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Originally posted to http://www.dailykos.com/user/bobswern on Mon Jun 06, 2011
Also republished by The Democratic Wing of the Democratic Party and Class Warfare Newsletter: The Plutocracy VS the Working Class.
By bobswern Mon Jun 06, 2011
Over the past 2-1/2 years, there has been no significant improvement in our nation’s jobless numbers. Residential real estate has gone from bad to worse, eclipsing the depths it reached during our Great Depression. Wall Street’s mortgage behemoths have sucked the lifeblood out of the middle class. There has been no effort to reign in the too-big-to-fail banks, and, as a result of that failure those banks are more powerful now than they were when the President took office. The DoJ has failed to prosecute any of the key people primarily responsible for the mortgage industry’s blatantly fraudulent practices of the past decade–practices which got us into this mess in the first place. And, income inequality between our nation’s haves and have-nots has worsened to the point where it, too, is now setting records unseen since reliable metrics were first implemented to measure those class disparities, back in the nineteen-teens.
Throughout the development of these inconvenient truths in our society over the past few years, there has been much bipartisan chatter about righting these wrongs via “shared sacrifice” amongst the haves and have-nots within our society. But, the truth is that the middle and lower classes are paying the freight for the past three decades of Wall Street’s (and the top 10% of our society that–depending upon which numbers you believe–owns somewhere between 92% and 98.5% of all marketable investment vehicles sold by the U.S. financial services sector) ongoing privatization of its profits and socialization of its losses. It’s to the point where this is not just the truth, but, unlike most inconvenient truths such as this, it’s become the political zeitgeist of our time, as well…at least everywhere but in Washington, D.C. and parts of southern Manhattan.
Today, I’m asking Democrats the basic question: “Where is our party going as far as all of these economic nightmares are concerned?” And, the answers I’m seeing and hearing, based upon MSM stories over the past 48 hours, is everywhere but where our Party’s been successful in past election cycles; and/or, more precisely, in the same direction our Party went just eight (plus or minus) months ago.
Our economy is in crisis. There is a demand problem. IMHO, right now, it transcends our nation’s debt woes (at least if you’re a believer in New Keynesian economic thought, such as I am; and it’s why my posts frequently highlight the commentary of our country’s leading New Keynesian thinkers, such as Paul Krugman and Joseph Stiglitz). It was created by three decades of unbridled pillaging of the underclasses by the status quo. In many ways, it’s getting worse, not better. And, this leads us to the inconvenient truth that–at least from a pragmatic political standpoint–it has not been sufficiently ameliorated by the current Democratic administration.
There are obvious solutions to these problems.
(Diarist’s Note: Naked Capitalism Publisher Yves Smith has authorized diarist to reproduced her blog’s posts in their entirety for the benefit of the DKos community.)
“Debtors’ Prison”: Bob Kuttner on the Costs of Rentier Rule
Yves Smith
Naked Capitalism
June 6th, 2011Bob Kuttner has an elegant and important article at American Prospect, “Debtors’ Prison“. It’s an evocative, historical form of the argument made here and elsewhere: that advanced economies have gone down a disastrously bad path in not writing down debt that can’t realistically be paid.
The usual poster child for “why not writing down debts is a bad idea” is Japan, but that isn’t gripping enough to evoke the right responses. Even though its post-bubble growth has been dreadful, Japan is still a well-run, tidy country with a low crime rate, universal health care, long life expectancy, and tolerable unemployment. That in turn is due to factors that do not obtain much of anywhere else: Japan was very cohesive to begin with, and its elites chose to have their incomes fall relative to everyone else to save jobs. Wage compression at large companies has increased dramatically. This is the polar opposite of what has happened in the rest of the world, where the gap between the haves and the have-nots has widened.
