Welcome To The COVID Economy

Sure, there's a Trump tweet for occasion; but there's also a George Carlin video for every occasion as well. You may prefer how Carlin explains what we're going through as a society now but economist James Galbraith is slightly less pessimistic. In fact, he wrote a piece for The Nation this week about how to confront the side-effects of the pandemic, namely the economic one. He looks at it square in the eyes and wants you to accept it: "a house of cards has fallen. An entire world of illusions, self-deceptions, and sophistries has died. We’ve come to the end of a very long string. The string has been unspooling since the triumphs of Milton Friedman and Friedrich von Hayek, conventionally thought of as Margaret Thatcher and Ronald Reagan, but rooted equally in Jimmy Carter and Bill Clinton, in Tony Blair and Gordon Brown, and in the Bushes and Obama and many lesser figures. A binational, bipartisan coalition of catastrophe in the Anglo-Saxon realm of ideas. Donald Trump and Boris Johnson are consequences, not causes, of this mental failure. The delusion is economics as we’ve known it. Here, two concepts have ruled: self-organization and the veil of money. The first argued for markets, for all of society to be mediated by the forces of supply and demand. Its supposed virtues were competition, flexibility, incentives, efficiency; the reality is a fragile web, woven in strands of glass. The second submerged the financial system-- the banks, traders, speculators-- rendering those people and institutions as mere messengers, unimportant and invisible."

He wrote that "our leaders now plan to send out cash, as 'stimulus'-- as though a market response will organize itself. It is another delusion. In Europe "border controls are back" and America "is breaking apart." I agree with him that "federal officials, with few exceptions, are predatory, indifferent, or merely stupid [and that] congressional leaders appear stymied. The few steady hands are those of some governors-- in both parties-- many mayors, county judges, and other local officers." I don't know what he means by governors of both parties. The only governor who appears to be doing a genuinely good job at confronting the pandemic-- not a cosmetic job-- is DeWine, an Ohio Republican.

For the population, it is a test of character. Ordinary Americans are for the most part community-minded, prepared to follow instructions and do right, if others will do likewise. Around me in Austin, people are curtailing activities while going about their day jobs in the face of increasing risk. Pools and playgrounds and libraries are closed—we’re told, for several weeks. Everyone knows it could be months and months.

As everyone also knows, there has been far too little testing. There is no reserve of hospital beds or equipment. Global supply chains are broken, and medicines of many types will run short. The only possible advantage to being in America right now is that it is a large country; many people live in more space and can self-isolate more easily, for a time. This is not a consolation for the poor, nor for New Yorkers, nor for those reliant on assistance that they may not be able to get.





It is hard to look past the imminent swamping of the health system, but there are deeper disasters afoot. In California, nearly 6 million elderly have been told to stay home. Many of them live alone or in pairs. Who will feed them? To this, the governor replied, “Good question.” The reality is, we’ve done a good job in this country of keeping many frail and elderly people alive, a very poor job of keeping them healthy, and we have no system for keeping them fed. We may not even know where they are.

We are told there is plenty of food in the country. Can it get to the stores? Yes, for now; but for how long? How long will people be there to stock and sell and run the checkout counters and maintain security? Distribution and security are the weak links in the food chain. The market has given us efficiency and a high living standard. It has by the very same token not given us resilience, spare capacity, coordination, or leadership. It has, instead, given us fragility. A web of glass. Panic is both the rational response and the enemy. If panic takes control, it will destroy whatever is left.

The American economy must convert, in full and at once, to fight the pandemic. A public corporation-- the Health Finance Corporation, based on the Reconstruction Finance Corporation of the Depression and World War II, with power to borrow and allocate and meet problems as they arise-- is needed now. The National Guard and the Army and all their resources must be deployed. And every civilian resource, including all available human beings, must be enlisted.

The immediate medical need is supplies, beds, personnel. Hospitals can be built in days, we have learned. Space can be requisitioned; hotels and dormitories are empty. The military is said to know how to deal with mass casualty events. The Defense Production Act gives authority to command companies to make masks, oxygen tanks, respirators. Unlimited jobs are available for people to clean and perform other basic functions. It’s risky work, and it must be decently paid. Guarantee the jobs, and people will do them. China managed that much, and many people volunteered.

The next need is to stabilize priority civilian supply: food, drugs, cleaners, paper goods. The existing system may hold up for a while. The essential is to lock it in place, supporting the people doing their jobs so that they can continue: drivers, stockers, checkout clerks, cooks and kitchen help, and scrubbers. If the necessary goods keep coming in, people will stay calm and get along without the rest. As in Korea, ride-share and taxi drivers can be trained to disinfect and mobilized to drop off meals and medicines. Suddenly, all these workers are essential and must now be treated that way.

All the information services should now be drafted and basic customer bills should suspended for the duration: cable, cellular, landlines, Internet. Let the federal government compensate the companies for basic costs. Having secure communications and entertainment will help keep people at home. The boost in disposable incomes will help in exact inverse proportion to wealth; those losing work income will benefit most.

