the House, the charge was led by Rep. Barney Frank, the outspoken chair of the House Financial Services Committee, who emerged during last year's Bush bailouts as a sharp-tongued critic of Wall Street. Back when Obama was still a senator, he and Frank even worked together to introduce a populist bill targeting executive compensation. Last spring, with the economy shattered, Frank began to hold hearings on a host of reforms, crafted with significant input from the White House, that initially contained some very good elements. There were measures to curb abusive credit-card lending, prevent banks from charging excessive fees, force publicly traded firms to conduct meaningful risk assessment and allow shareholders to vote on executive compensation. There were even measures to crack down on risky derivatives and to bar firms like AIG from picking their own regulators.
Then the committee went to work — and the loopholes started to appear.
The most notable of these came in the proposal to regulate derivatives like credit-default swaps. Even Gary Gensler, the former Goldmanite whom Obama put in charge of commodities regulation, was pushing to make these normally obscure investments more transparent, enabling regulators and investors to identify speculative bubbles sooner. But in August, a month after Gensler came out in favor of reform, Geithner slapped him down by issuing a 115-page paper called "Improvements to Regulation of Over-the-Counter Derivatives Markets" that called for a series of exemptions for "end users" — i.e., almost all of the clients who buy derivatives from banks like Goldman Sachs and Morgan Stanley. Even more stunning, Frank's bill included a blanket exception to the rules for currency swaps traded on foreign exchanges — the very instruments that had triggered the Long-Term Capital Management meltdown in the late 1990s.
Given that derivatives were at the heart of the financial meltdown last year, the decision to gut derivatives reform sent some legislators howling with disgust. Sen. Maria Cantwell of Washington, who estimates that as much as 90 percent of all derivatives could remain unregulated under the new rules, went so far as to say the new laws would make things worse. "Current law with its loopholes might actually be better than these loopholes," she said.
An even bigger loophole could do far worse damage to the economy. Under the original bill, the Securities and Exchange Commission and the Commodity Futures Trading Commission were granted the power to ban any credit swaps deemed to be "detrimental to the stability of a financial market or of participants in a financial market." By the time Frank's committee was done with the bill, however, the SEC and the CFTC were left with no authority to do anything about abusive derivatives other than to send a report to Congress. The move, in effect, would leave the kind of credit-default swaps that brought down AIG largely unregulated.
Why would leading congressional Democrats, working closely with the Obama administration, agree to leave one of the riskiest of all financial instruments unregulated, even before the issue could be debated by the House? "There was concern that a broad grant to ban abusive swaps would be unsettling," Frank explained.
Unsettling to whom? Certainly not to you and me — but then again, actual people are not really part of the calculus when it comes to finance reform. According to those close to the markup process, Frank's committee inserted loopholes under pressure from "constituents" — by which they mean anyone "who can afford a lobbyist," says Michael Greenberger, the former head of trading at the CFTC under Clinton.
This pattern would repeat itself over and over again throughout the fall. Take the centerpiece of Obama's reform proposal: the much-ballyhooed creation of a Consumer Finance Protection Agency to protect the little guy from abusive bank practices. Like the derivatives bill, the debate over the CFPA ended up being dominated by horse-trading for loopholes. In the end, Frank not only agreed to exempt some 8,000 of the nation's 8,200 banks from oversight by the castrated-in-advance agency, leaving most consumers unprotected, he allowed the committee to pass the exemption by voice vote, meaning that congressmen could side with the banks without actually attaching their name to their "Aye."
To win the support of conservative Democrats, Frank also backed down on another issue that seemed like a slam-dunk: a requirement that all banks offer so-called "plain vanilla" products, such as no-frills mortgages, to give consumers an alternative to deceptive, "fully loaded" deals like adjustable-rate loans. Frank's last-minute reversal — made in consultation with Geithner — was such a transparent giveaway to the banks that even an economics writer for Reuters, hardly a far-left source, called it "the beginning of the end of meaningful regulatory reform."
But the real kicker came when Frank's committee took up what is known as "resolution authority" — government-speak for "Who the hell is in charge the next time somebody at AIG or Lehman Brothers decides to vaporize the economy?" What the committee initially introduced bore a striking resemblance to a proposal written by Geithner earlier in the summer. A masterpiece of legislative chicanery, the measure would have given the White House permanent and unlimited authority to execute future bailouts of megaconglomerates like Citigroup and Bear Stearns.
Democrats pushed the move as politically uncontroversial, claiming that the bill will force Wall Street to pay for any future bailouts and "doesn't use taxpayer money." In reality, that was complete bullshit. The way the bill was written, the FDIC would basically borrow money from the Treasury — i.e., from ordinary taxpayers — to bail out any of the nation's two dozen or so largest financial companies that the president deems in need of government assistance. After the bailout is executed, the president would then levy a tax on financial firms with assets of more than $10 billion to repay the Treasury within 60 months — unless, that is, the president decides he doesn't want to! "They can wait indefinitely to repay," says Rep. Brad Sherman of California, who dubbed the early version of the bill "TARP on steroids."
The new bailout authority also mandated that future bailouts would not include an exchange of equity "in any form" — meaning that taxpayers would get nothing in return for underwriting Wall Street's mistakes. Even more outrageous, it specifically prohibited Congress from rejecting tax giveaways to Wall Street, as it did last year, by removing all congressional oversight of future bailouts. In fact, the resolution authority proposed by Frank was such a slurpingly obvious blow job of Wall Street that it provoked a revolt among his own committee members, with junior Democrats waging a spirited fight that restored congressional oversight to future bailouts, requires equity for taxpayer money and caps assistance to troubled firms at $150 billion. Another amendment to force companies with more than $50 billion in assets to pay into a rainy-day fund for bailouts passed by a resounding vote of 52 to 17 — with the "Nays" all coming from Frank and other senior Democrats loyal to the administration.
Even as amended, however, resolution authority still has the potential to be truly revolutionary legislation. The Senate version still grants the president unlimited power over equity-free bailouts, and the amended House bill still institutionalizes a system of taxpayer support for the 20 to 25 biggest banks in the country. It would essentially grant economic immortality to those top few megafirms, who will continually gobble up greater and greater slices of market share as money becomes cheaper and cheaper for them to borrow (after all, who wouldn't lend to a company permanently backstopped by the federal government?). It would also formalize the government's role in the global economy and turn the presidential-appointment process into an important part of every big firm's business strategy. "If this passes, the very first thing these companies are going to do in the future is ask themselves, 'How do we make sure that one of our executives becomes assistant Treasury secretary?'" says Sherman.
On the Senate side, finance reform has yet to make it through the markup process, but there's every reason to believe that its final bill will be as watered down as the House version by the time it comes to a vote. The original measure, drafted by chairman Christopher Dodd of the Senate Banking Committee, is surprisingly tough on Wall Street — a fact that almost everyone in town chalks up to Dodd's desperation to shake the bad publicity he incurred by accepting a sweetheart mortgage from the notorious lender Countrywide. "He's got to do the shake-his-fist-at-Wall Street thing because of his, you know, problems," says a Democratic Senate aide. "So that's why the bill is starting out kind of tough."
The aide pauses. "The question is, though, what will it end up looking like?"
He's right — that is the question. Because the way it works is that all of these great-sounding reforms get whittled down bit by bit as they move through the committee markup process, until finally there's nothing left but the exceptions. In one example, a measure that would have forced financial companies to be more accountable to shareholders by holding elections for their entire boards every year has already been watered down to preserve the current system of staggered votes. In other cases, this being the Senate, loopholes were inserted before the debate even began: The Dodd bill included the exemption for foreign-currency swaps — a gift to Wall Street that only appeared in the Frank bill during the course of hearings — from the very outset.
The White House's refusal to push for real reform stands in stark contrast to what it should be doing. It was left to Rep. Paul Kanjorski in the House and Bernie Sanders in the Senate to propose bills to break up the so-called "too big to fail" banks. Both measures would give Congress the power to dismantle those pseudomonopolies controlling almost the entire derivatives market (Goldman, Citi, Chase, Morgan Stanley and Bank of America control 95 percent of the $290 trillion over-the-counter market) and the consumer-lending market (Citi, Chase, Bank of America and Wells Fargo issue one of every two mortgages, and two of every three credit cards). On November 18th, in a move that demonstrates just how nervous Democrats are getting about the growing outrage over taxpayer giveaways, Barney Frank's committee actually passed Kanjorski's measure. "It's a beginning," Kanjorski says hopefully. "We're on our way." But even if the Senate follows suit, big banks could well survive — depending on whom the president appoints to sit on the new regulatory board mandated by the measure. An oversight body filled with executives of the type Obama has favored to date from Citi and Goldman Sachs hardly seems like a strong bet to start taking an ax to concentrated wealth. And given the new bailout provisions that provide these megafirms a market advantage over smaller banks (those Paul Volcker calls "too small to save"), the failure to break them up qualifies as a major policy decision with potentially disastrous consequences.
"They should be doing what Teddy Roosevelt did," says Sanders. "They should be busting the trusts."
That probably won't happen anytime soon. But at a minimum, Obama should start on the road back to sanity by making a long-overdue move: firing Geithner. Not only are the mop-headed weenie of a Treasury secretary's fingerprints on virtually all the gross giveaways in the new reform legislation, he's a living symbol of the Rubinite gangrene crawling up the leg of this administration. Putting Geithner against the wall and replacing him with an actual human being not recently employed by a Wall Street megabank would do a lot to prove that Obama was listening this past Election Day. And while there are some who think Geithner is about to go — "he almost has to," says one Democratic strategist — at the moment, the president is still letting Wall Street do his talking.
Morning, the National Mall, November 5th. A year to the day after Obama named Michael Froman to his transition team, his political "opposition" has descended upon the city. Republican teabaggers from all 50 states have showed up, a vast horde of frowning, pissed-off middle-aged white people with their idiot placards in hand, ready to do cultural battle. They are here to protest Obama's "socialist" health care bill — you know, the one that even a bloodsucking capitalist interest group like Big Pharma spent $150 million to get passed.
These teabaggers don't know that, however. All they know is that a big government program might end up using tax dollars to pay the medical bills of rapidly breeding Dominican immigrants. So they hate it. They're also in a groove, knowing that at the polls a few days earlier, people like themselves had a big hand in ousting several Obama-allied Democrats, including a governor of New Jersey who just happened to be the former CEO of Goldman Sachs. A sign held up by New Jersey protesters bears the warning, "If You Vote For Obamacare, We Will Corzine You."
I approach a woman named Pat Defillipis from Toms River, New Jersey, and ask her why she's here. "To protest health care," she answers. "And then amnesty. You know, immigration amnesty."
I ask her if she's aware that there's a big hearing going on in the House today, where Barney Frank's committee is marking up a bill to reform the financial regulatory system. She recognizes Frank's name, wincing, but the rest of my question leaves her staring at me like I'm an alien.
"Do you care at all about economic regulation?" I ask. "There was sort of a big economic collapse last year. Do you have any ideas about how that whole deal should be fixed?"
"We got to slow down on spending," she says. "We can't afford it."
"But what do we do about the rules governing Wall Street . . ."
She walks away. She doesn't give a fuck. People like Pat aren't aware of it, but they're the best friends Obama has. They hate him, sure, but they don't hate him for any reasons that make sense. When it comes down to it, most of them hate the president for all the usual reasons they hate "liberals" — because he uses big words, doesn't believe in hell and doesn't flip out at the sight of gay people holding hands. Additionally, of course, he's black, and wasn't born in America, and is married to a woman who secretly hates our country.
These are the kinds of voters whom Obama's gang of Wall Street advisers is counting on: idiots. People whose votes depend not on whether the party in power delivers them jobs or protects them from economic villains, but on what cultural markers the candidate flashes on TV. Finance reform has become to Obama what Iraq War coffins were to Bush: something to be tucked safely out of sight.
Around the same time that finance reform was being watered down in Congress at the behest of his Treasury secretary, Obama was making a pit stop to raise money from Wall Street. On October 20th, the president went to the Mandarin Oriental Hotel in New York and addressed some 200 financiers and business moguls, each of whom paid the maximum allowable contribution of $30,400 to the Democratic Party. But an organizer of the event, Daniel Fass, announced in advance that support for the president might be lighter than expected — bailed-out firms like JP Morgan Chase and Goldman Sachs were expected to contribute a meager $91,000 to the event — because bankers were tired of being lectured about their misdeeds.
"The investment community feels very put-upon," Fass explained. "They feel there is no reason why they shouldn't earn $1 million to $200 million a year, and they don't want to be held responsible for the global financial meltdown."
Which makes sense. Shit, who could blame the investment community for the meltdown? What kind of assholes are we to put any of this on them?
This is the kind of person who is working for the Obama administration, which makes it unsurprising that we're getting no real reform of the finance industry. There's no other way to say it: Barack Obama, a once-in-a-generation political talent whose graceful conquest of America's racial dragons en route to the White House inspired the entire world, has for some reason allowed his presidency to be hijacked by sniveling, low-rent shitheads. Instead of reining in Wall Street, Obama has allowed himself to be seduced by it, leaving even his erstwhile campaign adviser, ex-Fed chief Paul Volcker, concerned about a "moral hazard" creeping over his administration.
"The obvious danger is that with the passage of time, risk-taking will be encouraged and efforts at prudential restraint will be resisted," Volcker told Congress in September, expressing concerns about all the regulatory loopholes in Frank's bill. "Ultimately, the possibility of further crises — even greater crises — will increase."
What's most troubling is that we don't know if Obama has changed, or if the influence of Wall Street is simply a fundamental and ineradicable element of our electoral system. What we do know is that Barack Obama pulled a bait-and-switch on us. If it were any other politician, we wouldn't be surprised. Maybe it's our fault, for thinking he was different.
Correction: Due to an editing error, the original version of this story incorrectly identified Jamie Rubin, Bob Rubin's son, as a former diplomat in the Clinton administration.
Officially, Detroit's unemployment rate is just under 30 percent. But the city's mayor and local leaders are suggesting a far more disturbing figure -- the actual jobless rate, they say, is closer to 50 percent.
As many have noted, the Bureau of Labor Statistics, which culls federal unemployment data, does not account for all of the jobless in its widely-quoted national unemployment figures. Among those omitted: part-time workers who are looking for full-time jobs and frustrated job seekers who abandon their job search altogether.
(For some context, the official national unemployment rate is 10 percent, but the "underemployment rate" is 17.2 percent.)
Detroit city officials argue that, when workers who are underemployed are added to the calculation, the number of city residents who are out of work is close to one in every two.
The Detroit News reports:
"The Bureau of Labor Statistics estimated that for the year that ended in September, Michigan's official unemployment rate was 12.6 percent. Using the broadest definition of unemployment, the state unemployment rate was 20.9 percent, or 66 percent higher than the official rate. Since Detroit's official rate for October was 27 percent, that broader rate pushes the city's rate to as high as 44.8 percent."
The alarming numbers coming from Detroit officials are supported by another set of recent data from the Bureau of Labor Statistics, which stand in harsh contrast to the more positive national employment picture. The jobless rate in the Detroit MSA (metropolitan statistical area) increased 7.3 percentage points in just one year, the highest increase for any metro area in the nation.
Statewide, Michigan still leads the nation in official unemployment, with a rate of 15.1 percent. Homelessness, especially among those becoming homeless for the first time, is expected to jump at least 10 percent this year.
The employment situation, as The Detroit News suggests, is actually significantly worse for men in Detroit:
For a variety or reasons -- access to transportation, job availability and work skills -- an estimated 48.5 percent of male Detroiters ages 20 to 64 didn't have a job in 2008, according to census figures. For Michigan, it's 26.6 percent; for the United States, 21.7 percent.
The paper's calculations back up Mayor Dave Bing's assertion at last week's White House Jobs Summit that Detroit's unemployment rate was "probably close to 50 percent." Bing was in Washington to press the federal government to channel more money directly into city clean-up projects and infrastructure development. "We've got projects that are shovel-ready," he pleaded.
Four hundred forty-two days after Lehman Brothers declared bankruptcy, the U.S. House of Representatives has finally passed financial reform legislation.
The long delay between the onset of the financial crisis -- a direct consequence of a quarter century of deregulation -- and the passage of Wall Street Reform and Consumer Protection Act of 2009 did not well serve the cause of reform.
As time passed, public anger over the Wall Street bailout became more diffuse. And Wall Street relentlessly continued its campaign to undermine meaningful efforts at reform.
The bill passed Friday contains some positive measures, but it does not do nearly enough to rein in the Wall Street banksters. It is wholly incommensurate with the devastation Wall Street has wreaked across the land and planet.
Most importantly on the positive side, the bill creates a powerful financial consumer watchdog agency. Had the Consumer Financial Protection Agency existed during the go-go years earlier this decade, it could have prevented millions of consumers from being ripped off -- and protected the banks from themselves. The financial crisis would have been significantly less severe.
The bill also contains some modestly beneficial provisions establishing liability for credit ratings firms, regulating derivatives and imposing leverage limits on the largest institutions. And it includes an important measure for a comprehensive public auditing of the Federal Reserve.
But there are huge holes in the legislation. Wall Street successfully maneuvered to keep most of the important big picture reforms off the table:
The bill does very little to address industry structure. Wall Street and the big banks engaged in reckless betting under the belief that they were too big to fail -- that they were protected by a federal backstop. The biggest banks are now even bigger than they were before the crisis. The solution to the too-big-to-fail problem is to break up the big banks, so that the system can absorb their failure. The bill fails to impose limits on bank size.
Many news accounts misleadingly highlight that the bill gives regulators the authority to break up big financial institutions. The bill does confer that authority -- but only upon a finding of a "grave threat to the financial stability or economy of the United States." It is extraordinarily unlikely that regulators will ever reach such a finding.
A related problem is the intermixing of commercial and investment banking in single firms and resultant excessive risk taking by federal insurance-backed commercial banks. The bill fails to separate commercial and investment banking, as the Glass Steagall law did before repeal in 1999, or otherwise address this problem.
Financial derivatives and other exotic instruments -- labeled by Warren Buffett as weapons of financial mass destruction -- fueled the crisis. The bill contains very modest regulations over financial derivatives but leaves more than a quarter of the market free from regulation and contains loopholes to enable another substantial chunk to escape regulatory control. Even for derivatives covered by the bill, the new rules are very limited. The bill does not establish a regulated exchange for derivatives trades. It does not ban financial instruments that do little more than enable high-stakes gambling. And it does not require the purveyors of derivative instruments to prove that the benefits of their new products outweigh the costs and risks to the financial system.
The bill also fails to tackle seriously the problem of executive and high-level pay. Wall Street mocks the Congress -- and the American people -- by preparing to pay tens of billions of dollars in bonuses, in the shadow of a vote on financial regulation and while the financial sector continues to benefit from trillions of dollars of public supports.
At a minimum, there should be binding rules mandating that bonus pay be tied to long-term performance. For 2009, there should also be a windfall tax imposed on Wall Street profits and bonuses.
It's no mystery why this legislation is not stronger. Wall Street spent $5 billion in political investments in the decade before the financial crisis to obtain deregulation and nonenforcement of existing rules. Despite Wall Street having crashed the economy, nothing has changed on Capitol Hill. Wall Street continues to invest heavily in politics and wield enormous influence. More than 900 former federal employees, including 70 former members of Congress, are working as lobbyists for the financial services sector this year. Wall Street has spent more than $40 million on campaign contributions since November 2008.