Kuttner provides another set of examples as to why we need to get the creditor boot off all our necks:
Economic history is filled with bouts of financial euphoria followed by painful mornings after. When nations awake saddled with debts incurred to finance wars, episodes of failed speculation, or grand projects that haven’t paid off, they have two choices. Either the creditor class prevails at the expense of everyone else, or governments find ways to reduce the debt burden so that the productive power of the economy can recover…The creditor class views anything less than full debt repayment as the collapse of economic civilization. In fact, however, debts are often not paid in full….Bankruptcy ingeniously provides orderly relief from past debt so that the productive enterprise is not needlessly destroyed….But the same business elite looks askance when others—homeowners, small nations, the entire economic system—seek relief from punishing and economically perverse debt….
History’s two great negative and positive examples of how to deal with unsustainable debt are the periods after the two world wars. At the 1919 Versailles peace conference, the creditor mentality prevailed, and Europe’s postwar recovery was aborted. Britain and France imagined they could bleed defeated Germany to pay off their own immense war debts (mostly to the United States). Britain also pursued tight money to keep its own currency valued at prewar levels, in order to protect the creditor class.
The policy wrecked the German economy and kept British unemployment above 10 percent for two decades. The great critic of Britain’s folly was John Maynard Keynes, then an adviser to the British Treasury. Keynes’ 1919 book, The Economic Consequences of the Peace, prophetically warned that the policy of squeezing Germany until “the pips squeak” would cause depression and a second war. After World War II, history history gave Keynes a chance do it right. His Bretton Woods system emphasized domestic recovery in the defeated as well as the victorious powers and created a global monetary system in which private financial speculators were denied the power to compel nations to pursue deflation.
Today, that expansionary logic has been reversed and creditors are once again hegemonic. Banks want cheap money for themselves, draconian terms for others. The banker-afflicted European Union is punishing Greece rather than finding a way to let it grow. In the United States, relief is denied to underwater homeowners because debt contracts are sacred, even as the policy prolongs the agony. Everywhere, budget austerity is advertised as the road to growth— though it denies the economy its productive potential.
Just as Lenin said capitalists would sell him the rope with which he would hang them, so too do ordinary people seem to be putting their necks in the banking class debt noose by siding with the rentier austerity logic. Until they decided to loot entire economies, the first thing that would cross a lender’s mind when his borrower got in trouble is whether he was worth more dead or alive. Normally, the answer is “alive” and restructurings and reschedulings were the norm. Now we are told, falsely, that it is a moral duty to pay every debt in full, when these are commercial transactions.
Non-payment has bad consequences for the borrower, so unless they were scamsters, they don’t do it frivolously. But as Kuttner points out, the perverted logic of grinding down borrowers takes the entire economy down with it. It’s ultimately a lose-lose, but having secured political control, it’s going to prove hard to save them and us from their self-destructive behavior.
But, instead of clearly and aggressively supporting additional, major jobs initiatives, substantial (not piecemeal) Main Street stimuli, and correcting the damage inflicted by decades of neoconservative rule we are learning, over the past few days, that our Party has opted to pander to the Milton Friedman school of economic fail.
Indeed, while we’ve just been told by our nation’s leaders that they must be careful what they say for fear of undermining financial markets, when it comes to defunding critical programs that benefit the vast majority of our population on Main Street, that’s fair game?
Let’s visit where this contorted meme is about about to take us in the upcoming election cycle, based upon the most-recently-reported ruminations of our party’s leadership...
Obama Retools 2008 Machine for Tough Run
Jeff Zeleny and Jim Rutenberg
New York Times
June 5, 2011…a grass-roots movement that had been the envy of Republicans in 2008…has shown severe signs of strain over two years of partisan rancor in Washington and economic struggle across the country.
But for all of the planning, the biggest challenges of the election remain largely out of the organizers’ control, as the bleak jobs report on Friday showed.
So uncertain are the economic indicators that Mr. Obama’s aides say they have not fully settled on an overarching campaign theme for next year.
For now, the president faces a delicate task in arguing that things have improved under his watch when they remain so grim for so many — and that the programs he has put in place are working but need time to show their benefits. With their hopes dashed of substantial improvement in unemployment anytime soon, aides indicated that the theme was likely to be less “morning in America” and more “don’t change horses in midstream.”
Mr. Axelrod said: “We’re not going to be putting up a ‘Mission Accomplished’ sign. Part of the message is going to be we have to see these things through.”