Among the most necessary big corporations right now are those who run mass distribution networks: Amazon, Walmart, FedEx, UPS, and the drugstores and major fast-food chains. They should be run as public utilities for the duration. That means giving delivery at cost on essential goods and stop-orders on frills. Top executives should contribute their time. The workers should get raises and medical care and protective equipment and unions. In return for staying on the job in the emergency, those workers too should emerge in an entirely different position after this ends.

Many large, medium, and small employers are down for the count and may be bankrupt soon: airlines, hotel chains, shopping malls, convention centers-- more than anyone can list. The equity will be gone; there must be financing to maintain essential operations and to hold the physical and engineering assets in place, and a debt moratorium to stave off the creditors and the vultures. Needless to say, evictions and foreclosures and utility stoppages must be stopped immediately; if necessary, it is better to ration the supplies. As businesses go down, so will the bankers. After the wave passes, we’ll see what can be rebuilt.

Through it all, the people must be reassured. Those at home must be cared for. And those who remain healthy must be given useful work. Solidarity, organization, determination: These are the words for us now.

Changing times... very changing times requires agile, competent leadership which is in short supply in our ruling class. Take the idea of bailouts. The airlines near our money to stay in business? OK, our tax dollars should go towards buying their stock. As Aaron Gordon wrote at Vice yesterday, "U.S. airlines have spent the last decade shoveling billions in profits to stockholders. Now they want your tax dollars with no strings attached. Fuck that."

The last decade has been very good to U.S. airlines. Industry consolidation, stuffing more people into smaller spaces on planes, and stacking fees upon fees have resulted in unprecedented prosperity for the country’s Big Four (American, Delta, United, and Southwest). From 2012 to 2016, these four airlines were the most profitable in the world, walking away with a combined $42.3 billion, according to an analysis by L.E.K. Consulting. In the two subsequent years, 2017 and 2018, the US airline industry raked in an additional $27.3 billion in profits. They then used nearly all of that money, a whopping 96 percent, to buy back shares from stockholders-- a move that enriches investors while doing nothing for the company itself-- and handsomely compensating executives.

Now, the airline industry, like nearly every other industry, is suffering due to the unprecedented coronavirus travel restrictions. The airlines are asking the federal government or a bailout of almost $60 billion, to be paid for with our tax dollars.

To which I say: Fuck that. The airlines shouldn’t get a dime from American taxpayers unless there are so many strings attached it can support a 787.

If a working class person had handled their finances in the same way the airlines have, it would be a caricature of a Republican talking point about individual responsibility. During the good times, airlines spent all of their money on financial chicanery and self-enrichment while saving virtually nothing for a rainy day. Now that the good times have stopped, they’re rapidly running out of cash, which is what tends to happen when you don’t have much sitting around. It’s like a meme about millennials and avocado toast except it’s about the boomers who run airlines.

You could be excused for doing this once, but not twice. The airlines should have learned their lesson after the September 11 bailouts that they are not normal companies. The industry, already in financial trouble, saw demand collapse all at once after which the feds gave them $18.6 billion in direct assistance and loan guarantees. The lesson here ought to have been that airlines are uniquely vulnerable to huge shocks and need to plan accordingly. These do not happen often-- oh, once every 20 years, thereabouts-- but often enough. That was not the lesson the airlines learned.

I suppose the airlines did have a plan. The plan was to get bailed out by us.

Fair play to the airlines, because they almost certainly will. Congress, which is comprised of some of the most frequent fliers and loyal airline customers in the country, will oblige them. Our political leaders will almost certainly meet the airlines on the industry’s terms because Congress overvalues the airlines themselves relative to the average American. A 2018 survey by an air travel industry group found 52 percent of Americans didn’t fly at all in 2017, and nearly three quarters of all trips were personal, not business. And airline flyers are disproportionately higher income, with the majority of airline trips coming from Americans with an annual household income of at least $75,000, well above the median household income (the most frequent fliers by income group, according to the airline industry survey, make more than $150,000 a year).

Airlines and other pro-business groups will argue a bailout is necessary in order to prevent massive job losses, an argument that made sense in 2001 when airlines were bearing the brunt of the recession following September 11 and mandatory flight groundings. But that argument doesn’t make sense today, because everyone is hurting just as much. The airlines, while experiencing massive revenue losses, can get in line with every other industry experiencing massive revenue losses, including but not limited to the entire hospitality and travel industry.

Even within the transportation industry, airlines don’t have a special case for bailouts. Public transportation is experiencing a similar shock, with ridership and revenue drops in line with what airlines are experiencing. According to the Bureau of Transportation Statistics, they employ the same number of people. Public transit agencies-- which, it’s worth bearing in mind, are publicly owned and operated, not private corporations-- are also asking for federal funds so they can keep running service for critical workers like hospital and grocery store staff, but they’re asking for about $13 billion, or about one-fifth of what the airline industry wants.