But Wall Street was not wholly able to get its way. Leading Wall Street lobbyists announced at the outset of the legislative process that they intended to "kill" the Consumer Financial Protection Agency, and they failed. Now, as the bill heads to the Senate, there is still an opportunity for a populist upsurge to demand far-reaching controls on Wall Street.
Hospital cleaners play a vital role, the study found
Hospital cleaners are worth more to society than bankers, a study suggests.
The research, carried out by think tank the New Economics Foundation, says hospital cleaners create £10 of value for every £1 they are paid.
It claims bankers are a drain on the country because of the damage they caused to the global economy.
They reportedly destroy £7 of value for every £1 they earn. Meanwhile, senior advertising executives are said to "create stress".
The study says they are responsible for campaigns which create dissatisfaction and misery, and encourage over-consumption.
Waste workers promote recycling, researchers note
And tax accountants damage the country by devising schemes to cut the amount of money available to the government, the research suggests.
By contrast, child minders and waste recyclers are also doing jobs that create net wealth to the country.
The Foundation has used a new form of job evaluation to calculate the total contribution various jobs make to society, including for the first time the impact on communities and environment.
Eilis Lawlor, spokeswoman for the New Economics Foundation, said: "Pay levels often don't reflect the true value that is being created. As a society, we need a pay structure which rewards those jobs that create most societal benefit rather than those that generate profits at the expense of society and the environment".
Tax accountants are said to destroy £47 in value for every £1 generated
She said the aim of the research was not to target individuals in highly paid jobs, or suggest people in low paid jobs should earn more.
"The point we are making is more fundamental - that there should be a relationship between what we are paid and the value our work generates for society. We've found a way to calculate that," she said.
A total of six different jobs were analysed to assess their overall value. These are the study's main findings:
The elite banker
"Rather than being wealth creators bankers are being handsomely rewarded for bringing the global financial system to the brink of collapse
Paid between £500,000 and £80m a year, leading bankers destroy £7 of value for every pound they generate".
Childcare workers
"Both for families and society as a whole, looking after children could not be more important. As well as providing a valuable service for families, they release earnings potential by allowing parents to continue working. For every pound they are paid they generate up to £9.50 worth of benefits to society."
Hospital cleaners
"Play a vital role in the workings of healthcare facilities. They not only clean hospitals and maintain hygiene standards but also contribute to wider health outcomes. For every pound paid, over £10 in social value is created."
Advertising executives
The industry "encourages high spending and indebtedness. It can create insatiable aspirations, fuelling feelings of dissatisfaction, inadequacy and stress. For a salary of between £50,000 and £12m top advertising executives destroy £11 of value for every pound in value they generate".
Tax accountants
"Every pound that a tax accountant saves a client is a pound which otherwise would have gone to HM Revenue. For a salary of between £75,000 and £200,000, tax accountants destroy £47 in value, for every pound they generate."
Waste recycling workers
"Do a range of different jobs that relate to processing and preventing waste and promoting recycling. Carbon emissions are significantly reduced. There is also a value in reusing goods. For every pound of value spent on wages, £12 of value is generated for society."
The research also makes a variety of policy recommendations to align pay more closely with the value of work.
These include establishing a high pay commission, building social and environmental value into prices, and introducing more progressive taxation.
When I first began writing for The Times, I was naïve about many things. But my biggest misconception was this: I actually believed that influential people could be moved by evidence, that they would change their views if events completely refuted their beliefs.
And to be fair, it does happen now and then. I’ve been highly critical of Alan Greenspan over the years (since long before it was fashionable), but give the former Fed chairman credit: he has admitted that he was wrong about the ability of financial markets to police themselves.
But he’s a rare case. Just how rare was demonstrated by what happened last Friday in the House of Representatives, when — with the meltdown caused by a runaway financial system still fresh in our minds, and the mass unemployment that meltdown caused still very much in evidence — every single Republican and 27 Democrats voted against a quite modest effort to rein in Wall Street excesses.
Let’s recall how we got into our current mess.
America emerged from the Great Depression with a tightly regulated banking system. The regulations worked: the nation was spared major financial crises for almost four decades after World War II. But as the memory of the Depression faded, bankers began to chafe at the restrictions they faced. And politicians, increasingly under the influence of free-market ideology, showed a growing willingness to give bankers what they wanted.
The first big wave of deregulation took place under Ronald Reagan — and quickly led to disaster, in the form of the savings-and-loan crisis of the 1980s. Taxpayers ended up paying more than 2 percent of G.D.P., the equivalent of around $300 billion today, to clean up the mess.
But the proponents of deregulation were undaunted, and in the decade leading up to the current crisis politicians in both parties bought into the notion that New Deal-era restrictions on bankers were nothing but pointless red tape. In a memorable 2003 incident, top bank regulators staged a photo-op in which they used garden shears and a chainsaw to cut up stacks of paper representing regulations.
And the bankers — liberated both by legislation that removed traditional restrictions and by the hands-off attitude of regulators who didn’t believe in regulation — responded by dramatically loosening lending standards. The result was a credit boom and a monstrous real estate bubble, followed by the worst economic slump since the Great Depression. Ironically, the effort to contain the crisis required government intervention on a much larger scale than would have been needed to prevent the crisis in the first place: government rescues of troubled institutions, large-scale lending by the Federal Reserve to the private sector, and so on.
Given this history, you might have expected the emergence of a national consensus in favor of restoring more-effective financial regulation, so as to avoid a repeat performance. But you would have been wrong.
Talk to conservatives about the financial crisis and you enter an alternative, bizarro universe in which government bureaucrats, not greedy bankers, caused the meltdown. It’s a universe in which government-sponsored lending agencies triggered the crisis, even though private lenders actually made the vast majority of subprime loans. It’s a universe in which regulators coerced bankers into making loans to unqualified borrowers, even though only one of the top 25 subprime lenders was subject to the regulations in question.
Oh, and conservatives simply ignore the catastrophe in commercial real estate: in their universe the only bad loans were those made to poor people and members of minority groups, because bad loans to developers of shopping malls and office towers don’t fit the narrative.
In part, the prevalence of this narrative reflects the principle enunciated by Upton Sinclair: “It is difficult to get a man to understand something when his salary depends on his not understanding it.” As Democrats have pointed out, three days before the House vote on banking reform Republican leaders met with more than 100 financial-industry lobbyists to coordinate strategies. But it also reflects the extent to which the modern Republican Party is committed to a bankrupt ideology, one that won’t let it face up to the reality of what happened to the U.S. economy.
So it’s up to the Democrats — and more specifically, since the House has passed its bill, it’s up to “centrist” Democrats in the Senate. Are they willing to learn something from the disaster that has overtaken the U.S. economy, and get behind financial reform?
Let’s hope so. For one thing is clear: if politicians refuse to learn from the history of the recent financial crisis, they will condemn all of us to repeat it.
Copyright 2009 The New York Times Company
Paul Krugman is professor of Economics and International Affairs at Princeton University and a regular columnist for The New York Times. Krugman was the 2008 recipient of the Nobel Prize in Economics. He is the author of numerous books, including The Conscience of A Liberal, and his most recent, The Return of Depression Economics.
I sure hope that there is a full and speedy recovery to the massive recession we are all now suffering under.
But, I'll be honest. I doubt that there will be. Most of the upticks following our latest national downturns have been dismal enough that economists have had to invent a new term for them. The phrase is "jobless recovery", and the implications are as ugly as they sound.
What it means is that GDP rises, but life remains crappy for real people with real jobs. If they're lucky enough to have one, that is.
Where does the money from rising GDP go, then? Funny you should ask. It goes exactly where it's been going for the last three decades. Not to the public, and not to raising the living standards of ordinary folks. But, rather, to the über-class.
My guess is that "The Great Recession" - as some are calling the current disaster (presumably to avoid using the "D" word) - will be followed by what history will record as the "The Tepid and Rather Jobless, Thank You Very Much, Recovery". If that.
And, more importantly, my guess is that this will be the latest and greatest click yet of what is the most massive ratcheting project of the last three decades, perhaps the most wholesale redistribution of wealth in human history.
Consider the numbers...
The ratio of executive salary to the average paycheck during the mid-twentieth century was about thirty to one. In the last decade it has ranged from three hundred to over five hundred to one.
The richest four hundred Americans were worth an average of about $13 million each in the middle of the century, using today's dollars. Now they average over $260 million each.
The top taxpayers in America now pay the same proportion of their income in taxes as those earning less than $75,000 per year. Those taxes on the wealthy went from being more than half of their income fifty years ago to about a sixth today.
In the past three decades, the income of the richest Americans quadrupled, while the income of the lowest ninety percent actually fell. Today, the median wage is lower than it was in the 1970s, even though productivity has grown by nearly fifty percent.
All told, from the 1930s through the 1970s, America produced the biggest and richest middle class in human history. But then many of us made the mistake - as I did - of assuming that this had become, based on a solid society compact, the default status quo for the foreseeable future.
In fact, it was instead an aberration. And it was contingent.
It was an aberration because we are now speedily returning (if we haven't already arrived) to the days prior to the New Deal, when the rich had everything and the middle class was small and insecure. And it was contingent because the good old days depended on a combination of elite satiation and/or a strong progressive defense of an equitable economic order.
But both have disappeared in the Age of Reagan. Today, there are seemingly no bounds conceivable to what the already astonishingly wealthy will do in order to further magnify their holdings. No suffering of the struggling middle class - let alone impoverished brown people inconveniently sitting on top of desirable resources somewhere abroad - represents the slightest impediment to a greed which long ago ceased to have any passing relationship with utility. We are simply talking here about sociopaths - people who cannot fathom a reason to alter their predatory behavior under any circumstances, even when the lives of millions are at stake, and even when another pile of millions of dollars in their investment portfolio does nothing to improve their condition because they are already so rich to begin with.
Okay, well, that's not exactly a new thing. Unless, say, you're a geologist and you happen to think that human beings are a new thing. But what is new is that the other possible protection against the gutting of the middle and working classes - that is, the existence of a progressive bulwark against greed - has all but disappeared. At the level of elites, this has transpired because the Democratic Party has simply joined the GOP in becoming a corporate tool, serving the interests of Goldman Sachs and a few others, with near complete disregard for the public interest. At the mass level, Americans have embraced their own petite bourgeois form of greed, and have become stupider and Republicaner with each passing year.
The result is that the aberration is ending, albeit slowly and somewhat fitfully, and the country is returning to its natural state, where outrageous disparities of wealth are common. So common, in fact, that no serious political movement exists to redress ths injustice. So common that the wealthy go to churches where Jesus the proto-socialist who talked about camels and needles has been morphed instead into the First Coming of Ayn Rand. So common that a guy can run for president incessantly repeating the word "change", invoking the greatest moral struggles of history, and come to office during a time of multiple crises for a deeply stressed American public, only to turn out to be just another Wall Street hack, busy diverting the remaining chunks of the commonwealth to the plutocracy.
It's not exactly a mystery how we ended up here, although there's more obfuscation on this question than there are hypocritical sinners at a GOP family values convention. And that's a lot. Every American government since Reagan has essentially been consumed with the task of denuding the middle and working classes of their paltry share of the national pie, in order to deliver those dollars into the hands of wealthy political benefactors. This includes Democrats as well as Precambrians. Indeed, probably the president least tenacious in pursuing this project, of the five we've been blessed with these last three decades, was George H. W. Bush. That really tells you something, right there, doesn't it?
Yes, it's true that even a mixed economy system practicing both Keynesianist and monetarist countercyclical macro-economic strategies will experience oscillations in growth. (Although, remember when, a decade ago, people were speculating about whether the business cycle had forever been tamed? Remember when people thought Alan Greenspan walked on water? Seems like a lot longer than ten years ago now...) But at the same time, government policies on economic and political issues really do matter, especially when it comes to cutting up the pie.
If you adopt policies that decimates unions, you're gonna wind up decimating unions. Never particularly high in America, and peaking historically at about thirty-five percent, the share of workers who are organized in this country is now down to about seven percent. Guess what sort of effect that is going to have on worker negotiating power over wages, benefits, safety, general treatment and respect?
If you adopt trade policies that undermine labor at every turn, you're gonna wind up with a lot of unemployed Americans competing against low-wage Mexican, Chinese and Indian workers overseas. This wasn't exactly hard to see coming as NAFTA and the WTO were being negotiated, two of the biggest priorities of the Clinton administration. It was even less hard to see when Republicans created tax incentives for companies to ship jobs outside America, and when John Kerry was either too stupid or too fully coopted to turn that slam-dunk issue into the Willie Horton of the 2004 presidential campaign.
If you adopt policies that slash taxes on the already wealthy, guess what that's going to do to the distribution of wealth in the country? Guess what impact it will have on the federal government's revenues and debt? Guess who will be stuck, in the future, paying for the loans to finance the share of revenue that the wealthy are excused from today? Plus interest, of course.
And guess what that will mean for social needs spending as the government grows so deeply indebted that its creditors force it to make cuts in outlays, like some banana republic getting the whip hand from the IMF? Will those cuts be on the military, or on healthcare? Wars or food stamps? We know they won't be on service to the debt. That interest we now pay on the $12 trillion or so we've already borrowed is currently one of the biggest single items in the federal budget, and cannot be defaulted upon without producing disaster. We already know from the Clinton administration the answer to these questions about spending priorities. Even in the flushest of times, this supposed Democratic president slashed welfare spending.
So how shocking is it, when you add it all together, to find that anti-American labor, trade, tax and spending policies turn out to hurt the middle and working classes?!?! The only thing really shocking about the entire affair is that voters have been swallowing whole that baited hook for thirty years now. And that they will likely do so again, in 2010 and 2012, as they perceive the failure of Democratic Party ‘liberalism', and knee-jerk their way into a reign of repeated GOP pillaging, after just rejecting it in deserved disgust only a year or two ago.
Of course, new Republican governments won't be any more successful at generating public prosperity than Democrats, not least because neither has much interest in doing so, except perhaps incidentally. What the Grand Old Pricks might be able to pull off, however, is some more raghead slaughtering, fag bashing, or terror traumatizing in order to keep the hoi polloi focused on anything and everything but the emptying of their wallets.
Ultimately, the game will end, and we'll wind up looking like the British following the Second World War - a great empire bled dry, all its people running around with bad teeth. Right now, Republicans and Democrats are essentially competing, as in a game of musical chairs, to avoid being the party in charge when the fictions of our economic condition can absolutely no longer be sustained. Kinda like what you see in California, the once great state. Looks to me like the Democrats lost. Now there's a shocker, huh? - the party of Obambi getting reamed by the party of Tom "The Hammer" DeLay.
Politicians continue to play the same old cards about resurrecting the same old prosperity. No one will say the truth about how the US standard of living will probably never be restored for the bottom ninety-eight percent, while elites now have the kind of wealth that European kings once had to conquer entire continents in order to acquire. In fact, none of our courageous politicians will even tell you that you can't afford to have tax cuts and full governmental services at the same time. They're too busy borrowing it all from their kids and ours. Well, really just ours. Anyhow, isn't responsibility kinda boring? Isn't that whole honesty thing so twentieth century?
The simple and sad fact is that greedy elites will always use their power to acquire unseemly quantities of wealth, unless one or both of two conditions obtain. The first is that they are socialized to be slightly less greedy, slightly more patriotic, and remotely compassionate about those who have nothing. They may also recognize, as Henry Ford did, that their long-term prospects are rather heavily tied to those of all the rest of us.
The other option is that we, acting through genuinely progressive politics, distribute the cash more fairly. Even if we do this, the wealthy will still have ridiculous amounts of absolute wealth, of course, and truly sickening amounts of relative wealth. It's just that the rest of us will be a bit less impoverished. Perhaps all full-time workers would be guaranteed a living wage, for example. What a concept, eh? Perhaps if we throw all-in with our subversive little Bolshevist revolution, we'll go so far as to even join the rest of the world's developed countries in supplying our people with healthcare. Radical, man.
We got part of the way to a more just society during the middle chunk of the twentieth century, though it was a minor miracle that we did. And it probably really required the Great Depression to do it, along with the twin legislative forces of nature more commonly known as Franklin Roosevelt and Lyndon Johnson.
We may actually get there again.
Though if I had to guess, I suspect instead that the next stop is Palinism.
Whether we'd have the brains subsequently to ever transcend that disaster for a moderately equitable American economic order is a real question.
Whether we even could at that point is quite another.
David Michael Green is a professor of political science at HofstraUniversity in New York. He is delighted to receive readers' reactions to his articles (mailto:dmg@regressiveantidote.net), but regrets that time constraints do not always allow him to respond. More of his work can be found at his website, www.regressiveantidote.net.
So now it becomes clear that the Obama administration's strategy for economic recovery from the Great Recession as carried out by Treasury Secretary Tim Geithner has averted a total calamity for the financial system but has done little or nothing in terms of stemming foreclosures or unemployment because there was no trickle down (as if we should even be using this metaphor subsequent to the immense failure of Reaganomics). Also it has not prevented the proliferation of small bank failures and lack of available credit for small businesses. So for the average person the Great Recession is still here. There was not a complete meltdown of the financial system, but that's of little solace to the average Joe.
Obama would like to use the remaining TARP money to do something about the job situation, but the reality is he's not in a position to start a Civilian Conservation Corp or a Works Project Administration as FDR did. So the question is why could FDR take these measures during the Great Depression to put people back to work, but Obama can't during the Great Recession even though there are more people unemployed now in absolute numbers than there were during the Great Depression. The main reason is that the political climate is different now than it was then. FDR had majorities of Congress solidly behind him. Even though the majority in both the House and Senate are Democrats, they are not solidly behind Obama. For one thing there are a lot of conservative Democrats; there is no overriding party loyalty among Democrats. For another, unlike in FDR's day, 60 votes, instead of 51, seem to be necessary to pass anything in the Senate. This situation is patently ridiculous, but the Democrats don't seem to want to do anything about it. They just accept it. Republicans will filibuster anything that has less than 60 votes in the Senate. It's just a fait accompli because the Republicans do have party loyalty and vote solidly along party lines. And they are determined to defeat Obama at all costs, even at the cost of screwing the American people.
By fictionalizing every situation, the Republicans feed red meat to their following who would rather be presented with a good story than a real situation. The Democrats are put in the position of confronting a fictionalized situation with a stark reality. The public, geared up for entertainment rather than harsh reality, responds by eating up the fictionalized situation and supporting the Republican cause even though, unbeknownst to most of them, they are supporting a party that is perpetrating an agenda that is not in their interests and doing so behind their backs. Republicans do this by supporting wedge interests like abortion, gay marriage and guns. Their adherents get all exercized about these issues while ignoring more pertinent and arcane issues like banking regulation and global warming. The Republicans appeal entirely to self-interest and greed using simple slogans and ignoring complex issues which they leave to lobbyists who work their will behind the scenes which results in long term damage to the interests of the average American including their own constituencies.
Let's be clear. Republicans will not support Obama's attempts to create even one job because they know that the quickest and simplest way for them to regain control of Congress in 2010 and the White House in 2012 is for unemployment to remain high. They will do this by demonizing Obama's policies and suggesting instead their own which, if implemented, actually would do nothing to create jobs. They have beat the health care reform bill to death for nearly a year thereby sucking all the oxygen out of any other aspect of Obama's agenda including job creation.