In an interview at his Chicago consulting offices, Mr. Axelrod repeatedly said “stability” for the middle class would be central…
Stability?
Not.
At best, come 17 months from now, our nation’s unemployment rate–the Bureau of Labor Statistics’ “dressed up” U.3 index–will be around eight percent. And, that’s an optimistic projection when you ignore millions more foreclosures, leading to lesser (not greater) demand among this country’s consumer population, and subsequent, increasing income inequality.
Here’s more on Mr. Axelrod’s “stability” meme.
Economy will force shift in Barack Obama’s 2012 strategy
By Carrie Budoff Brown and Glenn Thrush
Politico
June 4, 2011 1:46PMAfter months of relatively robust job growth, President Barack Obama and his team must now reckon with the reality that the economy probably won’t be on firm ground during the 2012 campaign — and that he must temper some of the Morning-in-America optimism he’d hoped to run on.
The president has been unable to curb the nation’s nine percent unemployment rate, so he will be forced to put the best possible face on a sputtering recovery.
Democratic strategists say that means adopting an ungainly three-pronged political approach: Talking up economic gains since the darkest days of 2008 and 2009, highlighting a modest job-creation agenda blocked by Republicans and making the case that things would be far worse if the GOP were in charge…
Hmmm…where have we heard this before?
…most daunting to the White House is that Obama has few good tools at his disposal to jump-start the economy in the short term.By ceding the argument to Republicans that the deficit is the problem, Obama helped steer the focus in Washington to cutting government spending, robbing the White House of its ability to argue for more stimulus measures. At the same time, the rise in fuel prices over the past six months has offset efforts late last year to boost consumer spending and job creation.
Scarecrow’s Nightmare: Austan Goolsbee Defends President Romney’s Economic Plan
Scarecrow
FireDogLake
Sunday June 5, 2011 7:00 amIf I’d been asleep for the last decade and woke up to ABC This Week’s interview of Presidential economic advisor Austan Goolsbee, I would assume that Mitt Romney won the 2008 election, that he was predictably following Republican dogma about how to recover from a severe financial collapse and recession and that intelligent media folks like Christiane Amanpour were realizing those standard GOP policies aren’t working.
Goolsbee correctly told us that a smart economist wouldn’t get overly excited about one month’s jobs and growth numbers but would instead look at the overall trend. Of course what he wouldn’t want to concede is that GDP grew at a meager annual rate of 1.8 percent over the first three months of 2011 and so far was predicted to grow at only 2.8 percent for the next three. And the overall trend for job growth was still not enough to make a serious dent in unemployment unless you believe taking 5-10 years to get back to full employment is okay.
So Goolsbee was in denial from the opening moment because he didn’t have a decent story to tell even in his own framework. When Amanpour asked him what the Administration could or should be doing to improve conditions, he ticked off items you’d expect to hear from a typical GOP Presidential adviser: we’ve got to get the debt under control; we have a White House effort to identify and get rid of governmental regulations that are preventing the private sector from growing the economy; we should pass “free trade” agreements backed by the Chamber of Commerce; and we should leverage limited public dollars to release billions in private funding for investments.
Goolsbee’s bottom line: “It’s now up to the private sector.” That’s exactly what you’d expect from President Romney’s economic adviser…
Scarecrow then pointed to Krugman’s (and others’) comments on the show to put forth the traditional Democratic response, “…business confidence and concerns about taxes and regulations aren’t the problem: business polls repeatedly show businesses aren’t expanding/hiring much because the demand for their products is weak. Demand is weak because the recession and the housing market crash depleted consumers’ wealth and they’re worried about losing their homes and jobs. You don’t need a degree in economics to grasp the logic of that. When private spending is still depressed, only government spending is keeping the economy afloat, and the stimulus is phasing out.”
It’s ironic that when Austan Goolsbee originally joined the Obama administration much was said of his camera presence, with many pundits noting that his media skills were always considered to be better than most.
Even he’s having a problem spinning this.
Then again, it’s nothing a strong Democratic push for a new, substantial round of stimulus on Main Street couldn’t fix.
You don’t need a degree in political science to grasp the logic of THAT!