Fake Magic by Nancy Ohanian

Some, like Florida Senator Rick Scott, have argued against bailouts of any kind for anyone, including the airline industry. At the very least, industries like airlines that quite clearly have embedded federal bailouts as part of their long-term plans need to have their courses corrected.

The exact details are up for debate, but fundamentally, the government must set a precedent for corporations that spend the boom years enriching themselves and their shareholders only to crawl to Capitol Hill hat in hand. Rather than filling up the hat, they ought to get a kick in the butt.

Massachusetts Senator Elizabeth Warren laid out a plan (of course she did) of what this might look like for companies that get federal funds including: a mandatory $15 an hour minimum wage for all employees, a permanent ban on stock buybacks, no dividends or executive bonuses for three years, and criminal penalties for CEOs who violate any of these rules. It’s a start.

We must also stop the cycle of corporations privatizing profits while socializing costs. Why should we, the taxpayers of the United States, spend $50 billion or $60 billion or whatever it may be when we see nothing in return? As of this writing, the total market cap of the Big Four US airlines is $54 billion, almost exactly the value of the bailout being proposed. What if, instead of bailing out the airlines, the US government became the majority shareholder of each so it could profit from its investment?

This is not some pie-in-the-sky proposal. It’s exactly what happened with Conrail, a government-created railroad entity formed in the 1970s out of the bankruptcy of a bunch of private railroads including Penn Central. The government bought the bankrupt railroads for dirt cheap then privatized Conrail in the late 1980s once it started turning a profit, netting some $3.7 billion in 2020 dollars for taxpayers.

Whether or not that specific model is right for the airline bailout is up for debate. But the general idea, that the public needs to stop subsidizing the irresponsible financial behavior of large corporations while the average taxpayer suffers, needs to be the focus of Congress going forward. Maybe, just maybe, we can come out of this mess with a fairer and more equitable relationship between corporations and the American public. And, while I’m dreaming, with some minimum leg room requirements, too.

The Grand Bargain Was Even Worse In France

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, and David Cote (c.) CEO of Honeywell international and part of the steering committee of the Campaign to Fix the Debt, are joined by job creators or robber barons or modern day knights to ring the opening bell at the New York Stock Exchange

Sorry to keep harping on this but it's important and no doubt we'll be reading and hearing about this Grand Bargain bullshit all the way through Christmas, when they make their "last minute" deal-- picture the Mountie saving the damsel tied to the railroad tracks. As Digby pointed out yesterday, it's nothing but a scam. "They've ginned up this "fiscal cliff" as a Shock Doctrine tactic to create a sense of emergency in which to push through some shock therapy. They're saying they want to avert a near disaster of their own making-- by creating a slow rolling disaster as our income inequality, starved education system, degraded safety net and dilapidated infrastructure get worse and worse." She quoted James Galbraith explaining how the rich plan to use the politicians they own to gut Medicare and Social Security.

That the looming debt and deficit crisis is fake is something that, by now, even the most dim member of Congress must know. The combination of hysterical rhetoric, small armies of lobbyists and pundits, and the proliferation of billionaire-backed front groups with names like the “Committee for a Responsible Federal Budget” is not a novelty in Washington. It happens whenever Big Money wants something badly enough.

Big Money has been gunning for Social Security, Medicare and Medicaid for decades – since the beginning of Social Security in 1935. The motives are partly financial: As one scholar once put it to me, the payroll tax is the “Mississippi of cash flows.” Anything that diverts part of it into private funds and insurance premiums is a meal ticket for the elite of the predator state.

And the campaign is also partly political. The fact is, Social Security, Medicare and Medicaid are the main way ordinary Americans connect to their federal government, except in wars and disasters. They have made a vast change in family life, unburdening the young of their parents and ensuring that every working person contributes whether they have parents, dependents, survivors or disabled of their own to look after. These programs do this work seamlessly, for next to nothing; their managers earn civil service salaries and the checks arrive on time. For the private competition, this is intolerable; the model is a threat to free markets and must be destroyed.

But, you know, it could be worse. In fact it has been. They call them "job creators" today and they were known as "robber barons" at the turn of the last century but long before that the were known as "cnights," and later, knights. Get King Arthur's roundtable out of your mind. As historian Tom Holland makes clear in his book Millenium, they were dangerous predators, usurpers, thugs, bandits and the Republicans of the 900s and early 1000s. Even before Obama was reelected, we looked at Holland's book to see how these early Ayn Rand types turned Europe's free peasants into serfs.

So as the year 1,000 approached-- remember this was before they had computers and Y2K-- everyone thought Jesus might be coming back and sorting things out. So the whole place went crazy and the Christian world fell apart. Anarchy in the U.K. and everywhere else. So predators started making their move-- basically common thugs and gangstas with a psychotic streak and a will to dominate. Holland uses France as an example of the Grand Bargain they worked out at the time. The clergy was trying to tamp down the lawlessness and violence and the knights weighed agreed to sit down and negotiate.