How this is likely to play out is that the Republicans will take over in 2010 and 2012, but with their policies in place, the real economy will continue to tank and at an accelerating pace. The likely result of that is a Democratic retakeover in 2014 and 2016. Oscillation between Republican and Democratic control of the political process with little citizen organization (no union labor movement, for example) will probably lead to further erosion of the US as a world power and increasing Third World status for average American living standards. With Republicans back in power, they will stop worrying about the debt and deficit and lower taxes again thus increasing the debt even more. They will also cut social programs exacerbating the misery of the poor and working poor. The erosion of the American Dream for an increasing majority of Americans is the likely consequence as the Republicans will preside over an accelerating exodus of American jobs to countries where labor is cheaper. Republicans in power will proceed with more fraying of the safety net protecting the most vulnerable Americans and turning over even more power to large corporations whose only interest is in maximizing their own profits. Thus the environment will continue to deteriorate at an alarming pace because this maximizes profits. When corporations have to be responsible about protecting the environment, this reduces profits because of the added costs.
Republicans, conservatives and rich people have figured out that the despoliation of the environment will mainly affect poor people just as the recent economic crisis has mostly affected poor people and just as the destruction of New Orleans by Katrina has mostly affected poor people. The poor people mostly affected by global warming are people who live on islands such as the Maldives and Bangladishis who live on a flood plane. These people are among the world's poorest and will become, as they are becoming already, environmental refugees as their homes become uninhabitable due to rising sea levels. But rich people, a lot of them, simply don't care what happens to these people in the same way that they don't care about the 47 million people in the US who don't have health care. What they care about is their own financial situation and lower taxes are the main thing they want from government not increased taxes so that governments around the world can help poor people and economic and environmental refugees.
What the American people can expect is increasing inequality as the rich get even richer and social programs are cut even more. The neocon agenda is to get rid of all public institutions including public schools, libraries, parks, police forces, fire departments etc. These can be replaced, they argue, by private equivalents who will do a better job and at lower rates of taxation. Well, we see how well this has worked out with health insurance. While other countries pay less for better outcomes, the privatization of the health care industry has led to greater expense and worse outcomes on average. But Republicans don't care about averages. Again they argue the US has the best health care system in the world (for those who can pay), and they don't care about the worse outcomes that bring down the overall averages because they affect primarily only poor people. Their goal is to have the best for people who can pay, namely rich people, while the rest can fend for themselves and if they can't afford a good or a service, even if their life is at stake, they can go without.
In a teleconference with reporters, panel chairwoman Elizabeth Warren said the TARP was effective in stopping a spreading panic in financial markets. However, she said, the TARP also was supposed to support the broader economic recovery by stemming foreclosures and boosting lending to consumers, and in those aspects it's fallen far short.
"Step one was to stabilize the economy, and that has been accomplished and we give the Treasury very high marks for that," Warren said. "But there was a very important step two behind that. The TARP program was not authorized for the sole purpose of bailing out large financial institutions. Congress specifically states in the legislation that it expects that the benefits will be felt in getting ahead of the foreclosure crisis and in dealing with the larger economy."
Of the $700 billion authorized for TARP in late 2008, the Treasury Department now expects to deploy just $550 billion. It also expects up to $175 billion in TARP repayments by the end of next year, and this week Treasury announced it expects the TARP will cost taxpayers $200 billion less than anticipated.
Pelosi, with the support of President Barack Obama, is now looking to divert some of those TARP "savings" into job creation efforts with the nation's unemployment rate at 10 percent and projected to rise into next year. Obama has conditioned his support on using some of those TARP "savings" into deficit reduction, while congressional Republicans would like to see if all of it used to knock down the deficits.
Barack Obama is trying once again for balance. On the one hand, he wants enough government spending to offset the timid spending of consumers and businesses. Otherwise, the jobs and wage recession could drag on for years. On the other hand, he doesn't want to set off more alarm bells about the budget deficit. Otherwise, conservative Democrats might join forces with Republicans to block heath care. So what does he do? A little bit more stimulus spending, but stimulus spending that doesn't look like more stimulus because it's not really adding to the deficit. It's coming out of savings from money already authorized to be spent on the bank bailout. Hmmm?
No president in modern times walks a tightrope as exquisitely as this one. His balance is a thing of beauty. But when it comes to this economy right now -- an economy fundamentally out of balance -- we need a federal government that moves boldly and swiftly to counter-balance the huge recessionary forces still at large.
States and cities, for example, are estimated to be $350 billion hole this year and next. They can't run deficits so they're wildly cutting spending, cutting jobs, cutting contracts, and raising taxes and fees. That's a huge anti-stimulus package roughly as big as the remaining direct spending in the old federal stimulus package. Which means, Obama's "new" stimulus, announced today, is about all we have, and it's not nearly enough.
The word in Washington is we're out of the woods. The rate of unemployment dipped from 10.2 percent in September to 10 percent in October. In our nation's capital, a one-month trend marks a turnaround. Don't believe it for a moment. The real story of October was the increasing number of Americans who dropped out of the labor force, too discouraged even to look for work.
Main Street is hurting worse than ever. Ten percent unemployment translates into roughly 18 percent of our workforce unemployed or underemployed. Housing markets are in terrible shape: One quarter of homeowners are paying more each month than their houses are worth; the rates of tardy mortgage payments continue to rise. Thirty percent of American households contain someone who has lost a job and can't find another, and yet almost all households are dependent on more than one wage earner in order to make ends meet. A quarter of all American children are now dependent on food stamps.
There is no reason to tolerate this degree of misery. We know exactly what to do. The government has the fiscal tools to do it. Start by bailing out state and local governments (if Congress would prefer to call it a loan and require payback over the next five years, fine). Renew unemployment and COBRA benefits. Increase federal spending on infrastructure. If we have to, hire people directly. The package should be $400 billion over two years.
We don't know exactly how much the President is proposing to spend, but sources tell me it's in the range of $70 billion, redirected from the $200 billion in TARP savings. The President's small, calibrated attempt to balance a stimulus with deficit reduction will in fact make the deficit worse over the long haul. It postpones the day when we're back to near full employment, when almost all Americans who need a job get paychecks on which they pay taxes. This isn't really balance at all. It prolongs the economic imbalance.
Dr. Reich has come up with another clear-eyed bit of advice to Obama's Administration. He's echoing again the message of the disastrous job market and all the nasty economic side-effects therefrom. He applauds Obama's agile balancing act between stimulus and debt building but maintains that Obama is still doing too little by pumping only $70 billion from TARP funds into job stimulus actions .... Reich recommends $400 billion for job stimulus spread over two years. It's refreshing to hear someone pleading for the common man rather than for support to those who have brought about America''s crisis of money and moral values.
I agree because the dramatic decline in jobs is so deeply structural as result of outsourcing and automation. It is compounded by fact consumers are finally saving more and spending less in this crisis which, until a new equilibrium is achieved as in Europe, will contribute to slower demand for quite some time. Reich finally talks about an out-of balance economic model .... a theme I've been writing about in detail for two years now. His solution is to pump more money into short-term job generation by providing incentives to small firms and startup firms, by further intensifying investments in infrastructure, by offering incentives for job creation.
Reich perceptively reminds us that when total spending falls sharply below the level required for reasonable employment at 4-6% unemployment levels, the economy is hopelessly unable to recover on its own .... something the Japanese learned the hard way with their 1992-2004 prolonged economic stagnation. Keynes got this theory right when he said deficits are the order of the day when an economy is in a deep downturn. How the stimulus money is spent will determine whether the deficits are a cruel enslaver of long-term economic vitality. Not to spend money now will only worsen and lengthen the downturn, causing the eventual need of even more borrowed funds to bring back recovery. Failure to respect this principle resulted in Japan's national debt mushrooming from 65% of GDP in 1992 to over 165% of GDP in 2004, rising to a phenomenal 200% of GDP in the current crisis situation.
Our national debt level of ± 60% of GDP today (excluding past borrowings from trust funds, e.g., Social Security) -- while nothing to be pleased about considering just the booming interest and defense costs as well as health care costs -- is a far cry from Japan's extremely dangerous indebtedness today. This is not to say we can borrow ad infinitum (China will also not allow this), but we do have some room to pump-prime the economy out of the current MESS largely created by Republican overspending and tax cuts to the rich as were Bush Jr.s Presidential legacy. The answer is NOT cutting government spending as some ultra-right fiscal hawks are repetitively mouthing. Tell that to California and 10-20 other states either bankrupt or bordering on bankruptcy who are being forced to cut public spending for schools, police, firemen, basic infrastrucure works. As someone has said, California's schools used to be among the very best; now they're among the worst. Of course, we must pump-prime the economy with Constructive Debt for productive investments that truly create sustainable growth and job generation patterns. Of course, the government money flows and borrowing must stop immediately once the economic indices show a clear return to economic stability.
Obviously, added tax revenues will still be needed. This is not an Einstein problem but it does require that we get control of our standard political entrapment in fixed dogmas. In addition to harmonizing the maze of existing taxation, simply tax items where the tax burden is on harmful activities, thus indirectly providing a societal benefit, for example, as so often has been suggested: a tax on financial transactions, an increase in the tax on cigarettes; a tax on sulpher dioxide and carbon dioxide emissions, a weight-tax on cars, etc. Constitutional purists and anti-tax hawks say taxes violate constitutionally given property rights protecting how we invest and spend our money. At the same time, however, the Constitution does not say we can indiscriminately engage in activities that harm others or the general community. Similarly, the Constitution does not say we have a right not to be taxed. Taxing harmful activities not only will help restore budgetary surpluses seen only three times in past 28 years through Bush Jr.s' Presidency ... and those three years occured during Clinton's Presidency.
When politicians start their usual fear tactics that Big Spending, Higher Taxes and Deficits are the primary concern and economic recovery is of secondary importance, then we know we are on the road to self-deceiving double-talk and, ultimately, a national bankruptcy and stagnation that will duplicate Japan's stagnant decade and huge national debt development .... but on a truly Grander Scale with severe worldwide backlashes.
Most ideas for creating more jobs assume jobs will return when the economy recovers. So the immediate goal is to accelerate the process. A second stimulus would be helpful, especially directed at state governments that are now mounting an anti-stimulus package (tax increases, job cuts, service cuts) of over $200 billion this year and next. If the deficit hawks threaten to take flight, the administration should use the remaining TARP funds.
Other less expensive ideas include a new jobs tax credit for any firm creating net new jobs. Lending directed at small businesses, which are having a hard time getting credit but are responsible for most new jobs. A one-year payroll tax holiday on the first, say, $20,000 of income – which would quickly put money into peoples’ pockets and simultaneously make it cheaper for businesses to hire because they pay half the payroll tax. And a WPA style program that hires jobless workers directly to, say, insulate homes.
Most of this would be helpful. Together, they might take the official unemployment rate down a notch or two.
But here's the real worry. The basic assumption that jobs will eventually return when the economy recovers is probably wrong. Some jobs will come back, of course. But the reality that no one wants to talk about is a structural change in the economy that's been going on for years but which the Great Recession has dramatically accelerated.
Under the pressure of this awful recession, many companies have found ways to cut their payrolls for good. They’ve discovered that new software and computer technologies have made workers in Asia and Latin America just about as productive as Americans, and that the Internet allows far more work to be efficiently outsourced abroad.
This means many Americans won’t be rehired unless they’re willing to settle for much lower wages and benefits. Today's official unemployment numbers hide the extent to which Americans are already on this path. Among those with jobs, a large and growing number have had to accept lower pay as a condition for keeping them. Or they've lost higher-paying jobs and are now in a new ones that pays less.
Yet reducing unemployment by cutting wages merely exchanges one problem for another. We'll get jobs back but have more people working for pay they consider inadequate, more working families at or near poverty, and widening inequality. The nation will also have a harder time restarting the economy because so many more Americans lack the money they need to buy all the goods and services the economy can produce.
So let's be clear: The goal isn’t just more jobs. It's more jobs with good wages. Which means the fix isn’t just temporary measures to accelerate a jobs recovery, but permanent new investments in the productivity of Americans.
What sort of investments? Big ones that span many years: early childhood education for every young child, excellent K-12, fully-funded public higher education, more generous aid for kids from middle-class and poor families to attend college, good health care, more basic R&D that's done here in the U.S., better and more efficient public transit like light rail, a power grid that's up to the task, and so on.
Without these sorts of productivity-enhancing investments, a steadily increasing number of Americans will be priced out of competition in world economy. More and more Americans will face a Hobson's choice of no job or a job with lousy wages. It's already happening.
Today with unemployment at 10% there are roughly 15 million unemployed. The US population today is about 300 million so there must be 150 million workers or about half. In 1935 during the Great Depression unemployment was 25% and the population was 125 million. Again figuring half were workers, that would mean about 15 million unemployed. But unemployment was figured differently then than it is today. Counting everyone who wants a job, the so-called "discouraged" workers and the underemployed, today's unemployment rate is 17% or about 25 million. That's how unemployment was figured during the Great Depression.
So comparatively speaking using the same statistical basis, there are about 10 million more people unemployed today than there were during the Great Depression. And yet nothing so radical as the Civilian Conservation Corps or the Works Projects Administration, programs that put men directly to work paid for by the government, programs FDR was able to push through in short order, is being considered today. Instead we've gone back to business as usual with the banks, the financial system and the philosophy that was responsible for the recession in the first place. Job growth is supposed to be a "lagging indicator" and we're all waiting with bated breath for it to catch up with the rest of the supposedly solid economy. Did FDR wait? No, he saw 25 million unemployed and took direct action fighting the banksters all the way. But times were different then. Lobbying was minimal compared to today. Politicians weren't in the grips of the large corporations and fueled by lobbyist money.
Right wing philosophy today which includes all Republicans and a goodly share of Democrats could care less about 25 million unemployed. No big deal they say. Of course, they didn't care about the 15 million unemployed during the Great Depression either. The difference was that there was a far stronger progressive element in the US citizenry then than there is today. Teddy Roosevelt, the trust buster, was a progressive. So was Robert La Follette.
The driving force of the Progressive Movement, Robert La Follette was born in Primrose, Wisconsin, on June 14, 1855. He graduated from the University of Wisconsin in 1879, was admitted to the bar in 1880, was appointed district attorney of Dane County from 1880 to 1884, and served from 1885 to 1891 in the U.S. House of Representatives, where he supported the McKinley Tariff Bill. Breaking with the party leadership, La Follette returned to his law practice and concentrated on improving the political system in Wisconsin.
Elected governor by acclamation in 1891, he proposed and implemented his "Wisconsin Idea." This became the foundation of the Progressive Movement; it included opposition to political bosses, employment of technical experts for public service, direct primary nomination, railroad regulation, and tax reform. Elected to the U.S. Senate in 1905, he worked for progressive reforms on a national level, including the direct election of senators. He championed the conservation movement and led the opposition to the Payne-Aldrich Tariff. In 1912 he lost the Republican presidential nomination to Theodore Roosevelt. To make his progressive ideas better known he founded La Follette's Weekly Magazine in 1909 and the National Progressive Republican League in 1911. He opposed American involvement in World War I and President Wilson's foreign policy. He wrote the resolution authorizing the Senate investigation of the Teapot Dome scandal. In 1924 he ran unsuccessfully for president on the Progressive ticket. He died on June 18, 1925, in Washington, D.C.
There was much more of a progressive tradition then than there is now. The union movement was stronger. Communism and socialism hadn't been demonized for years by Joe McCarthy and others. Big government hadn't been demonized for 30 years by the Reaganistas. Conservative talk radio hadn't pounded away at the underpinnings of progressive government on a daily basis for years by the likes of Rush Limbaugh and Glen Beck. Is it any wonder that there is a lack of jobs today when corporations are encouraged by US government policy to offshore jobs and when Wall Street gives its approval to leveraged buyouts which result in massive layoffs? As far as Wall Street is concerned the less American workers the better. That's the dirty little secret of joblessness in America. It's been government policy for 30 years to encourage it. Chainsaw Al Dunlap was famous for taking over a corporation as CEO and getting rid of huge numbers of workers. Today leveraged buyout artists have changed their name to private equity firms. Better sounding name. Same result. One of their latest victims: Simmons mattress. Jobs that couldn't be offshored were automated, robotized or computerized. Remaining workers were forced to work longer hours for the same pay, lucky to have a job at all. So why is it news that we are in a jobless recovery? It's as if Obama and his economic superstars are nonplussed that the jobs aren't magically coming back now that an economic disaster has been averted by bailing out the banks. They're waiting with bated breath. So are we.
Meanwhile, people's extended unemployment benefits are running out. The government is running huge deficits so it doesn't figure it can launch an FDR style jobs program even if it wanted to. The right wing opposition would be all over it accusing Obama of leading us down the road to socialism and bankruptcy ignoring the fact that 30 years of tax cuts and borrowing by Republicans have reaped the deficit whirlwind. Funny, they accused FDR of the same thing. That didn't stop him though. He railed against the "economic royalists."
Here's part of a speech he gave before the 1936 Democratic convention:
An old English judge once said: "Necessitous men are not free men." Liberty requires opportunity to make a living - a living decent according to the standard of the time, a living which gives man not only enough to live by, but something to live for.
For too many of us the political equality we once had won was meaningless in the face of economic inequality. A small group had concentrated into their own hands an almost complete control over other people's property, other people's money, other people's labor - other people's lives. For too many of us life was no longer free; liberty no longer real; men could no longer follow the pursuit of happiness.
Against economic tyranny such as this, the American citizen could appeal only to the organized power of government. The collapse of 1929 showed up the despotism for what it was. The election of 1932 was the people's mandate to end it. Under that mandate it is being ended.
The royalists of the economic order have conceded that political freedom was the business of the government, but they have maintained that economic slavery was nobody's business. They granted that the government could protect the citizen in his right to vote, but they denied that the government could do anything to protect the citizen in his right to work and his right to live.
Today we stand committed to the proposition that freedom is no half-and-half affair. If the average citizen is guaranteed equal opportunity in the polling place, he must have equal opportunity in the market place.
These economic royalists complain that we seek to overthrow the institutions of America. What they really complain of is that we seek to take away their power. Our allegiance to American institutions requires the overthrow of this kind of power. In vain they seek to hide behind the flag and the Constitution. In their blindness they forget what the flag and the Constitution stand for. Now, as always, they stand for democracy, not tyranny; for freedom, not subjection; and against a dictatorship by mob rule and the over-privileged alike.
Where's our rendezvous with destiny today? The American mindset is so screwed up and the politicians so in the pockets of large corporations that it's unthinkable that a politician like FDR could prevail today.
The US has boxed itself into a corner. Because of its philosophical allegiance to "free trade," it is left with no choice for its trade policy other than begging the Chinese to ravalue their currency. Consequently, the US is going into debt with the Chinese year after year as its trade deficit continues unabated. So far for 2009 the trade deficit is $405 billion. The US trade deficit with China for non-oil goods was 26% in 2000. Now in 2009 it's 83%. What this means is that the US is slowly going deeper and deeper in debt to China, and there is virtually nothing the US can do about it unless it does an about face and abandons its commitment to "free trade." This is a commitment that China profits from but does not share.
What this means for the US is that, as the US sinks more and more into debt, China acquires greater and greater wealth and is in a position to buy up US assets and assets in other parts of the world. The US is choosing a policy which increasingly beggars itself to China with the long term result that the US will be a dependency of China.
30 years ago when Reagan became President the US was the world's largest exporter of manufactured goods. Now it is the world's largest importer. 30 years of "free trade" have managed to turn the US into essentially a third world nation in terms of its trade policy. Raw materials are exported and manufactured goods are imported. Jobs have been exported to countries where labor and hence living standards are cheaper. The US is reduced to begging China, which pegs its yuan to the dollar, to revalue its currency or let it float in world currency markets as if this in and of itself would redress the balance and cause US exports to flourish and imports to languish. But such would probably not be the case as long as China's labor is cheaper than US labor.
An additional complication is that major US corporations such as Hewlett Packard and Mattel have built large factories in China from whence they ship their products back into the US market. These companies would suffer from a revaluation of the yuan because it would make their products more expensive in the US market. Therefore, they would vociferously lobby against any repudiation of free trade after they have made such a substantial investment in China. So China's course seems well protected not only by its increasing economic clout in the world but by US transnational corporations themselves who are thoroughly invested in the model of using cheap Chinese labor instead of expensive American labor to manufacture their products.
Now the only way the US could rescue its ultimate fate of becoming a dependency of China, as I see it, is to reinstitute tariffs. A tariff can fine tune the cost of an imported product so that it becomes cheaper or at least of similar cost to produce it in the US rather than abroad. This should surely be done for industries vital to US interests whatever these are considered to be. Imports for which there are no US equivalents don't need to have tariffs associated with them. For example, bananas are probably more propitiously grown abroad and imported to the US. So their importation should be encouraged not discouraged by tariffs. But manufactured goods which can be manufactured here should have tariffs associated with them so they will not be imported from abroad. Tariffs would discourage jobs from being exported because they would make it cost effective to produce manufactured goods in the US rather than abroad and having them shipped to the US. Thus jobs would be created in the US rather than abroad. Maybe there are other ways to do it, but it's not obvious. Tariffs seem the most straightforward way to accomplish the goals of job creation in the US and the retention of vital industries in the US. But that would require a trade policy and an industrial policy and a repudiation of "free trade."
Ross Perot was right when he predicted that NAFTA and CAFTA would produce a "giant sucking sound" of jobs being exported abroad. He just didn't envision the concomitant giant sucking sound of capital being exported as well due to trade deficits. And as former US companies become transnationals, they pay fewer and fewer taxes in the US. Of course, this is one of the advantages from their point of view. So they support the US less and less in terms of jobs and less and less in terms of the tax base.
Since Reagan took over the Presidency, the US has gone from being the world's largest creditor nation to the world's largest debtor nation, and its trade policy has contributed largely to this debacle. When a great nation's only alternative is to beg its competitor to revalue its currency, it has certainly lost its status as a superpower. The US has sunk to the position of acquiescing in its own demise and capitulating to a country with far more smarts and perhaps a more efficient political-economic system when it comes to getting anything done. While the US fruitlessly borrows even more money to fight ridiculous wars thus adding to its budget deficit, China is quietly buying up the world's assets and thinking to itself ... hmmm, another year, another $400-$500 billion US dollars. What should we buy this year? China is in the cat bird's seat, and America is hoist on its own petard of "free trade."
Should we use taxes to deter financial speculation? Yes, say top British officials, who oversee the City of London, one of the world's two great banking centers. Other European governments agree - and they're right.
Unfortunately, United States officials - especially Timothy Geithner, the Treasury secretary - are dead set against the proposal. Let's hope they reconsider: a financial transactions tax is an idea whose time has come.
The dispute began back in August, when Adair Turner, Britain's top financial regulator, called for a tax on financial transactions as a way to discourage "socially useless" activities. Gordon Brown, the British prime minister, picked up on his proposal, which he presented at the Group of 20 meeting of leading economies this month.
Why is this a good idea? The Turner-Brown proposal is a modern version of an idea originally floated in 1972 by the late James Tobin, the Nobel-winning Yale economist. Tobin argued that currency speculation - money moving internationally to bet on fluctuations in exchange rates - was having a disruptive effect on the world economy. To reduce these disruptions, he called for a small tax on every exchange of currencies.
Such a tax would be a trivial expense for people engaged in foreign trade or long-term investment; but it would be a major disincentive for people trying to make a fast buck (or euro, or yen) by outguessing the markets over the course of a few days or weeks. It would, as Tobin said, "throw some sand in the well-greased wheels" of speculation.
Tobin's idea went nowhere at the time. Later, much to his dismay, it became a favorite hobbyhorse of the anti-globalization left. But the Turner-Brown proposal, which would apply a "Tobin tax" to all financial transactions - not just those involving foreign currency - is very much in Tobin's spirit. It would be a trivial expense for long-term investors, but it would deter much of the churning that now takes place in our hyperactive financial markets.
This would be a bad thing if financial hyperactivity were productive. But after the debacle of the past two years, there's broad agreement - I'm tempted to say, agreement on the part of almost everyone not on the financial industry's payroll - with Mr. Turner's assertion that a lot of what Wall Street and the City do is "socially useless." And a transactions tax could generate substantial revenue, helping alleviate fears about government deficits. What's not to like?
The main argument made by opponents of a financial transactions tax is that it would be unworkable, because traders would find ways to avoid it. Some also argue that it wouldn't do anything to deter the socially damaging behavior that caused our current crisis. But neither claim stands up to scrutiny.
On the claim that financial transactions can't be taxed: modern trading is a highly centralized affair. Take, for example, Tobin's original proposal to tax foreign exchange trades. How can you do this, when currency traders are located all over the world? The answer is, while traders are all over the place, a majority of their transactions are settled - i.e., payment is made - at a single London-based institution. This centralization keeps the cost of transactions low, which is what makes the huge volume of wheeling and dealing possible. It also, however, makes these transactions relatively easy to identify and tax.
What about the claim that a financial transactions tax doesn't address the real problem? It's true that a transactions tax wouldn't have stopped lenders from making bad loans, or gullible investors from buying toxic waste backed by those loans.
But bad investments aren't the whole story of the crisis. What turned those bad investments into catastrophe was the financial system's excessive reliance on short-term money.
As Gary Gorton and Andrew Metrick of Yale have shown, by 2007 the United States banking system had become crucially dependent on "repo" transactions, in which financial institutions sell assets to investors while promising to buy them back after a short period - often a single day. Losses in subprime and other assets triggered a banking crisis because they undermined this system - there was a "run on repo."
And a financial transactions tax, by discouraging reliance on ultra-short-run financing, would have made such a run much less likely. So contrary to what the skeptics say, such a tax would have helped prevent the current crisis - and could help us avoid a future replay.
Would a Tobin tax solve all our problems? Of course not. But it could be part of the process of shrinking our bloated financial sector. On this, as on other issues, the Obama administration needs to free its mind from Wall Street's thrall.
Paul Krugman is professor of Economics and International Affairs at Princeton University and a regular columnist for The New York Times. Krugman was the 2008 recipient of the Nobel Prize in Economics. He is the author of numerous books, including The Conscience of A Liberal, and his most recent, The Return of Depression Economics.
Published on Wednesday, November 25, 2009 by TruthDig.com
by Robert Scheer
Jail, anyone? Perhaps that's too harsh, and at any rate premature, but is anyone ever going to be held accountable for the behind-the-scenes sweetheart deals that passed tens of billions of taxpayer dollars through the AIG shell game to the very banks that caused the financial meltdown? Or for the many other acts of double-dealing that left one out of three American homeowners owing much more than their houses were worth while the folks who swindled them were rewarded with hundreds of billions in public money?
Undoubtedly not, since the same folks who are most culpable wrote the laws that made this, and the other scams at the heart of the banking collapse, perfectly legal. And guess what? They're back at work in the government, writing the new laws that will, they claim, prevent us from being had once again. As a telling example of that process at work, check the official response of the Department of Treasury to the devastating report by the special inspector general for the Troubled Asset Relief Program (TARP), Neil M. Barofsky, titled "Factors Affecting Efforts to Limit Payments to AIG Counterparties." The main factor was that Timothy Geithner followed the lead of Goldman Sachs CEO Lloyd "I'm Doing God's Work" Blankfein in crowding the lifeboats with bankers.
Geithner, now treasury secretary, was previously the president of the Federal Reserve Bank of New York (FRBNY), where he negotiated the deal to pay Goldman Sachs and the other top banks in full to cover their bad bets on securitized mortgages. Barofsky's report concluded that Geithner's scheme represented a "backdoor bailout" for the financial hustlers at the center of the market fiasco. Noting that Geithner denies that was his intention, the report states, "Irrespective of their stated intent, however, there is no question that the effect of FRBNY's decisions-indeed, the very design of the federal assistance to AIG-was that tens of billions of dollars of Government money was funneled inexorably and directly to AIG's counterparties."
Not surprisingly, the Treasury Department that Geithner now heads defended his actions in not forcing "haircuts" on the full dollar-for-dollar payoff by AIG to the banks while he was at the New York Fed: "The government could not unilaterally impose haircuts on creditors, and it would not have been appropriate for the government to pressure counterparties to accept haircuts by threatening to retaliate in some way through its regulatory power."
Nonsense, argues Eliot Spitzer, who as New York attorney general was way ahead of the curve in challenging Wall Street arrogance. Writing in Slate on Monday, Spitzer points out: "Pressuring Goldman and the other counterparties to offer concessions would have forced them to absorb the consequences of making suspect deals with an insurance company that was essentially a Ponzi scheme."
The Ponzi scheme was based on the collateralized debt obligations (CDOs) in which the bankers traded and which AIG had insured with the credit default swaps (CDSs) that they sold but failed to back with adequate funding. Now Geithner's Treasury concedes that AIG "should never have been allowed to escape tough, consolidated supervision." But none of AIG's scams were regulated, nor were any of the others at the center of the larger financial debacle, because of laws pushed through Congress by Geithner's boss, Lawrence Summers, when they both were in the Clinton administration. Specifically, they prevented regulation of those opaque CDOs and CDSs that would come to derail the world's economy.
As the inspector general's report stated: "In 2000, the [Clinton administration-backed] Commodity Futures Modernization Act (CFMA) ... barred the regulation of credit default swaps and other derivatives." Why did the financial geniuses of the Clinton administration seek to prevent that obviously needed regulation? Because the Clintonistas believed the Wall Street guys knew what they were doing and that what was good for them was good for us lesser folk. As Summers, who is the top economic adviser in the Obama White House, put it in congressional testimony back then: "The parties to these kinds of contracts are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies."
Sounds nonsensical today: The inspector general's report notes that AIG, because of the deregulatory law that Summers and Geithner pushed through, was "able to sell swaps on $72 billion worth of CDOs to counterparties without holding reserves that a regulated insurance company would be required to maintain." But why, then, is Summers once again running the show with Geithner when both have made careers of exhibiting total contempt for the public interest? Because there is no accountability for the high rollers of finance, no matter who happens to be president.
Are we nearing a tipping point as rapacious elites push a heavily armed populace too far?
Editor's note: The following is an edited excerpt from the Amped Status report, "The Critical Unraveling of U.S. Society."
The economic elite have launched an attack on the U.S. public and society is unraveling at an increased rate.You may have missed it in the mainstream news media, but statistical societal indicators are reading red across the board. Let’s look at the top 15 statistics that prove we are under attack.
1) The inequality of wealth in the United States is soaring to an unprecedented level. The U.S. already had the highest inequality of wealth in the industrialized world prior to the financial crisis. Since the crisis, which has hit the middle class and poor much harder than the top 1 percent, the gap between the top 1 percent and the remaining 99 percent of the U.S. population has grown to a record high.
2) As the stock market went over the 10,000 mark and just surged to a 13-month high, the three big banks that took taxpayer money and benefited the most from the government bailout have just set a new global economic record by issuing $30 billion in annual bonuses this year, “up 60 percent from last year.” Bloomberg reported: “Goldman Sachs, the most profitable securities firm in Wall Street history, had a record profit in the first nine months of this year and set aside $16.7 billion for compensation expenses.” Goldman Sachs is on pace for the best year in the firm’s history, and it is also benefiting by only paying 1 percent in taxes.
As the looting is occurring at the top, the U.S. middle class is just beginning to collapse.
4) Workers between the ages of 55 to 60, who have worked for 20 to 29 years, have lost an average of 25 percent off their 401k. During the same time period, the wealth of the 400 richest Americans went up by $30 billion, bringing their total combined wealth to $1.57 trillion.
5) Home foreclosure filings "hit a record high in the third quarter (of 2009)… They were the worst three months of all time… 937,840 homes received a foreclosure letter" in this three-month period; “3.4 million homes are expected to enter foreclosure by year’s end, with some experts estimating that next year will be even worse.”
6) 25 million people are unemployed or underemployed.
This means we have 25 million people who urgently need to increase their income, and they’re quickly running out of options. The unemployment rate is expected to rise further and remain high for several years. “The president’s chief economic adviser warned that the nation’s unemployment rate could stay ‘unacceptably high’ for years to come."
The New York Times reports: "Americans now confront a job market that is bleaker than ever in the current recession, and employment prospects are still getting worse. Job seekers now outnumber openings six to one, the worst ratio since the government began tracking….” As this ratio continues to grow, it will lead to a further reduction in wages -- average worker wages have seen a sharp decline over the past year.
Economist Nouriel Roubini, a man who accurately predicted our current crisis, just reported on unemployment stating: “Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening…. So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.”
7) As the few elite banks thrive, there have been 123 U.S. bank failures thus far this year. Recently, three banks that the government declared “healthy” and gave taxpayer money, have folded. The Wall Street Journal reports: “U.S. regulators have seized or threatened at least 27 banks that got capital infusions from the Troubled Asset Relief Program, including some lenders government officials knew were troubled when they awarded the money. The troubles put taxpayers at risk of losing as much as $5.1 billion invested in the banks since TARP was launched in October 2008.”
9) This is occurring at a time when the “federal budget deficit for the fiscal year that just ended was $1.4 trillion, nearly a trillion dollars greater than the year before." In total, "U.S. public debt topped $12 trillion for the first time in history… The public debt topped $10 trillion in September 2008. The debt is quickly approaching the statutory limit of $12.104 trillion, meaning Congress would have to raise the ceiling to prevent a shutdown of government operations."
Economist Dean Baker explains the risk of running such a large deficit: "The debt limit must be increased at regular intervals in order to allow the government to function normally because the government is currently operating at a deficit. If the debt limit is not passed, then at some point the government will not be able to pay workers and contractors. It won’t be able to send out Social Security checks or make payments for Medicaid and unemployment insurance to state governments. And, it will not be able to make interest payments on government bonds, effectively defaulting on the national debt."
Needless to say, all of this will make life drastically more difficult for American citizens. As the middle class continues on the path of economic decline, the number of citizens living in poverty has already hit an all-time high.
10) Although the government’s official figure tries to low-ball the number, 47.4 million U.S. citizens live in poverty, and the U.S. poverty rate is the highest in the industrialized world.
Predictably, homelessness is rising at an increased rate as well. "The U.S. government does not tally the numbers but interested organizations say that more than 3 million people were homeless at some point over the past year…. The fastest growing segment of the homeless population is families with children.”
Children have been hit especially hard by the economic crisis:
11) * 50 percent of U.S. children, one out of every two children, will need to use food stamps to eat.
One out of every two children in the United States of America will need to use a food stamp… to EAT!
If you didn’t think starvation was a serious threat in the U.S., just read this new Washington Post report: “The nation’s economic crisis has catapulted the number of Americans who lack enough food to the highest level since the government has been keeping track, according to a new federal report, which shows that nearly 50 million people — including almost one child in four — struggled last year to get enough to eat… Several independent advocates and policy experts on hunger said that they had been bracing for the latest report to show deepening shortages, but that they were nevertheless astonished by how much the problem has worsened. 'This is unthinkable. It’s like we are living in a Third World country,' said Vicki Escarra, president of Feeding America."
The United States Department of Agriculture released these findings in a study that was completed in December 2008, which means these numbers don’t take into account the millions more unemployed throughout 2009. The numbers of people living in poverty and struggling to eat has seen a significant increase since then.
This a national tragedy. But it gets much worse.
12) In 2008, according to the Census Bureau, the number of U.S. citizens without health care grew to a record 46.3 million. “The new figures, however, understate the severity of the economic downturn because a large portion of the nation’s job losses and unemployment rate increases occurred after the Census survey data was collected in March as part of the annual Current Population Survey."
13) Lack of health insurance has caused 45,000 preventable U.S. citizen deaths in the past year. The American Journal of Medicine recently released a study that stated, “Nearly two out of three bankruptcies stem from medical bills, and even people with health insurance face financial disaster if they experience a serious illness.”
A Johns Hopkins Children’s Center study reported that 17,000 children have died due to lack of health care. You can also add in a recent report that revealed that 2,266 U.S. veterans have died in 2008 due to lack of insurance.
The 50 million now uninsured and the 45,000 preventable deaths per year statistics are expected to drastically rise over the next few years. As the Senate continues to strip meaningful amendments from a health care bill that wouldn’t even take effect until 2013, it has become clear that, despite the media hype, the health care bill is going to fall far short of meaningful reform and continue to rig the game in favor of large insurance company profits at the expense of the U.S. population. With the highest cost healthcare in the world, current trends will continue and much needed change is not on the horizon.
Never before has the United States had so many citizens with so little means, little to no income and heavy debt. Debt and costs of living have now shackled U.S. citizens just as they have shackled people throughout the world. The economic hit men have now hit the United States as well and millions of American citizens are now effectively sentenced to a slow death.
Economic Imperial blowback has hit the mainland.
And the clock is ticking louder by the day…
And here’s two more facts for you:
14) The gun and ammunition manufacturing industry in the United States has over 200 companies producing billions of dollars in annual revenues. This huge manufacturing base cannot fulfill demand quickly enough. The demand for guns and ammunition has hit a record high and the gun industry cannot produce enough bullets to keep up with orders.
Americans are arming themselves to the teeth!
15) In the past year, 100 new armed militia groups have been formed, as militia members have doubled in numbers. Federal authorities are gravely concerned about the “uptick in militia activities." One federal authority recently said, “All it’s lacking is a spark. I think it’s only a matter of time before you see threats and violence."
So let’s break down these numbers.
You have a population of 50 million people who are in desperate need of money, they most likely have no health insurance and can’t afford to get health care or help of any kind. Part of this population probably also has loved ones who can’t get life sustaining medical treatments, or loved ones who have already died due to lack of costly medical treatment. The clock is ticking loud for these people and they are running out of options fast, and time delayed is time closer to death.
While the richest 1 percent have never had it so good, a significant percentage of the U.S. population now has firsthand experience in this. Millions upon millions of Americans are poor, broke, struggling, starving, desperate… and armed.
We are sitting on a powder keg!
We are now witnessing the critical unraveling of U.S. society.
Earlier this week, the inspector general for the Troubled Asset Relief Program, a k a, the bank bailout fund, released his report on the 2008 rescue of the American International Group, the insurer. The gist of the report is that government officials made no serious attempt to extract concessions from bankers, even though these bankers received huge benefits from the rescue. And more than money was lost. By making what was in effect a multibillion-dollar gift to Wall Street, policy makers undermined their own credibility - and put the broader economy at risk.