The pledges that they were obliged to give at Verdun were indisputably stern ones. All their favorite pastimes appeared to have been proscribed. No longer were they to amuse themselves by assaulting the defenseless; by rounding up livestock; by attacking churches; by setting fire to harvests and barns. Yet forbearance might bring its own rewards-- and not in heaven alone. Upstarts as many of the horsemen were, they knew that it was no small matter to be blessed in public by a bishop. Knighthood, once it had been sanctified by oaths sworn upon holy relics, could hardly be dismissed as a criminal calling. Even the most unreasonable and thuggish henchmen of a castellan, as he stood at Verdun alongside the other horsemen of the region, and knelt before the glittering reliquaries, would surely have felt, with a surge of pride, that he was being inducted into an elite. A shared code, a shared ethos, a shared commitment to the use of arms: all were being ranted him. His horse, his spear, his mail shirt: these, in the eyes of God, were what would henceforward serve to define his role in the Christian order. The division between knight and serf, between a person who carried a sword and a person who carried a mattock, was being rendered absolute. If indeed the end days were imminent [which deluded Christians have though was the case for the past thousand years and for the next thousand years and still do to this day... and are encouraged to inflict their delusions on normal people and on society at large] , then this would hardly matter: for all the different orders of society would naturally be dissolved upon the melting of heaven and earth. If, however, Christ did not return, and if the New Jerusalem did not descend from the sky, and if the seasons had continued to revolve as they had always done, year after year after year, then the organizers of the Peace of God would have effectively set their seal upon the enserfment of their very allies: the poor. Such might not have been their intention-- and yet they would have served as the midwives of a new order, all the same. Peace, it appeared might indeed be redeemed from anarchy-- but the price to be paid for it was the last vestige of freedom of the peasantry.

And this, as a bargain, was one that even the peasants themselves were increasingly too punch-drunk to resist. Better a master bound by the strictures of the Peace of God, perhaps, and a storehouse well stocked for the winter, than liberty and a pile of smoking rubble. [Now that was the Shock Doctrine at its purest!] Not that the master necessarily had to be a castellan. The men and women who toiled in the fields around Cluny as the serfs of St. Peter were far from the only peasants to have ended up the dependents of a great monastery. The concern of churchmen for the poor-- though it might be heartfelt-- was as likely, at least in part, to reflect a concern for their own finances. No less than the castellans, great abbots and bishops stood to profit handsomely from the wholesale enserfment of the peasantry-- as long as order and the rule of law could be upheld.

Is that a model for a Grand Bargain that solves all the problems created by the rich on the backs of the poor or what? And, incidentally, the Church is still playing a similar role today as it always has-- even if they suffer small setbacks from time to time, like they did last Tuesday.

It Certainly LOOKS Like Germany Won WWII

Why do YOU think she was giggling? It's not because she was listening to "Breastfed" on the headset

People barely want to read about the American economic crisis, let alone the one in Europe-- not that I'm going to let that stand in my way of trying to understand what's going on over there. And James Galbraith's post at Salon Thursday, The Crisis In The Eurozone, is a good place to start. He points out gloomily that the best ideas for solving the banking crisis there will never be acted on because "Europe’s political classes exist these days in a vise forged by desperate bankers and angry voters, no less in Germany and France than in Greece or Italy. Discourse is sealed off from fresh ideas and political survival depends on kicking cans down roads so that the fact that this is a banking crisis does not have to be faced. The fate of the weak is at best incidental. Thus every meeting of finance ministers and prime ministers yields treacherous half-measures and legal evasions."

Like our own, the European banking crisis is the product of over-lending to weak borrowers, including for housing in Spain, commercial real estate in Ireland and the public sector (partly for infrastructure) in Greece. The European banks leveraged up to buy toxic American mortgages and when those collapsed they started dumping their weak sovereign bonds to buy strong ones, driving up yields and eventually forcing the whole European periphery into crisis. Greece was merely the first domino in the line.

In all such crises the banks’ first defense is to plead surprise-- “no one could have known!”-- and to blame their clients for recklessness and cheating. This is true but it obscures the fact that the bankers pushed the loans very hard while the fees were fat. The defense works better in Europe than in the U.S. because national boundaries separate creditors from debtors, binding the political leaders in German and France to their bankers and fostering a narrative of national-racism (“lazy Greeks,” “feckless Italians”) whose equivalent in post-civil rights America has been largely suppressed.

Underpinning banker power in Creditor Europe is a Calvinist sensibility that has turned surpluses into a sign of virtue and deficits into a mark of vice, while fetishizing deregulation, privatization and market-driven adjustment. The North Europeans have forgotten that economic integration always concentrates industry (and even agriculture) in the richer regions.