For the A.I.G. rescue was part of a pattern: Throughout the financial crisis key officials - most notably Timothy Geithner, who was president of the New York Fed in 2008 and is now Treasury secretary - have shied away from doing anything that might rattle Wall Street. And the bitter paradox is that this play-it-safe approach has ended up undermining prospects for economic recovery. For the job of fixing the broken economy is far from done - yet finishing the job has become nearly impossible now that the public has lost faith in the government's efforts, viewing them as little more than handouts to the people who got us into this mess.
About the A.I.G. affair: During the bubble years, many financial companies created the illusion of financial soundness by buying credit-default swaps from A.I.G. - basically, insurance policies in which A.I.G. promised to make up the difference if borrowers defaulted on their debts. It was an illusion because the insurer didn't have remotely enough money to make good on its promises if things went bad. And sure enough, things went bad.
So why protect bankers from the consequences of their errors? Well, by the time A.I.G.'s hollowness became apparent, the world financial system was on the edge of collapse and officials judged - probably correctly - that letting A.I.G. go bankrupt would push the financial system over that edge. So A.I.G. was effectively nationalized; its promises became taxpayer liabilities.
But was there any way to limit those liabilities? After all, banks would have suffered huge losses if A.I.G. had been allowed to fail. So it seemed only fair for them to bear part of the cost of the bailout, which they could have done by accepting a "haircut" on the amounts A.I.G. owed them. Indeed, the government asked them to do just that. But they said no - and that was the end of the story. Taxpayers not only ended up honoring foolish promises made by other people, they ended up doing so at 100 cents on the dollar.
Could things have been different? Some commentators argue that government officials had no way to force the banks to accept a haircut - either they let A.I.G. go bankrupt, which they weren't ready to do, or they had to honor its contracts as written.
But this seems like a naïve view of how Wall Street works. Major financial firms are a small club, with a shared interest in sustaining the system; ever since the days of J.P. Morgan, it has been common in times of crisis to call on the big players to forgo short-term profits for the industry's common good. Back in 1998, it was a consortium of private bankers - not the government - that put up the funds to rescue the hedge fund Long Term Capital Management.
Furthermore, big financial firms have a long-term relationship, both with the government and with each other, and can pay a price if they act selfishly in times of crisis. Bear Stearns, the investment bank, earned itself a lot of ill will by refusing to participate in that 1998 rescue, and it's widely believed that this ill will played a major factor in the demise of Bear Stearns itself, 10 years later.
So officials could have called on bankers to offer a better deal, for their own sake, and simultaneously threatened to name and shame those who balked. It was their choice not to do that, just as it was their choice not to push for more control over bailed-out banks in early 2009.
And, as I said, these seemingly safe choices have now placed the economy in grave danger.
For the economy is still in deep trouble and needs much more government help. Unemployment is in double-digits; we desperately need more government spending on job creation. Banks are still weak, and credit is still tight; we desperately need more government aid to the financial sector. But try to talk to an ordinary voter about this, and the response you're likely to get is: "No way. All they'll do is hand out more money to Wall Street."
So here's the real tragedy of the botched bailout: Government officials, perhaps influenced by spending too much time with bankers, forgot that if you want to govern effectively you have retain the trust of the people. And by treating the financial industry - which got us into this mess in the first place - with kid gloves, they have squandered that trust.
Paul Krugman is professor of Economics and International Affairs at Princeton University and a regular columnist for The New York Times. Krugman was the 2008 recipient of the Nobel Prize in Economics. He is the author of numerous books, including The Conscience of A Liberal, and his most recent, The Return of Depression Economics.
How can the stock market hit new highs at the same time unemployment is hitting new highs? Simple. The market is up because corporate earnings are up. Corporate earnings are up because companies are cutting costs. And the biggest single cost they’re cutting is their payrolls. So they let people go and, presto, their balance sheets look better and their stock prices rise.
In the old-fashioned kind of recession decades ago, big companies laid off people with the expectation of rehiring them when the economy turned up. Then a few recessions back, companies started laying off people for good, never rehiring them even when the economy recovered.
In the Great Recession of 2008-2009, companies are going a step further. They’re using this sharp downturn to cut payrolls even below where they were when times were good. Outsourcing abroad, setting up shop in China and elsewhere, contracting out, replacing people with software and automated machines – they're doing whatever it takes to get payrolls down so earnings bounce up.
Caterpillar earned $404 million in the third quarter, or 64 cents a share. Analysts had expected only 5 cents. Caterpillar’s stock is up 165 percent since March. How did Caterpillar do it? Not by selling more bulldozers. It did it by cutting over 37,000 jobs.
The result, overall, is an asset-based recovery, not a Main Street recovery. Yes, the economy is growing again, but the surge in productivity is a mirage. Worker output per hour is skyrocketing because companies are generating almost as much output with fewer workers and fewer hours.
The Fed, meanwhile, has become an enabler to all this, making it as cheap as possible for companies to axe their employees. Money costs so little these days it’s easy to substitute capital for labor. It’s also easy to buy up foreign assets with cheap American money. And it’s now blissfully easy for Wall Street to borrow money almost free and buy all sorts of interests in foreign assets, especially commodities. That's why we're seeing the prices of foreign commodities and other assets go through the roof.
At the same time, the Treasury continues to be fixated on keeping banks afloat. The Administration's mortgage mitigation efforts are lagging. Small businesses are starved of credit. The White House has announced a "jobs summit," which is better than nothing but not nearly as good as pushiing immediately for a larger stimulus, a new jobs tax credit, and a WPA-style jobs program.
The Fed and the Teasury have, in effect, placed a huge bet on a recovery driven by asset prices. That’s a bad bet. The great disconnect between the stock market and jobs is pushing stock prices way out of line with the real economy. This isn't sustainable.
No economy can recover without consumers. Yet American consumers, who constitute 70 percent of the U.S. economy, are facing mounting job losses as well as pay cuts. They’re in no mood to buy and won’t be for some time.
Where is this heading? No place good. Without a major shift in policy -- both at the Fed and in the White House -- the economics point to a big stock-market correction and a double dip. The politics point to substantial losses for Democrats next year.
Just a couple of notes: At the Dubai Air show just over, AIRBUS received 5 times more plane orders than Boeing! Why? Is this an omen of the beginning of a EU advanced products resurge over US products? Germany has already overtaken the US in solar panel technology and sales. All the advanced train transport systems being ordered for NY city are coming from Siemens Germany. The US is rapidly falling behind in many areas of industrial product, transport and alternate energy product design knowhow to Europe. I'm a little worried when I hear Exxon carrying soothing TV advertisements about their sudden exciting discovery of ALGAE as a prime source of fossil fuel. Europe, and especially Holland, has been on the reserach forefront of this alternate fuel source development for many years. Exxon's initiative reminds me of GM's initiative on electric engines over 20 years ago -- an initiative they deliberately and slowly controlled, hesitated on and eventually cancelled to stay with conventional fuels for oversized vehicles. Exxon's goals may be the same .... discouraging the entrepreneurail alternative energy developer forces to buy time for their enriching conventional fuel business with the Arabs.
Opel has announced that 10,000 employee jobs must be eliminated in Europe or 20% of the current 50,000 GM-Opel workforce in Europe. About 50% or 25,000 GM workers are employed in German production facilities. I plan to keep close tabs for you of what happens here to compare the final social arrangements for Opel Germany workers adversely affected by summary dismissal compared to the thousands of GM US workers released recently in Michigan. Best, Frank
Mondragon is the largest cooperative corporation in the Basque region of Spain and the seventh largest Spanish corporation overall. It's slogan is "Humanity at Work." It has almost 100,000 employees and has an international presence with subsidiaries abroad. It is involved in finance, retail, manufacturing, university and technical education among other sectors. It's values are based on cooperation and social responsibility.
Wall Street is doing to America what private equity firms did to Simmons Bedding and many other productive companies. Taking control with borrowed money, stripping assets, slashing jobs and cashing out.
Taxpayer bailouts saved Wall Street from choking on its own greed. Now, as the Wall Street Journal reports, "Major U.S. banks and securities firms are on pace to pay their employees about $140 billion this year -- a record high."
$140 billion is more than the combined budgets of the U.S. Departments of Commerce, Education, Energy, Housing and Urban Development, the National Science Foundation and the Environmental Protection Agency.
Typical workers, meanwhile, make less today adjusting for inflation than they did in the 1970s. Wall Street rewarded CEOs who cut employee wages and benefits and offshored manufacturing, services, and research and development; feasted on Bush's tax cuts; turned mortgages into loan sharking; and vacuumed up home equity, college funds, retirement funds and other private and public investments into their rigged casino.
Goldman Sachs, for example, "peddled billions of dollars in shaky securities tied to subprime mortgages on unsuspecting pension funds, insurance companies and other investors when it concluded that the housing bubble would burst," McClatchy reports in a new investigative series.
The Great Depression gave way to the New Deal. The Great Recession has become the Great Ripoff.
The TARP inspector general's latest report to Congress says, "The firms that were 'too big to fail' ... are in many cases bigger still, many as a result of Government-supported and -sponsored mergers and acquisitions; the inherently conflicted rating agencies that failed to warn of the risks leading up to the financial crisis are still just as conflicted; and the recent rebound in big bank stock prices risks removing the urgency of dealing with the system's fundamental problems."
Enabled by the Bush and Obama administrations, the megabanks are lending less and gambling more -- using taxpayer money to pay bonuses, float a new stock market bubble and make even riskier bets.
The U.S. Treasury and Federal Reserve have become Wall Street's ATMs, while unemployment, foreclosures and homelessness rise, states slash public services, and small businesses are starved of credit.
Outside the TARP, trillions of dollars are flowing to the banksters in the form of near-zero interest loans, bond guarantees and extreme leverage for toxic assets. You can follow the money at www.nomiprins.com. Nomi Prins, a former managing director at Goldman Sachs, is author of "It Takes a Pillage."
The megabanks are not too big to fail. They're too big and irresponsible to exist.
Just months after taking office in 1933, President Roosevelt signed into law the Glass-Steagall Act, which separated the commercial banking of savings, checking and loans from investment banks doing underwriting and speculative trading. The former got depositor insurance, not the latter.
Glass-Steagall lasted until Citigroup and other power players killed it in 1999 through the Financial Services Modernization Act, taking us back to the pre-New Deal casino economy on steroids. Now former Citigroup CEO John Reed has joined the growing call to split commercial banking and investment.
In 2000, Congress passed the Commodity Futures Modernization Act, ignoring the warnings of Commodity Futures Trading Commission head Brooksley Born who said that unregulated trading in derivatives could "threaten our regulated markets or, indeed, our economy."
By 2002, the four largest bank holding companies -- Bank of America, JP Morgan Chase, Wells Fargo and Citigroup -- had 27 percent of FDIC-insured bank assets. Now, reports the Economic Policy Institute, they have nearly half. They overlap with the biggest derivatives dealers -- JP Morgan, Goldman Sachs, Bank of America, Morgan Stanley and Citigroup.
The government heavily subsidizes the megabanks, but it's the small banks that provide higher savings interest, lower fees, lower loan and credit card rates, and do much of the lending to small business, who in turn create most new jobs.
Behind their Main Street rhetoric, Congress and the Obama administration have so far been the change Wall Street can believe in. The administration and Federal Reserve are loaded with revolving door Wall Streeters and their proteges. Campaign donors and lobbyists are working Congress to minimize and distort reform.
Make your voices heard. We need to enact tough regulations and bust the banks who busted our economy -- before they do it again.
Something economists don't talk about is how private institutions actually create money. The myth is that the Federal Reserve is the only institution that can create money by setting interest rates. The Fed supposedly has this form of control over the monetary system, but it's a lot of blarney. Private institutions create money by a variety of mechanisms. This is referred to as the financialization of the economy. Nothing new of material value is created, but games are played with money that creates money, and, once created, all that money is up for grabs. Here are a few of the mechanisms.
The no down payment mortgage. This encourages speculation in real estate driving up the price of houses. Hence much wealth is created. Wealth is created when the equity in your house goes up. If one year your house is worth $200,000. and the next year it's worth $400,000., then $200,000. of wealth has been created, not by the Federal Reserve tweaking interest rates but by the private sector. You can immediately go to the bank, take out a home equity loan, take out the $200,000. and spend it. It's still the same old house. Nothing of material value has been added or created, but a mechanism in the financial system has created wealth. Of course, this is also referred to as a bubble, and the bubble can burst sending the value of your house back to where it was and leaving you $200,000. in debt.
The issuance of stock and stock options. Any corporation can decide at any time to issue stock. This is tantamount to creating money out of thin air. That stock is just sold into the market. This sale may diminish the existing stock price just as the printing of money can cause inflation, but so what if the demand for that stock is high. Then the company can give the money made from that issuance of new stock to whomever it pleases like the CEO, for instance. Stock options also create money out of thin air, but for that matter, the bidding up of a stock's price creates money out of thin air since nothing on the ground has changed. Presumably, those in charge of running the business are doing their best to produce the best widgets and are earning revenues that way, but this has little to do with the value of its stock. The stock price in a sense is just another derivative, a financial instrument that bears merely a tangential relationship with the underlying economic reality which is the production and sale of widgets.
Then we get to the heavy duty derivatives such as short selling, credit default swaps, asset backed securities, collateralized debt obligations etc. Derivatives in general represent the creation of money by the private sector. During the recent economic crisis it was estimated that there were outstanding hundreds of trillions of dollars in credit default swaps. This money was not created by the Federal Reserve. It was created by private bankers, hedge funds and other devotees of exotic financial instruments. All derivatives are essentially bets. So not only is money created. It is also offered up for betting. When these bets go bad on a massive scale, we have the financial meltdown we recently experienced. But the problem in the first place is that private institutions are allowed to create money.
Leveraging creates money. When a bank leverages its funds 100 to 1 instead of a more conservative 30 to 1, that means it can lend out - and receive interest on - that much more money. And interest in itself represents the making of money off of money. It's an expansion of the money supply that has nothing to do with the expansion or contraction of money by the Federal Reserve. Supposedly, the Fed sets interest rates which are reflected in the whole economy. But consider credit cards. They set the interest rate wherever they want to irregardless of the Fed rate. Right now the Fed rate is zero, while some credit card companies are charging 30%.
These are only some of the ways the private sector creates money and wealth and makes money, not from creating, producing and selling a product or service, but off of money itself and off of placing bets on money. The financialization of the economy which has created a casino economy leads to violent boom and bust cycles and places everything of real economic value up for grabs so gamblers can gain control over real economic assets. An example of this is the private equity funds otherwise known as leveraged buyout specialists. They buy out perfectly functioning companies with borrowed money, transfer the debt off their own books and onto the company's books, then eliminate jobs or break up the company into pieces and sell them off, declare special dividends for themselves and otherwise eviscerate the company for their own profit, leaving the company a bankrupt shambles. This happened recently to the venerable Simmons mattress company which had been in business for over 133 years. Employees were left jobless.
Currently, Ford has announced it's profits are up for the third quarter of 2009. Also, coincidentally, it laid off 50,000 or so workers. Interestingly enough, it made it's profits in every continent on earth with the exception of Africa. A big factor in its profits was the profits reported from its financial division. So in other words it made profit from interest charged not from the underlying car itself. Here are two observations. Profits go up as jobs are eliminated and plants are robotized, and profits made in other countries won't be reported and hence paid taxes on in the US. Why should Americans be cheering over this? They are being screwed out of jobs and out of tax revenues.
Countries that don't allow this financial "innovation", which has come about as a result of deregulation of the banking industry, are in much better shape in terms of jobs, real growth and tamping down of boom bust cycles than is the US which continues on its merry quest for short term, stock price driven profits. There has been no real reform of the banking industry which leads me to believe that we will be reliving the current economic malaise again sometime soon even as it continues for the jobless and foreclosed upon.
Now that the economy is officially out of recession, the question is 'where are the jobs?'. Jobs are still being shipped to low wage countries and being replaced with robots, automatons and computers. Productivity is still increasing due to machines replacing humans, and unprogammable work is still being outsourced to countries where workers will work for pennies on the dollar. No government program has been proposed for reversing this trend. In fact government programs, left over from the Bush administration are still in place, for encouraging the outsourcing, offshoring and exportation of jobs and retention of the profits offshore where they cannot be taxed.
And then there is always the hope for the next new industry that's going to get fired up and start the next boom cycle sort of like TV in the 1940s and the internet in the 2000s. Well, that new industry is nowhere in sight. Green technology might be that industry but private enterprise seems incapable of firing it up enough to create jobs, and government seems incapable of being the midwife. Meanwhile, other countries like China are investing heavily in the green economy, and Germany and Denmark have gotten a huge headstart. So while the US dithers, other countries take the lead.
While I believe the Obama administration would like to do something about the job situation and the subsequent foreclosure situation - home loss following on the coattails of job loss - any new Republican control of either Congress or the Presidency will lead to an era of total indifference to either of these crises. In fact it will lead to an era of acceleration of them. Obama so far has stuck an ineffectual finger in the dike, but Republicans would pull out all the stops and let the waters flood in. In fact the new paradigm would be not concern over 10% unemployment but celebration of rising GDP. How can GDP continue to rise while unemployment remains high, you might ask? Simple. Work has been outsourced. Machines have replaced workers. High tech workers with H1B visas have been insorced and illegals have been insourced to do the menial labor. The US is in the process of transitioning from a middle class society to a corporatocracy - a society by and for the rich. Obama's government has not created the equivalent of FDR's CCC or WPA. That's the Civilian Conservation Corps and Works Progress Administration. We need a NIIC, a Nation Infrastructure Improvement Corps or a GELR, Government as Employer of Last Resort. Instead we have the CCC - Corporate Control of Congress. Whereas FDR could ram the New Deal through, the Democratic Congress has 40,000 lobbyists breathing down their necks who could care less about creating new jobs for high wage Americans. FDR had maybe 400 lobbyists to contend with.
The new paradigm, I might call it the neocon paradigm, is that the economy can hum along very nicely with a high degree of unemployment, poverty and homelessness. A certain percentage of the population say 10%, 20% or even 30% can simply be written off as nonparticipants in the economy much less the work force. The remaining majority of people will keep the wheels of the economy humming. The economy simply does not need a large percentage of potential workers; it can get along without them and huge profits can still be made without their participation. In fact higher profits can be made withouut their participation. And because they will be reduced to penury, they will simply not be a revolutionary force to overturn the existing order, an order that will create great wealth for a few while a fairly large minority eke out a meager existence. Neocons are willing to test the limit of how great that minority can be while still sustaining a profitable existence for the investor class. How great a minority of economically disenfranchised people can an economy sustain without giving rise to a movement whuch would overturn that economy?
As we know from other parts of the world, a small wealthy class can coexist very nicely with a large impoverished class. In fact it is the norm in most parts of the world. Laissez faire capitalism tends to produce societies of large scale economic disenfranchisement. And in societies in which the political process has been taken over by lobbyists who are the handmaidens of wealthy corporate interests, this society is incapable of doing anything that would amerliorate the centralization and concentration of wealth in the hands of a few. Let's face it. FDR did not have to fight an army of lobbyists when he put forth the New Deal. The New Deal strengthened the American middle class. Corporate control of Congress fueled by campaign contributions and the revolving door promise of lucrative post-political jobs only strengthens the investor class while kicking out the jambs which support the middle class.
With the corporate takeover of the government virtually complete, there are no democratizing forces left that would spread the wealth to the middle class and the poor. The economically elite have taken over the world, and while that might seem a good thing to some - that the best and the brightest have gained sway over the riff raff - any society that professes to have a sustainable middle class must tamp down the ambitions of the elite and spread the wealth to the middle class. The elites are capable of creating great wealth with their superior intelligence and gargantuan work ethics, but that wealth creation no longer requires the participation of large numbers of manual and college educated laborers. Therefore, the average person is largely left out of this process. Meanwhile, effectively regressive tax policies accelerate the process of wealth creation for the few. CEOs, who used to make 40 times what the average worker made, now make 400 times that amount. Wealth creation tied to stock options mean that the bottom line becomes even more important, and the resultant created wealth is so huge that it can't possible be spent and is used to control the political process and the minds of the masses through advertising in addition to be passed down to subsequent generations in perpetuity thus creating an effective aristocracy. The sclerotic titled aristocracy of the British empire is being replaced by a hipper untitled aristocracy of inherited and perpetuated investor based wealth. The landed aristocracy which controlled the political process in 18th century Britain is being replaced with the stateless investor class of the 21st century.
The high tax rates of the Eisenhauer administration, which resulted in money being poured back into the business rather than being taken out in salaries, large amounts of which would be confiscated through taxation, have been replaced by low tax rates which give incentives to private equity funds to tear businesses apart and feast off the remains. Growing a business is no longer as important as short term profits because short term profits can make one wealthy without having to spend a lifetime building a business. When a person can make a billion dollars in one year as Bill McGuire of United Health Care did in 2006, it is not necessary to work more than one year in order to obtain immense wealth. That's why the emphasis is on short term profits. That's why Wall Street is focused on making a killing in a short period of time taking huge gambles and to hell with what that does to the rest of the economy. They took huge gambles and lost, the US government rescued them and now they're back to awarding themselves millions of dollars in bonuses which can only be sustained by taking more huge gambles. The casino economy prevails because huge incomes are not redistributed to the middle class. If they were, we would see a lessening of the casino economy and the building of sustainable businesses which, nevertheless, might not require the hiring of large numbers of workers. Instead we see short term large scale wealth creation and the creation of a landless aristocracy which controls the political process through the buying off of politicians. Rather than there being a House of Lords, there is a House of Lackeys who do the bidding of the untitled lords who control the economy.
We might pose the question 'if private enterprise under the best of conditions does not require the hiring of large numbers of workers, how will the US economy ever sustain a middle class which is predicated on middle class jobs?'. It may come down to the fact that the government will have to be the employer of last resort which would require a transfer of wealth from corporations and the wealthy to the government in terms of taxation and from the government to workers in jobs created by the government. If private enterprise cannot or will not create jobs, then jobs will have to be created and wealth redistributed by other means. In the long run this is not all that bad for business in a consumer led economy like the US (70% of US GDP is in consumption) since consumers will pour that redistributed wealth back into consumer items and hence into the businesses from which taxes were taken in the first place. The money will just be recirculated instead of going into the Wall Street casino.
Obama is fighting a rearguard action. Sure, he would like to help the middle class; sure he would like to help the poor. But he is boxed in and hemmed in by the moneyed class which buys off both political parties and upon whom both political parties depend for campaign contributions and revolving door jobs as corporate directors and lobbyists. So Obama is reduced to tinkering around the edges while Republicans salivate at the prospect of making Obama fail so that they can return to power and, with no apologies, accelerate the process of corporate control of the political and economic processes assuring themselves of great personal wealth by so doing. With neocon control of the media as exemplified by Rush Limbaugh, Glen Beck and Fox News, the neocons will continue to propagandize the so-called low information voters and channel their anger towards whatever progressive elements are left thus enlisting the middle class in a process leading to its own destruction and acquiescence in its own political and economic diminution and ineffectiveness.
The only hope for the future comes not from the US itself but from the rest of the world which has disenamored itself from the spell of America penis worship. As the US has discredited itself from its position of being the world's know-it-all, the Emperor has stood naked for the rest of the world (but not Americans themselves) to see. Canada has had not one bank failure during the continuing US led recession. Iceland wakes up and sees the errors of its ways. China, with a much different political and economic model, one which metes out harsh punishments but nevertheless is concerned about its emerging middle class, continues to surge ahead. Europe, which is fundamentally middle class oriented, has not suffered the joblessness of the US due to direct government intervention. The emerging BRIC contries are rejecting World Bank imprecations to privatize every aspect of their economies and are organizing in such a way as to prevent transnational corporations from exploiting their resources and instead are nationalizing and profiting from the sale of their resources in order to directly help their middle and poor classes.
So while America continues to transfer wealth from the middle class to the rich via a transfer of foreclosed middle class homes to the investor class among other means, the rest of the world gets it. Unregulated laissez faire capitalism leads to plutocracy and plutonomy.
And now there are five -- five Wall Street behemoths, bigger than they were before the Great Meltdown, paying fatter salaries and bonuses to retain their so-called"talent," and raking in huge profits. The biggest difference between now and last October is these biggies didn't know then that they were too big to fail and the government would bail them out if they got into trouble. Now they do. And like a giant, gawking adolescent who's just discovered he can crash the Lexus convertible his rich dad gave him and the next morning have a new one waiting in his driveway courtesy of a dad who can't say no, the biggies will drive even faster now, taking even bigger risks.
What to do? Two ideas are floating around Washington, but only one is supported by the Treasury and the White House. Unfortunately, it's the wrong one.
The right idea is to break up the giant banks. I don't often agree with Alan Greenspan but he was right when he said last week that "[i]f they're too big to fail, they're too big." Greenspan noted that the government broke up Standard Oil in 1911, and what happened? "The individual parts became more valuable than the whole. Maybe that's what we need to do." (Historic footnote: Had Greenspan not supported in 1999 Congress's repeal of the Glass Stagall Act, which separated investment from commercial banking, we wouldn't be in the soup we're in to begin with.)
Former Fed Chair Paul Volcker, whose only problem is he's much too tall, last week told the New York Times he'd like to see the restoration of the Glass-Steagall Act provisions that would separate the financial giants' deposit-taking activities from their investment and trading businesses. If this separation went into effect, JPMorgan Chase would have to give up the trading operations acquired from Bear Stearns. Bank of America and Merrill Lynch would go back to being separate companies. And Goldman Sachs could no longer be a bank holding company.
But the Obama Administration doesn't agree with either Greenspan or Volcker. While it says it doesn't want another bank bailout, its solution to the "too big to fail" problem doesn't go nearly far enough. In fact, it doesn't really go anywhere. The Administration would wait until a giant bank was in danger of failing and then put it into a process akin to bankruptcy. The bank's assets would be sold off to pay its creditors, and its shareholders would likely walk off with nothing. The Treasury would determine when such a "resolution" process was needed, and appoint a receiver, such as the FDIC, to wind down the bank's operations.
There should be an orderly process for putting big failing banks out of business. But this isn't nearly enough. By the time a truly big bank gets into trouble -- one that poses a "systemic risk" to the entire economy -- it's too late. Other banks, competing like mad for the same talent and profits, will already have adopted many of the excessively-risky banks techniques. And the pending failure will already have rocked the entire financial sector.
Worse yet, the Administration's plan gives the big failing bank an escape hatch: The receiver might decide that the bank doesn't need to go out of business after all -- that all it needs is some government money to tide it over until the crisis passes. So the Treasury would also have the authority to provide the bank with financial assistance in the form of loans or guarantees. In other words, back to bailout. (Historical footnote: Summers and Geithner, along with Bob Rubin, while at Treasury in 1999, joined Greenspan in urging Congress to repeal Glass-Steagall. The four of them -- Greenspan, Summers, Rubin and Geithner also refused to regulate derivatives, and pushed Congress to stop the Commodity Futures Trading Corporation from doing so.)
Congress is cooking up a variation on the "resolution" idea that would give the Federal Deposit Insurance Corporation authority to trigger and handle the winding-down of big banks in trouble, without Treasury involvement, and without an escape hatch.
Needless to say, Wall Street favors the Administration's approach -- which is why the Administration chose it to begin with. If I were less charitable I'd say Geithner and Summers continue to bend over bankwards to make Wall Street happy, and in doing so continue to risk the credibility of the President, as well as the long-term financial stability of the system.
Wall Street could live with the slightly less delectable variation that Congress is coming up with. But Congress won't go as far as to unleash the antitrust laws on the big banks or resurrect the Glass-Steagall Act. After all, the Street is a major benefactor of Congress and the Street's lobbyists and lackeys are all over Capitol Hill.
The Street obviously detests the notion that its behemoths should be broken up. That's why the idea isn't even on the table. But it should be. No important public interest is served by allowing giant banks to grow too big to fail. Winding them down after they get into trouble is no answer. By then the damage will already have been done.
Whether it's using the antitrust laws or enacting a new Glass-Steagall Act, the Wall Street giants should be split up -- and soon.
If you want to understand the recent economic meltdown, you should see "The Warning" on Frontline. Watch it online here. It's about Brooksley Born, chairman of the Commodities Futures Trading Commission under President Clinton and how she tried to regulate derivatives, the chief cause of the crash and the recession. She was fought every step of the way by Fed Chairman Alan Greenspan, Treasury Secretary Robert Rubin and Clinton's economic advisor Larry Summers, the same Larry Summers who's advising President Obama now.
Now bank lobbyists are doing everything in their considerable power to prevent any regulation of derivatives even after the crash because there's just too much money in it for them, and they don't care if the economy crashes and burns again.
For the past thirty years we have minted billionaires, and we have created the most unequal distribution of wealth since 1928-29. This didn't happen by accident. We deliberately deregulated the financial sector and we deliberately eliminated the steep progressive taxes on the super-rich that had kept in check our income distribution.
By unleashing capital and finance we were supposed to get an enormous investment boom in real goods and services. Instead we got a fantasy finance boom as Wall Street marketed derivatives to those with excess capital.
We also got the biggest crash since the Great Depression.
Perhaps the most dramatic measure of our emerging billionaire bailout society is seen by comparing compensation for the top 100 CEOs and to that of average workers (the 100 million or so non-supervisory production workers). In 1970 the ratio was 45 to 1. By 2006 it was 1,723 to one.
Another critical feature of the billionaire bailout society is the creation of institutions that are too big to fail. Historically, our anti-trust division was supposed to prevent that. But it became another casualty of our grand deregulatory experiment. So financial institutions grew to the point where their failure would bring down our system. We tested that idea last fall when we let Lehman Brothers go under: It crashed global financial markets and moved us to the brink of a depression.
So in our billionaire bailout society we bail them out instead of breaking them up. We bail out all of them - not just the basket cases like A.I.G, Citigroup, GM etc. The popular media line is that once a financial institution repays TARP, it no longer is on government welfare. No so.
TARP is only one of the many government bailout programs that pours billions into the coffers of Goldman Sachs, JP Morgan Chase and, Morgan Stanley. Their bottom-lines and bonuses, for example, were fattened when we allowed A.I.G. to pay off its bets (with our money) at par value to these large financial institutions. Had A.I.G. gone under they all would have been on the edge of collapse.
So let's add it up: the $12.9 billion in A.I.G. help, the $10 billion in TARP, the F.D.I.C. guarantee program, the easy money trading distressed securities into the TALF program. I can't say for sure how much of the $16 billion the firm has set aside for bonuses can be attributed to government assistance of one form or another. But it's got to be a fairly substantial amount -- at least $2 billion or $3 billion.
And that's a very conservative estimate. It might be the case that the entire bonus pool is equal to the subsidies pulled in from taxpayer support. But this is to be expected in our billionaire bailout society.
Perhaps the most damaging feature of our billionaire bailout society is the "jobless recovery." This oxymoron refers to an economy that is growing, but that can't produce nearly enough jobs to reach full employment (an unemployment rate below 5 percent). Our current jobless recovery will be the worst ever. Right now the BLS (U6) jobless rate stands at 17.0 percent -- and climbing. (This counts those without work plus those who have part-time jobs because they can't find full-time work.) If the billionaire bailout society becomes permanent, we may never see full employment again.
Why is that? Because you don't need a full employment society to mint billionaires. Reflect for a moment on Goldman Sachs. They do not have individual depositors. They are not public brokers. They do not make loans to small business. They are in the business of making money by playing the financial markets, from mergers and acquisitions, from trading, and from creating and selling fantasy finance instruments.
In our billionaire bailout society these are unquestioned positive activities. But what value do they produce in the real economy? What is their contribution to market efficiency? How do they lower the cost of capital? How do these activities create jobs in the real economy? Good luck answering those questions because they don't do any of that. They just make money for themselves while producing little or no value to our society.
It's obvious we need to break up these large institutions so that we won't have to bail them out the next time around -- which may come sooner than expected given the lack of jobs and the fact that the financial casino is open again.
But we can't solve the bailouts without addressing the billionaire part of the equation.
Two years ago the richest 400 Americans had a combined wealth of $1.57 trillion. Last year during the crash their wealth dropped to "only" $1.27 trillion. Now they are set to rise again. We need to tie their wealth of our richest to putting our people back to work.
Here's the simplest and most controversial approach: a 10 percent wealth tax on all those with more than $500 million -- until unemployment drops below 5 percent. The money collected would come to about $150 billion a year. That money should be directly invested in public works programs to put our people to work -- a Green Corps to weatherize every home and office in the country -- a Youth Corps to provide work for unemployed high school and college graduates.
(I realize that many Americans detest the idea of taxing anyone's assets, even billionaires'. But let's be realistic: That's where our society's wealth has gone and we need that wealth to put people back to work. Some billionaires do create large numbers of jobs, but not enough. They can contribute more and not feel a bit of pain or suffering.)
To break away from the billionaire bailout society we need to tie the creation of wealth to the creation of work. We no longer have a system that can produce an adequate number of jobs through the normal working of the business cycle. The invisible hand of the market just won't do it. That's why it's called a jobless recovery. We need direct intervention.
But more importantly, we need to end our pell-mell slide into the billionaire bailout society in which everyone is out for themselves. We need to pull together to create a full employment society that can tackle our most pressing needs. Billionaires, no matter how thoughtful, kind, generous and inventive, can't do that for us.
We once understood that the common good required full employment. We once understood that the common good was more precious than individual riches. We once believed that public service to achieve such goals was a high calling. I hope that spirit still lies within us.
At a conference in London, a Goldman Sachs international adviser, Brian Griffiths, praised inequality. As his company was putting aside $16.7 billion for compensation and benefits in the first nine months of 2009, up 46 percent from a year earlier, Griffiths told us not to worry. “We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all,” he said.
Eight months ago it looked as if Wall Street was in store for strong financial regulation -- oversight of derivative trading, pay linked to long-term performance, much higher capital requirements, an end to conflicts of interest (i.e. credit rating agencies being paid by the very companies whose securities they're rating), and even resurrection of the Glass-Steagall Act separating commercial from investment banking.
Today, Congress is struggling to produce the tiniest shards of regulation that would at least give the appearance of doing something to rein in the Street.
What happened in the intervening months? Two things. First, America's attention wandered. We're now focusing on health care, Letterman's frolics, and little boys who hide in attics rather than balloons. And, hey, the Dow is up again. The politicians who put off Wall Street regulation for ten months knew that the public would probably lose interest by now.
Second, the banks keep paying off Congress. The big guns on Wall Street increased their political donations last month after increasing their lobbying muscle. Morgan Stanley's Political Action Committee donated $110,000 in September, for example, of which Democrats got $43,000.
Official Wall Street PAC donations are piddling compared to the tens of millions of dollars that Wall Street executives dole out to candidates on their own (or with a gentle nudge from their firms). Remember -- the Street is where the money is. Executives and traders on the Street have become the single biggest sources of money for Democrats as well as Republicans. And with mid-term elections looming next year, you can bet every member of Congress has a glint in his or her eye directed at the Street.
That's why the President went to Wall Street to raise money Tuesday night, gleaning about $2 million for the effort. He politely asked the crowd to cooperate with reform -- “If there are members of the financial industry in the audience today, I would ask that you join us in passing necessary reforms" -- but those were hardly fighting words. It's hard to fight people you're trying to squeeze money out of.
Which is the essential problem.
Ken Feinberg, the President's "pay czar" came down hard on executive pay yesterday, for those banks still collecting money under TARP, as well he should. But Feinberg isn't trying to pass new financial reform legislation, and TARP no longer covers several of the biggest banks with the highest pay and bonuses -- although they're still getting subsidized by the government with low-interest loans.
Wall Street and the Treasury want us to believe that the TARP money will be repaid to taxpayers, but Neil Barofsky, the special inspector general keeping watch over TARP, said yesterday that just 17 percent of the TARP money has been repaid, and “[i]t’s extremely unlikely that taxpayers will see a full return on their investment." Later he told a reporter that it's unlikely "we'll get a lot of our money back at all."
Brian Griffiths, the Goldman international adviser who told us inequality is good for us, doesn't know what he's talking about. America is lurching toward inequality once again, led by the financial industry. The Street is back to where it was in 2007, but most of the rest of us are poorer than we were then -- largely due to the meltdown that occurred because Wall Street overreached. The oddity is that we bailed out the Street, including Griffiths and his colleagues, but apparently won't even be repaid. And now that Griffiths et al knows his firm and the other big ones on the Street are too big to fail, he and his colleagues will make even bigger gambles in the future with our money.
So far the Obama administration's approach to economic recovery has been to reinflate the bubble whose burst caused the collapse in the first place. Wall Street has been made whole thanks to trillions of dollars of bailouts from the taxpayers and the Fed. They in turn are returning to business as usual fighting any attampt by the Obama administration to regulate them or rein them in. Unabashedly and unchastized, they are proceeding to give each other $150 billion in bonuses larger then any bonus pool even before the collapse. They use their taxpayer bailouts to lobby Congress not to regulate them. In particular they don't want derivatives regulated even though it was unregulated derivatives that caused the crash.
So rather than any real reform, the net effect is just to return the US to where we were before one of the most disastrous economic calamities in history with no reforms in place that could mitigate against the same thing happening again. In fact Wall Street doesn't care if the same thing happens again because they made billions before it happened, billions after it happened and they are on track to making billions more even if that leads to its happening again. Consider the fact that if you're a young aspiring investment banker who hasn't made his millions yet and you've decided to make your career on Wall Street, and then you're told 'sorry, the rules have changed and you will not be able to make the millions that you thought you were going to make.' You'd be very disappointed. In fact the drive to make the kind of money that last year's Wall Streeters made is virtually limitless. People who have been used to being Masters of the Universe and making obscene amounts of money and people starting out on Wall Street who are in a position and aspire to make obscene amounts of money will do virtually anything to keep the same system in place that will allow them to do so regardless of whether or not that will lead to another breakdown or collapse of the world economy. They know from experience that governments will simply bail them out again.
And they know that they are more powerful than the Obama administration or any reform movement. They have hundreds of millions to lobby Congress and fight against any reform of the system that might cause a diminution of their profits. So they are going back to business as usual. The conventional wisdom that, if Wall Street recovers, Main Street will not be too far behind has been totally discredited. When is the Obama administration going to wake up and smell the coffee that it has been government policy for the last 30 years to screw the average middle class worker? It has been government policy to encourage the off shoring of jobs and the offshoring of profits. It has been government policy to deregulate the financial system and hence to encourage wild speculation and unsafe banking practices. It has been government policy to encourage mergers and acquisitions to the point that we have banks that are too big to fail, and they are even bigger today than they were before the meltdown.