As this process unfolds the Germans reap the rents and lecture their newly indebted customers to cut wages, sell off assets, and give up their pensions, schools, universities, healthcare-- much of which were second-rate to begin with. Recently the lectures have become orders, delivered by the IMF and ECB, demonstrating to Europe’s new debt peons that they no longer live in democratic states.

...Political fragility also explains the fury in France and Germany when George Papandreou [the calmest man in Europe, by the way, having been born and raised in Minnesota] sought to cut the knot of his rebellious ministers, irresponsible opposition and angry public by putting the latest austerity package to a vote. God help the bankers! The move was fatal to Papandreou in short order, and Greece will now be turned over to a junta of creditors’ deputies if such can be found willing to take the job. It won’t be anyone who wants to continue to live in Greece afterward.

Greece and Ireland are being destroyed. Portugal and Spain are in limbo, and the crisis shifts to Italy-- truly too big to fail-- which is being put into an IMF-dictated receivership as I write. Meanwhile France struggles to delay the (inevitable) downgrade of its AAA rating by cutting every social and investment program.

If there were an easy exit from the Euro, Greece would be gone already. But Greece is not Argentina with soybeans and oil for the Chinese market, and legally exit from the Euro means leaving the European Union. It’s a choice only Germany can make. For the others, the choice is between cancer and heart attack, barring a transformation in Northern Europe that not even Socialist victories in the next round of French and German elections would bring.

So the cauldrons bubble. Debtor Europe is sliding toward social breakdown, financial panic and ultimately to emigration, once again, as the way out, for some. Yet-- and here is another difference with the United States-- people there have not entirely forgotten how to fight back. Marches, demonstrations, strikes and general strikes are on the rise. We are at the point where political structures offer no hope, and the baton stands to pass, quite soon, to the hand of resistance. It may not be capable of much-- but we shall see.

Let me make this a little more palatable. Well, not palatable-- nothing is going to make it palatable-- but easier to understand. The video below is by Bell X1, who are from County Kildare in Ireland, one of the countries slated for... hard times. "Sugar High" is on their new album Bloodless Coup, and when I heard it, I asked Paul, the lead singer, if I was off base in thinking it was written as part of the worldwide revulsion at Wall Street's excesses at the expense of the rest of us. Thing is, Blooodless Coup came out in April, so I'm guessing they wrote "Sugar High" sometime in 2010. Could they have had OccupyWallStreet in mind before anyone had ever even heard of Zuccotti Park? Paul's answer sounds like he's been keeping up, maybe even reading David Korten's books.

"I had some sort of desire to address the dysfunction and unfairness of the systems currently in place that govern our lives and the distribution of wealth. We've drifted far from the noble idea of a group of people coming together as a nation and putting in place such systems to ensure the best quality of life for all. We need to rekindle an awareness of and take responsibility for this, in how we vote, spend and consume."

Gee, I hope the Germans-- or whoever they wind up hiring to do their wet work-- don't do anything bad to him.

Alan Grayson-- The Guy With The Progressive Vision For A Better America

Monday night Alan Grayson was on The Ed Show, not just to announce his candidacy for one of the Orlando congressional seats (the boundaries aren't drawn yet) but to lay out an alternative vision to what we've been seeing from the weenies in the Democratic Party. All I can say is, please watch the clip and, if you're so moved, drop in on the Blue America page and give Alan a hand with his race.

Yesterday James Galbraith posted an exhaustive and perceptive guide to the catastrophic debt ceiling debate and I want to contrast some of his conclusions with what Grayson has had to say about that debate. "News reports," Galbraith reminds us, "hold that President Obama scored a political victory by agreeing to put Medicare and Social Security on the chopping block to achieve a 'go-big' $4 trillion deficit reduction. Speaker Boehner had to concede that Republicans won’t vote for any package that includes tax increases-- and the deal died. So the gambit worked and the President emerged with a solid image as the alpha deficit hawk." Grayson referred, politely even fondly, to Obama as "my president" and "the leader of my party," but he was clearly uncomfortable with his approach. When asked by Ed Schultz, "How would you handle this," he answered unhesitatingly, "I would not vote for any cuts in Medicare. I would not vote for any cuts in Social Security and I'd be grabbing anybody else by the collar and telling them they should do the same... I know a way to cut two trillion dollars out of the deficit in the next ten years: you could end the wars. You could end the war in Afghanistan. You could end the war in Iraq and Libya. Those wars cost us $157 billion last year and the cost is going up, not down. If you want to save two trillion dollars, how about peace? Why don't we give that a try!"

When Schultz pressed him on Obama's willingness to cut Social Security, Grayson was very clear:

Washington is now divided between the Meanies and the Weenies; that's the real two party system today... The Meanies want to take Social Security and Medicare away from grandma and grandpa and the Weenies are quite willing to go along with it and "compromise." Well, people need Social Security and Medicare to live and there's no compromise between life and death; there's no middle ground. The average person who retires in America today has less than $50,000 in savings. That's good for one, maybe two years. And those people live for twenty. There's no way [these people] can live without Social Security and Medicare and that's what the right-wing in America wants to take away. I say NO-- no compromise. We need to strengthen Social Security and Medicare. I want to see Medicare cover dental work. I want to see Medicare cover hearing aids. I want to see Medicare cover actual medical leaves.