Obama's strategy has been to reinflate the bubble in order to bring us back from the brink of total financial collapse and then to reregulate the big banks and then to do something about jobs and the middle class. Unfortunately, this strategy doesn't seem to be working. The banks are fighting back tooth and nail, and the Republicans are fighting any expenditure of funds that would create jobs or help the middle class. So Obama is reduced to tinkering around the edges and allowing the Republican strategy of delay and defeat to work. The longer the Republicans can delay any meaningful reforms, the longer they can delay any meaningful accomplishments, the greater are their chances to defeat Obama in the next election, the greater are their chances to deny the Democrats majorities in Congress in 2010.
It looks like Obama may get a victory in health care reform, but at the price of six months of his administration's time in office, six months during which he has not been able to focus on the next problem, and there are several problems out there he must solve if he is to be reelected and if the Democrats are to be reelected. The next big problem is jobs. Starting next year he must focus full time on job creation or he's a goner. I predict that he will have a victory in health care, but it will be short-lived unless he can solve the jobs problem which is even more intractable. Health care reform didn't require any immediate expenditures; job creation inevitably will, but there is no money for it. The Republican strategy of running the government into debt so that the Democrats will not be able to initiate social programs has been successful to the extent that Obama is hemmed in by the largest government deficits in human history compounded by the fact that so much money has been used to bail out the banks which are only returning to the same practices that caused the financial collapse in the first place.
It is hard to see how Obama climbs out of this hole. And the American electorate is so fickle that it is hard to see how they will reelect Obama and the Democrats if Obama does not successfully address the jobs creation problem. When FDR did it during the Great Depression, he had no effective Republican opposition. When Obama attempts to do something about jobs, he will have every right wing pundit and Republican Congressman screaming out against him. He will have Republican filibusters galore. He will have Blue Dog Democrats whom he can't count on in a pinch. It's hard to see how he will be successful in a major way under these conditions. It's as if the power of money in terms of campaign contributions, lobbyists, TV ads and right wing media is greater than the power of the American government, and their goal is to control the American government in their interests.
Republicans are just waiting their turn to take power again, and then they'll be off to the races in decimating the American middle class while claiming to support middle class values. They will be off to the races in reducing middle class programs like social security and medicare. They will let help for the poor and homeless dry up due to lack of funding while continuing to spend enormous sums on war and the military industrial complex. They will continue to support policies designed to extract money from the middle class and the poor whether in the form of health insurance premiums or in terms of credit card fees and exhorbitant interest rates. They will turn the middle class into a nation of debt slaves and peons. They will "reform" the bankruptcy laws so that the middle class will be saddled with debt their entire lives, debt which they have no hope of escaping. And the American electorate will play into their hands due to their dissatisfaction with Obama who could only do so much with the deck stacked against him.
More Californians rely on food handouts amid rising unemployment and state benefit cuts [EPA]
On Sunday mornings at Glide Memorial United Methodist Church in the rough-edged Tenderloin district of San Francisco, the sanctuary is always rocking to old-school gospel music.
"It's so good to come together," Pastor Cecil Williams declares. His is a diverse congregation - white and African-American, gay and straight, young and elderly.
For four decades Pastor Williams has been an outspoken advocate for the city's poor and marginalised. On one bright October Sunday recently, he preached a sermon on compassion and the need for social justice.
"You affirm who you are when you stand up for others in need," Williams told his flock. "And you can say, we are going to change this old world to a new world."
But it is a harsh new world in California these days. A state once synonymous with opportunity and prosperity, sunshine and surf, Hollywood and Disneyland have fallen on bitterly hard times.
'Land of opportunity'
The evidence is no further away than the church basement, where free meals are prepared for homeless and hungry people such as Robert Shirley. He's been homeless, on and off, for months, he says.
"California was the land of opportunity. You could make it out here," Shirley says. "Hey, I'm sorry, but California is not that way any more."
The number of meals served here has jumped 21 per cent since last year. Williams says the free kitchen's clientele has changed drastically.
"They were people [in food lines] who were carrying briefcases, people who were dressed in suits, people who were dressed up very nicely and had been a part of the middle class"
Robert Shirley, homeless California resident
"They were people who were carrying briefcases, people who were dressed in suits, people who were dressed up very nicely and people who had been a part of the middle class," he says.
"And we were seeing them come through the lines. And that, of course, was shocking."
California is the world's eighth-largest economy, but its unemployment rate is over 12 per cent - the highest in 70 years.
Millions of people lost their homes when the housing bubble burst. Millions more have been thrust into poverty by the recession.
In July, the state legislature haggled for weeks over how to close a $26bn budget gap. Instead of increasing taxes for corporations or the wealthy, the budget deal that emerged to be signed by Arnold Schwarzenegger, the state's Republican governor, ordered deep spending cuts, laying off tens of thousands of state workers.
Reduced funding for education, coupled with big tuition increases, sparked a student and faculty strike at California's public universities. Programmes for ex-prison inmates and parolees have been slashed.
And the social safety net of healthcare and services for the poor, children and elderly - the least powerful and least vocal members of society - has been systematically shredded.
"The people that are going to be effected first and foremost will be the poor, those who are in great need," Williams says sadly. "They are not considered to be human beings."
State 'abandoning its poorest'
In Pleasant Hill, a suburb outside San Francisco, I met a remarkable young woman named Amy Fedeli. Only 24-years old, she has deferred her dream of college and a career in nursing to support her 75-year-old grandmother, Margaret, and seven-year-old niece, Emilia.
She's keeping faith with her loved ones in a state that is systematically abandoning its poorest and least powerful people.
Schwarzenegger is fighting a legal challenge against proposed cuts in elderly care [EPA]
Margaret, who suffers from a neurological disorder and mild dementia, is too frail to be left home alone while Amy goes to her job at a medical-records company.
So she attends a state-funded adult day-care programme where she gets physical and occupational therapy, health checkups, and a chance to interact with other people and keep her mental faculties sharp.
But as part of the effort to pare down the budget deficit, California has cut many programmes for the elderly poor.
New rules would limit seniors to three days a week in adult day care. That is a big problem for the Fedeli family. Without the daily care she gets at the senior centre, Amy says, Margaret might not survive for long.
"She would probably end up in a nursing home," Amy says. "She would probably pass. She would probably die, God forbid."
To care for Margaret, Amy would have to quit her job, leaving the little family without any income. Why has she accepted so much responsibility at such a young age?
"It's family, that's all I can say," Amy says. "Your family, you stick with them - that's all."
State politics 'deadlocked'
A legal challenge has temporarily halted some of the cuts to elderly care. But Schwarzenegger is trying to overturn the court ruling and re-institute the cuts.
Donna Calame, who runs a state programme that provides in-home care for seniors, told me the attitude of Schwarzenegger and the legislature makes her livid.
"For me, it's really obscene," she said in an interview.
"We are a rich state. I think it is because of the wealth in California that, to me, makes the choices that have been made this year so morally reprehensible."
"Somewhere, somehow, the public good, as a concept of governance, has disappeared in this state"
Sherry Bebitch Jeffe, analyst, University of Southern California
Critics say California's politics are so deadlocked, its government so dysfunctional, it may become the US's first failed state.
The state legislature is hamstrung by a law requiring a two-thirds majority vote to raise taxes and pass a budget. That makes compromise practically impossible.
I asked political analyst Sherry Bebitch Jeffe of the University of Southern California what's wrong with California.
"What is the matter with California is, that we have become politically so polarised that we can't agree on something that will make this state work," Bebitch Jeffe laments.
"Somewhere, somehow, the public good, as a concept of governance, has disappeared in this state."
The failure of California's government has bred profound cynicism among its people.
Back at the soup kitchen, Robert Shirley has some blunt advice for the people in charge of the Golden State.
"If our politicians don't get their heads out of their asses, this state is going to be - let's put it this way: some of those Third World countries are going to look a lot better than California."
The opinions expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.
PRESIDENT OBAMA is far too absent of outrage over Wall Street's continued abuses. As a candidate, he railed against its "greed and irresponsibility.'' He had more to say in his first month in the White House, after finding out that Wall Street firms were still paying $18.4 billion in bonuses despite bringing America to its financial knees and dropping to their own knees for an unprecedented $700 billion taxpayer bailout.
"That is the height of irresponsibility. It is shameful,'' Obama said. Calling on Wall Street to share in the recovery out of the "big hole'' of the economic crisis, Obama said, "There will be time for them to make profits, and there will be time for them to get bonuses - now is not that time.''
So now is the time? Just a year after the bailout, the Wall Street Journal last week reported that the nation's top 23 banks and investment firms plan to give out a record $140 billion in bonuses. The Dow may be back up over the 10,000 mark, but unemployment is still going up, too, to nearly 10 percent, more than double what it was at the beginning of this decade. Black unemployment is 15.4 percent. States, including Massachusetts, are still announcing massive job and funding cuts. Workers are told to be patient, that jobs might not come back in a few months or even a few years, but they will come back.
But the toga party is already back on Wall Street. All that Obama has done so far is send out his charges to bleat some mild humbugs on the talk shows. Chief of staff Rahm Emanuel said, "The American people have a right to be frustrated and angry. . . . Wall Street is back doing what Wall Street did. They have a responsibility to part of the solution.''
Adviser David Axelrod did call the bonuses "offensive.'' He said it was also offensive that ordinary Americans were not yet seeing the kind of lending that helps them. But then he qualified everything by saying the administration has "limited sway other than moral suasion.''
It is time for that moral suasion. One possible reason the administration has not been as assertive as it should be is that in conventional Washington politics, it is biting the hand that fed them. In the 2008 elections, JPMorganChase, Citigroup, and Bank of America gave the majority of their $10 million in campaign contributions to the Democrats. Another reason is that the administration still wants banks to increase lending as well as accept consumer protections.
But these reasons are not enough when Bank of America is about to pay out $30 billion in bonuses, followed by JPMorganChase at $29.5 billion, Citigroup and Goldman Sachs at $22 billion each, and Morgan Stanley at $16.4 billion.
They are behaving as if last year never happened at all, candidly crying to the Journal that if they didn't pay billions in bonuses, oh my, their employees would flee. Goldman Sachs spokesman Lucas van Praag told the Journal, "The easiest way to destroy the firm would be if we didn't pay our people. . . . Destroying a profitable enterprise would not be in anybody's interest.''
That sounds like professional spoiled brats, especially when there are still too many once-profitable mom-and-pop enterprises going down the tubes and too many nonprofit enterprises like public schools, police, fire, and public works construction being slashed to the bone. He should demand that the bonuses be slashed, say by half, with the other half going to long-established charities. Can you imagine what $70 billion would do for the United Way or the Boys and Girls Clubs?
Back in January, Obama said, "We're going to be having conversations as this process moves forward directly with these folks on Wall Street to underscore that they have to start acting in a more responsible fashion if we are to, together, get this economy rolling again.'' All that has happened thus far is that Wall Street is rolling again, a steamroller once again flattening the American people.
The U.S. economy is has diverged: Wall Street is living high on the hog, while everyone else is struggling. The Dow Jones Industrial Average eclipsed 10,000 for the first time since last October this week, even as unemployment continues to spiral out of control. And while President Barack Obama has taken some very real steps to help ordinary people, his administration’s efforts to save Wall Street have far outstripped their support of workers.
Matthew Rothschild details these disparities for The Progressive. Regulatory reforms are moving through Congress at a snail’s pace and the wreckage from the mortgage bubble is increasing. Wage cuts are more widespread today than in any era since the Great Depression, even as bankers capitalize on taxpayer bailouts to score epic profits and outsized bonuses.
“One economy is for the rich and the upper middle class,” Rothschild writes. “The other economy is for everybody else.”
So how can a few big banks make so much money while the rest of the economy suffers? As Kevin Drum explains for Mother Jones, the kind of banking that helps the economy is a pretty simple business of taking deposits and making loans. But a lot of what we now call “banking” really just consists of making bets on just about anything you can dream up.
“Banks aren’t using all this cheap money to increase lending. They’re using it to fund bigger and bigger bets in the fixed-income sector — the same sector that brought us junk bonds, credit default swaps, subprime loan securitization, interest rate carries, collateralized debt obligations, and all the rest of Warren Buffett’s ‘financial weapons of mass destruction.’”
The banks, in other words, are gambling with taxpayer money. A host of big finance companies have reported earnings in the past week, and the numbers are ugly: JPMorgan Chase reaped $3.59 billion in third-quarter profits and Goldman Sachs is planning to payout $23 billion in bonuses from speculative trading, while Bank of America and Citigroup are hemorraging money on mortgages and credit cards. The Wall Street casino is alive and well, but anything that is actually tied to the real economy is a disaster.
According to a new report from the U.S. Treasury, lending among the largest recipients of the Troubled Asset Relief Program fell by 17% from July to August. Small businesses can’t cope with the cutoff in financing. A lot of businesses stay profitable over the long-term by borrowing money to meet short-term expenses. A baker can borrow money to buy flour and pay the bank back when she sells her bread. With bank lending on ice and consumers cutting back on spending, many small businesses are failing. Thousands more will be at risk in the next couple of years while unemployment remains elevated.
Writing for Salon, former Clinton Secretary of Labor Robert Reich notes that these economic struggles are not reflected in major stock indices. Stock are soaring as big corporations who don’t need bank loans score short-term profits from cost-cutting, i.e., mass layoffs. Obviously, this strategy can’t work for very long. When millions of Americans are out of work, they can’t afford to buy the things companies make.
There’s an important lesson in our current economic state-of-affairs, as Katrina vanden Heuvel emphasizes for The Nation. The bailout has not done what Henry Paulson told us it would do. To be sure, it saved the banks– even the strongest banks would have failed last fall without extraordinary government support. But it has not increased lending and kept the economy from disaster. The Obama administration, which has extended the Bush administration’s support for bank balance sheets and bonus checks, is facing a political nightmare if it doesn’t show produce some stronger economic results for ordinary citizens.
“Heading into 2010, the Obama administration must put itself back on the side of working people,” vanden Heuvel writes.
The administration must address two critical problems in order to restore the nation’s economic credibility. Putting the unemployed back to work is at the top of the list. Anything that saves jobs will help, including aid to states to keep teachers and cops on government payrolls and tax credits for companies that hire new full-time workers.
Something must also be done about the foreclosure epidemic. Nothing underscores our economic disparity like continuing housing mess, which has been in full-blown crisis mode since 2006. Despite a multi-trillion-dollar bank bailout, foreclosures are surging to all-time highs. Writing for The American Prospect, Tim Fernholz details the prolonged problems with the Obama administration’s current foreclosure relief program.
While millions of troubled borrowers are eligible for the plan, which reduces monthly mortgage payments to affordable levels, foreclosures are still outpacing loan relief efforts by more than two-to-one.
Banks are dragging their feet and the administration has imposed no penalties on lenders who don’t live up to the program’s standards. Instead, the Treasury Department is offering banks cash incentives to keep people in their homes. Bank of America, which has received $45 billion in direct government bailout funds, plus hundreds of billions in government guarantees and other perks, has modified merely 11% of the mortgages it controls that are eligible for the plan.
Fernholz offers several potential improvements to Obama’s foreclosure relief plan, including more aggressive government policing of the current plan and allowing foreclosed homeowners to continue to live in their homes as renters. With up to 12 million foreclosures projected by the end of 2012, just about anything the administration does will help.
The economy is a measure of social well-being, not a stock market index or a corporate earnings statement. Policymakers need to prove they can respond to the very real needs of all their citizens, not just those with financial clout.
It is clear that there is a bifurcation in the economy, a dichotomy if you will. On the one hand the Dow has hit 10,000. Whoopee! The economy is back on track. Or is it? There is still high and widespread unemployment. If anything, the Dow has an inverse relationship with employment. That is to say the more workers companies lay off, the more they reduce their expenses and the more Wall St cheers. According to Robert Reich: "Payrolls comprise 70 percent of most companies' costs, which means companies have been slashing jobs." Therefore, it's a good thing, from Wall St's point of view, to eliminate jobs. Just ask Chainsaw Al Dunlap. When he took over a company, the first thing he did was to "chainsaw" jobs. The jobs can be replaced by automation, computerization and robotization or by simply outsourcing the jobs to locales where labor is cheaper. The net result is that highly paid American workers are losing jobs that are never going to come back.
So Americans are being deluded that "jobs are a lagging indicator", that, if they're patient and wait long enough, their job or a job for them will magically reappear. The smart ones will create their own job. In fact this is the only way to guarantee oneself a job - create it yourself. How to do this should be part of everyone's survival kit. So why aren't they teaching it in schools? The whole educational system is set up in such a way that you earn credentials and degrees which are then sniffed over by your superiors (potential employers) and then you are granted access to the system based on your educational achievements. But it doesn't work that way any more. Employees are something to be minimized because they detract from the bottom line. It used to be thought that a good employee actually added to the bottom line, but not any more.
So where does this leave the job situation and how is one supposed to earn a living? The upper crust earns their living off of rents, dividends and interest or in other words off of the return to capital. After you accumulate a certain amount of capital, you can put your capital to work earning money so that you don't have to go to work to earn money. This is also called ownership. This is the fundamental rule of a capitalist society and one not taught in school. If you own things, you can rent them out. For all those who don't have sufficient assets to make money off of the return to capital, they are in the position of having to work for a living. But bad news on this front. There aren't sufficient jobs to go around. It used to be that the US was a nation of small self-sufficient farmers and craftsmen - yeomen, they were called. In other words prtactically everyone was self-employed. This was the kind of nation Thomas Jefferson envisioned. Then somewhere along the line we became a nation of landless job seekers. Not a good trade-off.
The educational system was supposed to be the key to getting a good job. Then the educational system started to ratchet up the requirements for getting a job: first a high school education, then a college education, then a Master's Degree, then a college education with a credential, then a PhD, then a post doc. It never ends! The educational system and the student loan creditors reap the profits while the poor job seeker goes further and further into debt. This is obviously not a winning strategy for the average American! That's why self-employment is the only sure way out of this morass. If you are self-employed, your job is secure. You can't be laid off unless you decide to lay yourself off. Self-employment is the answer to a jobless society. Localization of jobs is a way of returning to a nation of small farmers and craftsmen. That's why Farmers' Markets are gaining in popularity.
It's becoming more obvious that the US can't provide jobs for all its citizens. Government policy under Republican administrations has encouraged offshoring of jobs. Profits can be offshored to create jobs overseas, and those profits remain untaxed until they're repatriated. If they are invested overseas, they are never repatriated. GM is investing in automobile plants in China, and then those cars, in addition to being sold in China, will be imported to the US. Where does that leave US autoworkers? Without a job I'd say. Corporate America has no obligation to provide American workers, no matter how highly educated, with jobs. That part of the social contract (if it ever existed) is broken.
What is the government's role in this? That depends on which government we are talking about. A Bush-Cheney government is radically different from an Obama-Biden government. In Bush-Cheney world, essentially the neocon world, 20% of the American population will effectively be cut out of participation in the economic system. These would be the jobless, the homeless, the unpropertied, the poverty stricken. It's perfectly acceptable to Republicans to have 20% or even more of the population economically disenfranchised. The economy can hum along perfectly nicely without them. They are superfluous. The economy doesn't need their labor. So they are essentially in the position of becoming serfs except serfs actually had jobs. Labor was less machine intensive in those days. They were actually needed to make the economy hum. So this percentage of the American population will join the Third World poor. They will be the post-development poor, the post-advanced-industrial-society poor, the unneeded, the redundant, the jobless, the homeless. Third World societies hum along very nicely (for the rich) without them. Their only choice will be to join the military which is the only choice in the Third World. There will always be money for militarism, the only government program that seems to have universal support. The divide between the rich and the poor will grow to astronomical proportions. The US in a ghastly rapprochement with the rest of the world will harbor a segment of its society exactly identical to the Third World poor who make their living scrounging in garbage dumps.
Under Democratic administrations, the government will actually try to help the poor, the dispossessed and the jobless-homeless. Extended unemployment and welfare benefits and other job creation programs will alleviate the suffering at least for some people at least temporarily. But this will create problems in that the wealthy will not want to subsidize the poor with their tax money. The wealthy will use all tools at their disposal including buying off Congress to insure that the peonage class remains in poverty. They won't want to share their exclusive ownership of the means of production with the jobless and homeless. For the peonage class voting will be long forgotten. They won't have the emotional wherewithal to go out and vote much less to lobby Congress. Politically and economically powerless, they will acquiesce to living on the streets and in tent cities, eating meals provided by homeless shelters and other charities which are literally the scraps from the tables of the rich. With limited access to health care the homeless-jobless peons will live lives that are nasty, brutish and short especially under Republican administrations. This will verify Darwin's Survival of the Fittest dictum.
Inequality will reach new heights in this Brave New World, a two tier world in which the US will achieve a ghastly parity with the Third World in terms of its relative proportions of those living in total luxury beyond anyone's wildest imagination and those living in degradation and immiseration beyond anyone's wildest imagination. There will also be a small middle class consisting of indentured servants with tons of student loan, credit card loan, mortgage loan and auto loan debt.
With the official unemployment rate nearly 10 percent, now is no time to let talk of recovery deter us from concern for the suffering of the unemployed. The unemployment rate continues to grow and will likely do so even if a modest growth in statistical GDP is under way. Paul Krugman points out that “comparing actual GDP since the recession began with what it would have been if the economy had continued growing at its 1999-2007 trend, we’re something like 8 percent below where we should be. That translates into lost output at a rate of well over a trillion dollars per year (as well as mass unemployment). And we’ll keep suffering those losses, even if GDP is now growing, until we have enough growth to close that gap. Since there’s nothing in the data or anecdotal evidence suggesting any gap-closing in progress, this is a continuing tragedy.”
To this day, much of the mainstream media underplays the human tragedy here. Since the stock market has rebounded at least partially, it becomes easy to assume that the worst is now behind us. Only a small minority of U.S. workers, however, has any significant stake in the market, which itself has historically been a poor predictor of economic trends.
Conventional analysts also assume that the unemployed are receiving unemployment compensation from the government and therefore can’t be suffering too much. These optimistic sentiments emanate from comfortable, affluent pundits. Many not only failed to foresee severe economic decline but also even denied its possibility. In addition, many of those same pundits have fought to — and succeeded in — reducing the scope and adequacy of the unemployment insurance system. As the ranks of the unemployed continue to rise, it is all the more imperative as a matter of both social justice and long-term economic growth to reform and expand the unemployment insurance system.
The New York Times recently reported that the number of Americans seeking work equaled about six times the number of job openings. As this figure only continues to get worse, the number of workers whose unemployment has been prolonged and who have exhausted or shortly will exhaust their benefits continues to grow as well.
The House of Representatives has recently passed legislation that would enable states with an unemployment rate of 8.5 percent or above to extend benefits for another 13 weeks. Since Maine is now above this cusp, it stands to gain if the Senate approves this legislation. This would be a modest positive start, but it just begins to address the limits of the system.
In 1975, more than half of unemployed workers qualified for benefits. By 2008, only 37 percent of workers qualified. With more employers relying on part-time employees and more workers able to work only part time, the limitation of unemployment insurance to full-time workers is a grave injustice to today’s work force. Maine covers part-time workers, but many other states do not.
The existing system was crafted as part of a New Deal-era compromise to obtain enough Southern Democrat votes for passage. This system grants considerable flexibility to the states. In practice this has meant extreme disparities in amounts paid and in eligibility requirements and has worked to the disadvantage of women and minorities.
Now is a propitious time to make long-term improvements of the system. These should include at a minimum expanded benefits for dependents, discounting or providing health care, requiring coverage of part-time workers and ending taxation of unemployment benefits.
Conservatives often argue, as did Georgia Republican John Linder, that unemployment insurance “only encourages people to stay unemployed, rather than take even low-paying jobs.” Yet since the levels of compensation as a percentage of employment income is small and the number of jobs for each active seeker very limited, this argument is hard to advance with a straight face. And if more employers provided living wages and better working conditions, such arguments would be even harder to sustain.
More broadly, how can Congress worry so much about the purportedly corrupting influence of unemployment insurance when the safety net it provides investment bankers is hundreds if not thousands of times more generous? When those bankers are lazy or careless, they do vastly more harm than any unemployed clerk or janitor.
Why the Dow Broke 10,000, and Why You Should Still Watch Your Wallet
How did the Dow break 10,000 when the rest of the economy is in the toilet?
1. Corporate earnings are up -- mainly because companies have been cutting costs. Payrolls comprise 70 percent of most companies' costs, which means companies have been slashing jobs. In the end, this is a self-defeating strategy. If workers don't have jobs or are afraid of losing them, they won't buy, and company profits will disappear.
2. Federal borrowing has filled the gap that consumers and businesses created when the latter began to reduce their debt. Federal debt, in other words, has kept the economy from tanking. Can't keep up forever, though.
3. With such horrid employment numbers, Wall Street figures the Fed will keep interest rates low for some time, and continue to flood the economy with money. That's good news for the Street because it means money stays cheap -- and with cheap money the Street can make lots of bets on almost everything under the sun and moon. As a result, the Street's earnings are way up. But this, too, is temporary. At some point the Fed is going to worry about inflation and a falling dollar.
4. Investors of all stripes want to get in early and ride the wave. Pension funds, mutual funds, and other institutional investors figure the bull market has more oomph in it because, well, other investors will jump in. Think Ponzi scheme. Nice for now, but watch out if you're one of the last in.
In other words, this is all temporary fluff, folks. Anyone who hasn't learned by now that there's almost no relationship between the Dow and the real economy deserves to lose his or her shirt in the Wall Street casino.
American billionaires keep cooking up scheme after scheme to shake down Americans and plunder the national wealth, as if the last one was too easy and boring.
American billionaires keep cooking up scheme after scheme to shake down Americans and plunder the national wealth, as if the last one was too easy and boring.
Every day and every week we hear another shocking story about how our billionaires have cooked up an even sicker scheme to shake down Americans and plunder the national wealth, as if the last scheme was too easy and boring. They don’t even bother hiding it anymore: take the story about the “Death Bonds” I wrote about last month, first reported (however blandly) in the New York Times: the very same Wall Street bankers who conned $23 trillion out of America’s wealth is now going to use some of that play money to place bets on when we Americans will die—and the sooner we die, the more billions in E-Z profits Wall Street will earn.
It’s as if America is some kind of despised abstraction to our ruling class: a faraway colony to plunder, a mass of humanity to use and exploit as it sees fit. In fact, there’s a pretty clear pattern developing of just how much they despise Americans and how little they value our lives and our humanity.
It’s painful to admit this, but the way our 21st century American ruling class treats the rest of us is eerily reminiscent of the great Russian novel Dead Souls, about the 19th century Russian ruling class’s beastly treatment of its serfs (also called “souls”), back when most Russians were essentially slaves, legal property of the ruling class. Dead Souls features one of the most grotesque shysters in any novel: he comes up with a get-rich-quick scheme that’s eerily similar to today’s Wall Street’s latest schemes: the shyster goes from village to village, buying up “dead souls” (or “dead serfs”) who are still on the census rolls of the local landowners. The dead serfs are of no use to their owners anymore, so the landowners are happy to make one last ruble off their dead serfs by selling ownership rights over them to the shyster. The shyster’s plan: to acquire so many “dead souls” that he can package them into valuable collateral, and take out a huge loan against his “dead souls” which will finally make him rich. Wealth spun out of nothing but human misery, so that the shyster can waste huge amounts of money impressing others from the serf-owning class.
In other words: Dead Souls Loans.
Fast-forward to America in 2009, and now we’re the dead souls. Top American corporations are taking out “dead peasant insurance” on their workers without the workers even knowing it—and cashing in hundreds of thousands or millions of dollars on their employees, even though often times they don’t even offer those same employees decent health insurance coverage to allow them to survive illnesses. To top it off, these “dead peasant insurance” payouts are tax-free for the corporation that cashes in. It was a revelation so revolting that even ABC’s News’ mannequins admitted they were “stunned.”
In fact, as I said, they shouldn’t be stunned. It’s part of an ongoing pattern for our ruling class and their view of America and Americans. It’s time we faced up to this grim fact. Too many of them are against us and against this country, weakening America to the point where it threatens to be permanently crippled, much like how the communists deformed Russia for decades. They had their bolsheviks; we have our billionaire-bolsheviks. The effect of these two rapacious ruling elites is the same: the state and the people serve the tiny ruling class; and when we’re not serving them, we can fuck off and die. Literally. Because that serves them too.
For practical purposes, here is a small handy list of 8 Reasons To Hate Our Billionaire Bolsheviks [or "The H8 8"]:
Everyone wants and needs a job. Joblessness is the growing scourge of the planet here in the US and around the world. The reason why people are poor or homeless is that they don't have a job and they can't get a job. This should be obvious to everybody. It's not that people don't want to work. Sure there are those who can't work due to ill health or for some other reason, but most able bodied people want to work, and make no mistake about it, taking care of children is more than a full time job. It's work that often doesn't get credit for being work. Caregiving is work which often exceeds an eight hour day or even a twelve hour day. There are no limits to the time involved.
The current spate of joblessness in the US is nothing new. What should we expect when it has been US government policy for years to export jobs? The government has encouraged corporations to outsource jobs in order to take advantage of cheap foreign labor. Perot's "giant sucking sound" has become reality. Eventually you come to a point where there aren't enough jobs for US citizens. The unfortunate fact is that hardly any consumer products are manufactured in the US. Try buying something at Wal-Mart that's not manufactured in China. 70% of US GDP is comprised of consumption and that consumption is in large measure produced abroad. The US economy supports jobs in China, Taiwan, South Korea and elsewhere. What's happened in the current recession is that US consumption is down because Americans don't have the wherewithal to consume any more now that they can't take equity out of their houses to support consumption. But that leads to job losses in China not here. What leads to joblessness here is that the jobs have already been shipped to China according to US government policy.
And I don't think we can educate our way out of this dilemma. The notion that Americans just need more education in order to find a job is bogus. So what is to happen to Americans who are going to end up chronically unemployed? It depends on which administration is in power, and it depends on what individual states do to combat poverty and homelessness. With the current administration unemployment benefits will probably be extended giving a lifeline to the "new poor." With a Republican administration, America's poor will join Third World poor in fending for themselves in any way that they can. Extended unemployment comes at a price though. The money can't be borrowed indefinitely. Therefore, taxes have to be raised on the rich and those who still have jobs to support those who don't. This amounts to redistribution or sharing of resources. So like it or not, if the US isn't to degenerate into a Third World country, resources have to be shared. Those fortunate enough to have discovered profit centers must share with those who are unfortunate. Some ideas will have to be discarded like the idea that each person has the right to everything that he or she produces.
Public options in basic consumer goods need to be considered to bring prices for basic commodities down and to provide for those unable to shop regular stores and supermarkets. This is similar to allowing for a public option in health care or in education, the idea being that the government can produce things more efficiently and at a lower price once the profit margin has been removed. However, the private sector needs to be preserved and protected without government interference for entrepreneurial activities because that's where true innovation takes place. For mature industries there's no reason why the government can't produce more efficiently.
More government organization of the economy is needed because 1) private enterprise is not creating the necessary jobs and 2) money needs to be shifted from wealthy to poor in order that those poor can remain consumers of at least the basic items needed to sustain life and to alleviate poverty. The conservative argument that the poor are lazy and everybody should just go out and get a job doesn't hold water when there is widespread unemployment and joblessness, when the jobs aren't being provided by private corporations and businesses, and the jobs are being shipped off shore. If private enterprise can't or won't create jobs, then government must do it as a last resort. This implies shifting resources from wealthy to poor.
In the Third World this is even more important. Something like a sixth of the world's population doesn't even have clean water or basic sanitation. Many are dying from preventable diseases. Wealthy nations and charities must help to a greater extent in providing basic necessities for those unable to provide for themselves due to climate change, war and loss of livlihoods due to other causes. At any given moment a large percentage of the human race is dependent on someone else. Children are dependent on their parents. Old people are dependent on caregivers. Wives are dependent on husbands to make a living. It is not shameful to be in a condition of dependency. If an economy is well organized, jobs will be created which reduce dependency, but wives working in the work force just shifts the dependency of their children from mothers to day care centers. Money is just shifted from the mother to the day care center whereas it might make more sense for the mother to stay home with the children and be dependent on her husband as the income provider.
Values have to change from "rugged individualism" to those of the fortunate helping the less fortunate and not just in token ways but in major comprehensive ways. This means that government has to be involved in the process and money has to be transferred from rich to poor.
Their combined wealth is more than enough to insure the uninsured for the next twenty years or more.
It's great to know that during the worst economic crisis since the Great Depression, the wealth of the 400 richest Americans, according to Forbes, actually increased by $30 billion. Well golly, that's only a 2 percent increase, much less than the double digit returns the wealthy had grown accustomed to. But a 2 percent increase is a whole lot more than losing 40 percent of your 401k. And $30 billion is enough to provide 500,000 school teacher jobs at $60k per year.
Collectively, those 400 have $1.57 trillion in wealth. It's hard to get your mind around a number like that. The way I do it is to imagine that we were still living during the great radical Eisenhower era of the 1950s when marginal income tax rates hit 91 percent. Taxes were high back in the 1950s because people understood that constraining wild extremes of wealth would make our country stronger and prevent another depression. (Well, what did those old fogies know?)
Had we kept those high progressive taxes in place, instead of removing them, especially during the Reagan era, the Forbes 400 might each be worth "only" $100 million instead of $3.9 billion each. So let's imagine that the rest of their wealth, about $1.53 trillion, were available for the public good.
What does $1.53 trillion buy?
It's more than enough to insure the uninsured for the next twenty years or more.
It's more than enough to create a Manhattan Project to solve global warming by developing renewable energy and a green, sustainable manufacturing sector.
And here's my favorite: It's more than enough to endow every public college and university in the country so that all of our children could gain access to higher education for free, forever!
Instead, we embarked on a grand experiment to see what would happen if we deregulated finance and changed the tax code so that millionaires could turn into billionaires. And even after that experiment failed in the most spectacular way, our system seems trapped into staying on the same deregulated path.
Instead of free higher education, health care and a sustainable economy, we got a fantasy finance boom and bust on Wall Street which crashed the real economy. We have our 400 billionaires, and we have 29 million unemployed and underemployed Americans. We have an infrastructure in shambles. We have an environment in crisis. We have a health care system that would make Rube Goldberg proud. And we have the worst income distribution since 1929.
I hazard to guess that each and every Forbes 400 member could get by with a net worth of $100 million. I don't think that would kill their entrepreneurial drive or harm our economy--in fact it would be a major boon to the economy to step back from the edge of such massive concentration of wealth. The real problem is getting there form here. A wealth tax that kicks in when you become worth more than $100 million would be a good start. The Eisenhower tax rate on adjustable gross income over $3 million a year would help as well.
And please let's not call it socialism, now that we've placed the entire financial sector on welfare to the tune of over $13 trillion in subsidies and guarantees. (By the way, the yearly budget outlays for means tested programs for low income citizens is about $350 billion per year. So Wall Street's welfare is about 37 times as large as welfare for poor.)
So if narrowing the income/wealth gap isn't socialism, what is it? It's the America that thrived in the 1950s and 1960s. It's the America that created a middle-class and vowed never to let the financial gamblers return us to another depression. It's an America that put its people to work and built an infrastructure that was the envy of the world.
Study without desire spoils the memory, and it retains nothing that it takes in.
- Leonardo da Vinci
Advertising may be described as the science of arresting the human intelligence long enough to get money from it.
--Stephen Leacock
Canadian economist & humorist (1869 - 1944)
They can't put you in jail for what you're thinking.
--Clifton E Lawrence
If we can't create a good impression, we can at least try to create a bland impression.
-- Ben Weinbaum, my supervisor at General Dynamics
Men are generally idle, and ready to satisfy themselves, and intimidate the industry of others, by calling that impossible which is only difficult.
-- Samuel Johnson
There's a vas deferens between us.
--Paul Desmond to a girlfriend
Lawrence, how do you manage to go through so much shit and come out smelling like a rose?
--a college classmate
Lawrence, you're better on paper than you are in person.
--Guy Carlisle
Lawrencie, you're smart in school, but dumb in life.
--Arthur Hill
In politics you must always keep running with the pack. The moment that you falter and they sense that you are injured, the rest will turn on you like wolves.
--R. A. Butler
Don't put off till tomorrow what you can do today.
--Florence C Lawrence
There's no time like the present.
--Florence C Lawrence
One hand washes the other.
--Clifton E Lawrence
You have to take the bitter with the better.
--Clifton E Lawrence
An inventor is simply a fellow who doesn't take his education too seriously.
--Charles F Kettering
A problem well stated is a problem half solved.
--Charles F Kettering
Any sufficiently advanced technology is indistinguishable from magic.
--Arthur C. Clarke, "Profiles of The Future", 1961 (Clarke's third law) English physicist & science fiction author (1917 - )
The least of learning is done in the classrooms.
--Thomas Merton
Tastes pretty good for an old dead cow.
--Clifton E Lawrence at a family picnic
If the shoe fits, wear it.
--anonymous
If the shoe doesn't fit, don't wear it.
--John Lawrence
Doug Ramsey: Take Five: The Public and Private Lives of Paul Desmond This is a great book! Paul Desmond and Dave Brubeck formed the heart of one of the best all time jazz groups. Paul was the quintessential intellectual, white jazz musician. A talented writer, he never published anything. However author, Doug Ramsey has collected Paul's letters here. How ironic that now his writing in the form of letters to his father and ex-wife, among others, is finally published showing another window on the mind of this talented person.
A sideman, for the most part, his entire life, the Dave Brubeck Quartet might never have happened at all due to the fact that Paul had managed to offend Dave to the point where he never wanted to see him again. It had to do with a gig that Paul actually was the leader of. Paul wanted to take the summer off to play another gig, and Dave wanted Paul to let him take over the gig at the Band Box in Palo Alto, CA. Paul wouldn't let him and Dave, married with two children, proceeded to starve.
Due to an elaborate publicity campaign, when he realized the error of his ways, Paul managed to worm himself back into Dave's good graces. The rest is history.
This book is remarkable for the insight it gives into a working jazz musician's mind, wonderful pictures and interviews with the significant figures in Paul's life. Author Ramsey, not a remarkable penman himself, has nevertheless done a magnificent job of assembling all these various materials. Unlike a lot of jazz authors, he doesn't overly idolize his subject with the result that you get the feeling that you have met a real person and not a idealized version. That's high praise indeed for any biographer. (*****)
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