Galbraith points out that the debt ceiling, dating back to 1917 and the U.S. entry into WWI, was "an exercise in bad faith" right from the git-go-- and still is.

Today this bad-faith law is pressed to its absurd extreme, to force massive cuts in public programs as the price of not-reneging on the public debts of the United States. Never mind that to force default on the public obligations of the United States is plainly unconstitutional. Section 4 of the 14th amendment says in simple language that public debts, once duly authorized by law and including pensions, by the way, “shall not be questioned.” The purpose of this language was to foreclose, to put beyond politics, any possibility that the Union would renege on debts and pensions and bounties incurred to win the Civil War. But the application is very general and the courts have ruled that the principle extends to the present day.

What is going on in Congress at this moment already violates that mandate. It is an effort to subvert the authority of the government to meet and therefore to incur obligations of every possible stripe. It is an attack on the concept of government itself-- as the “Tea Party” by its very name would no doubt agree. It therefore paints those deficit hawks who are using the debt ceiling to take budget hostages as enemies of the United States Constitution.

The President, though supposedly a constitutional expert and though sworn to “preserve, protect and defend” the Constitution, will not say this. Instead he appears to treat the Constitution as an optional matter, to which he will not resort, in the hope that by negotiating with the hostage- takers he can reach some reasonable outcome that will preserve everyone’s good name. (The great Harvard legal scholar Laurence Tribe recently argued that the President cannot defy the debt ceiling on his own. That’s a debatable point.) It is as though Lincoln in 1861 faced with the siege of Sumter had sat down with Confederate commissioners to see what could be worked out.

In Washington it appears that this assault on government has a large measure of elite and media support, if not on the crass details or vulgar personalities but because it could conceivably force the parties to do “what they should do anyway”-- namely come to a long-term deficit and debt agreement. Such an agreement would cut spending, raise some taxes, put the projected debt-to-GDP ratio on a declining track, and solve the “government’s fiscal crisis.”

What fiscal crisis? The great unasked question in this summer of sound-and-fury is “why?” The United States has many problems at the moment: a high-and-stubborn unemployment rate, a foreclosure catastrophe, a slowing economy that has not recovered and will not recover from the Great Crisis, and the ongoing challenges of infrastructure, energy and climate change. Fiscal crisis? The entire thing is a figment, made up of wise-men’s warnings repeated endlessly and linked to the projections of technicians at the Congressional Budget Office and elsewhere.

...There are many people who believe fervently in the resilience of the private sector and for whom government is just a burden. Some of those people are pure predators: resource magnates, media magnates, banking magnates. Others have blinded themselves to the role government actually plays in sustaining the advanced networks, human protections and social systems that make up our lives, and imagine that one can go back to the world of subsistence farming, church charity and credit from the corner store. But there were many fewer people in that world, they didn’t do what we do, and they didn’t live nearly so long.

In broad terms, today’s government does four major things:

– it provides for the national defense.

– it purchases goods and services from the private economy for a wide range of public purposes, most of them individually quite small-scale in relation to GDP.

– it regulates a wide range of private-sector activity, for safety, health, environmental and other purposes, including financial stability-- or so one should hope.

– it administers Social Security, Medicare and Medicaid, as well as other pension and health benefit programs.

On what grounds are any of these functions too large? As an economist concerned with peace and security issues, I do believe we would be better off ending the wars in Iraq and Afghanistan quickly, that we could dispense with the real resource costs of many foreign bases, aircraft carrier groups, fighter aircraft and submarines and nuclear weapons left over from the Cold War. But these are security judgments, not broad economic ones. In other words, I would not cut a single dime of Pentagon spending that was actually necessary to defend the United States, in order supposedly to lower the interest rate on federal debt.

By the same reasoning, why should we cut transportation, or public health, or environmental protection, or scientific research, or bank inspectors or funds that support the public schools? One can argue these matters program by program-- and one should. (I would happily cut ethanol subsidies and oil company tax breaks, for starters.) But there is no economic case for placing an overall limit, and it is obvious that the 500,000 public sector workers-- including many teachers, police, fire and park rangers and librarians-- who have lost their jobs since 2009 were doing good and useful things that are now missed. If sacking them had been good for the economy, we would be having a stronger recovery than we are.

Finally there are Social Security, Medicare and Medicaid. Unlike the military or the transportation program, Social Security is not a government purchasing program. It therefore takes nothing directly from the private sector. What it does, is provide insurance: it protects workers from poverty in old age, whether or not their families would otherwise be willing and able to support them. And it taxes all workers, whether or not they would otherwise be burdened with elderly parents, or survivors, or the disabled, to support. Along with Medicare and Medicaid, Social Security is a powerful protector of the entire working population-- young and old. It redistributes purchasing power, in loose relation to past earnings, in a way that meets the basic needs of a large number of Americans who would otherwise, in many millions of cases, be destitute or medically bankrupt.

What economic purpose would cutting such programs serve? To do so would again redistribute incomes. Many of the future elderly would be much worse off, and of course many would die younger than they otherwise would. Survivors and the disabled would suffer as well. In return, what would the federal government and the country gain? A release of real resources to the private sector? Social Security does not take real resources from the private sector! Lower interest rates? The idea is absurd, and not just because interest rates are low today. The notion that cutting Social Security would help keep interest rates down is absurd because interest rates are set in a way that has no relationship at all to the scale of Social Security, Medicare or Medicaid.

This argument has nothing to do with the trope, oft-repeated and perfectly true, that the Social Security system does not contribute to the deficit. It would not matter if it did. The important question is: are benefits too high? Obviously not. How about payroll taxes-- are they too low? There is no case for that either. One of the very few bright spots in recent policy was the decision to reduce payroll taxes on employees, temporarily, while leaving Social Security benefits alone.

If you wanted to build on that, the right steps would be to lower-- not raise-- the Social Security early retirement age, permitting for a few years older workers to exit the labor force permanently on better terms than are available to them today. This together with a lower age of access to Medicare would work quickly to rebalance the labor force, reducing unemployment and futile job search among older workers while increasing job openings for the young. It is the application of plain common sense. And unlike all the pressures to enact long-term cuts in these programs, it would help solve one of today’s important problems right away.

Instead of this, what do we have, from a President who claims to be a member of the Democratic Party? First, there is the claim that we face a fiscal crisis, which is a big untruth. Second, a concession in principle that we should deal with that crisis by enacting massive cuts in public services on one hand and in vital social insurance programs on the other. This is an arbitrary cruelty. Third, a refusal to stand on the strong ground of the Constitution, against those whose open and declared purpose is tear that document and the public credit to shreds.

There's a real danger in American politics-- and that danger is that independent voices for working families, will be replaced by corporate handmaidens. What would our system be like if all we had were the Boehners and Cantors and Obamas and Liebermen and Ryans without someone to speak up for ordinary working people the way Bernie Sanders, Raul Grijalva and Alan Grayson always do. When the DNC asks you for money to support Obama's reelection, they're telling you two things: the Republicans are worse (true) and Obama's solutions are noble (false). When the DSCC and the DCCC ask you for contributions they're asking for money to help elect or reelect corporate whores like Ben Nelson, Jim Matheson and Joe Donnelly, Democrats who consistently vote against the interests of American families and who reflexively support right-wing Republican positions on issue after issue. But they wear blue t-shirts... for whatever reasons.

You can find Alan Grayson and other independent progressive candidates here. Check them out. Let's make sure regular folks even have a voice. And check out this note from Nick Ruiz to his donors. "Republicrats," he warns, "continued to raise $millions this second fundraising quarter, in order to ensure the New Deal legacy goes down in flames. This is what they want. It’s what their paymasters want. It’s what they have been working toward since FDR. We are outgunned, but never outnumbered-– make those numbers count by volunteering your time and money to people that will work for you, and work to further human progress, rather than increase America’s suffering with their indifference to our shared human struggle... Will you help to put this progressive Democrat in Congress, so I can join Sanders et al. in order to stop them?"


UPDATE: “Look at our campaign. This is what People Power looks like,” said Grayson.

The Grayson for Congress campaign is off to a great start: in less than 48 hours, more than 2,000 contributors have made contributions at the campaign website and through Blue America. That, plus contributions and pledges from other channels, has raised more than $75,000 already for the campaign.

The Grayson for Congress campaign raised more than $5 million for the 2010 campaign.  In fact, he raised more money than any other Democratic Member of the House.

“And it’s all clean money,” says Grayson. “I won’t beg for money from the special interests, the lobbyists and the PACs. I won’t put the law up for sale. I can’t be bought or sold. I owe nothing to anyone but the voters.”

The 2,000 individual contributors yesterday and today are the first “down payment” toward the record number that Grayson attracted to his 2010 campaign. More than 80,000 people made more than 100,000 individual contributions to Grayson’s campaign. By comparison, his 2010 opponent’s Federal Election Commission reports show contributions from 1,336 people.

James Galbraith says a clear economic path was open to the new Obama administration, and it WASN'T "selling out to the bankers"

"These men had no personal commitment to the goal of an early recovery, no stake in the Democratic Party, no interest in the larger success of Barack Obama. Their primary goal, instead, was and remains to protect their own past decisions and their own professional futures."

-- James Galbraith, referring to President Obama's economic team in his blogpost Obama's Biggest Mistake: Selling Out to the Bankers

by Ken

Granted, I tuned out of all the Election Night coverage, and haven't been paying all that much attention to the 24/7 post-election maundering, so perhaps I've simply missed it. But I haven't heard any pundit saying, "Son of a gun, they pulled it off, the Wall Street predators and their bankster brethren. Under cover of an economic meltdown, they strangled even more life out of the economy while getting themselves made whole and consolidating their power so that no one can ever challenge their economic hegemony. Son of a gun."

It's not a popular message, of course, since those people now control pretty much all the money in the country, and don't like sharing it with people who, say, suggest that they should have to put up with more than token government intrusion into their affairs.

It wasn't that long ago that we were registering with admiration economist James K. Galbraith's ringing, stinging denunciation of just about everything having to do with what I called alterately "the Secret Commission on Deficit Reduction" and "the loomingly disastrous Let's Stick It to Social Security Commission brought to us by the president in cahoots with America's pillars of economic orthodoxy" -- more popularly known as the Catfood Commission. (I wonder, though, whether the folks who picked up on that name have priced catfood lately. Once the "deficit hawks" have had their swashbuckling way with Social Security -- next stop, Medicare -- I wonder whether senior citizens will even be able to afford that.) And, wonder of wonders, Galbraith delivered his scathing report to the commission's ugly puss.

Our Jamie had better watch this nasty habit of talking sense in or around an orthodox-economic establishment that regards this kind of sense as the sort of thing that, after the fact, "who could have known?" As in: "Who could have known there was a housing bubble that could go bust and bring the whole economy down with it?" Of course there were plenty of people who'd been screaming about this for ages, but one of the key tricks to being part of that economic-orthodox establishment is having the strength of mind to not see and not hear the people who keep jumping up and down saying, "Can't you see? Can't you hear?"

Of course the president and his people won't be tuning Jamie in now either, because he's committing the cardinal sin of looking back instead of forward. Never mind that people who don't know where they've come from rarely have a clue where they're headed. And I mean this literally. Those people never mind the infernal backward-lookers and lesson-learners. And if you're as clueless as, say, your average right-wing predator or thug or sociopath, you have a vested interest in degrading people who do see and do learn.

In setting forth "Obama's biggest mistake," Jamie G accepts Paul Krugman's challenge that "Monday-morning quarterbacks should say exactly what different play they would have called." He accepts Krugman's argument that the Obama stimulus package, as all economists to the left of, well, the new president's economic team were saying at the time it was announced (who could have known?), was too small, but he insists that that was only part of the answer.

The original sin of Obama’s presidency was to assign economic policy to a closed circle of bank-friendly economists and Bush carryovers. Larry Summers. Timothy Geithner. Ben Bernanke. These men had no personal commitment to the goal of an early recovery, no stake in the Democratic Party, no interest in the larger success of Barack Obama. Their primary goal, instead, was and remains to protect their own past decisions and their own professional futures.

Up to a point, one can defend the decisions taken in September-October 2008 under the stress of a rapidly collapsing financial system. The Bush administration was, by that time, nearly defunct. Panic was in the air, as was political blackmail -- with the threat that the October through January months might be irreparably brutal. Stopgaps were needed, they were concocted, and they held the line.

But one cannot defend the actions of Team Obama on taking office. Law, policy and politics all pointed in one direction: turn the systemically dangerous banks over to Sheila Bair and the Federal Deposit Insurance Corporation. Insure the depositors, replace the management, fire the lobbyists, audit the books, prosecute the frauds, and restructure and downsize the institutions. The financial system would have been cleaned up. And the big bankers would have been beaten as a political force.

Team Obama did none of these things. Instead they announced “stress tests,” plainly designed so as to obscure the banks’ true condition. They pressured the Federal Accounting Standards Board to permit the banks to ignore the market value of their toxic assets. Management stayed in place. They prosecuted no one. The Fed cut the cost of funds to zero. The President justified all this by repeating, many times, that the goal of policy was “to get credit flowing again.”

The banks threw a party. Reported profits soared, as did bonuses. With free funds, the banks could make money with no risk, by lending back to the Treasury. They could boom the stock market. They could make a mint on proprietary trading. Their losses on mortgages were concealed -- until the fact came out that they’d so neglected basic mortgage paperwork, as to be unable to foreclose in many cases, without the help of forged documents and perjured affidavits.

But new loans? The big banks had given up on that. They no longer did real underwriting. . . .

Galbraith assumes that everything he knows about the way the economy malfunctioned was known to Geithner, Summers, and Bernanke. "But Geithner and Bernanke had cast their lots, with continuity and coverup. And Summers, with his own record of deregulation, could hardly have complained." And "to counter calls for more action, Team Obama produced sunny forecasts," insisting that what they were doing was working just fine. He argues that the team's acceptance of "responsibility for the entire excess of joblessness above eight percent "made it impossible to blame the ongoing disaster on George W. Bush. If this wasn’t rank incompetence, it was sabotage."

This is why, in a crisis, you need new people. You must be able to attack past administrations, and override old decisions, without directly crossing those who made them.

President Obama didn’t see this. Or perhaps, he didn’t want to see it. His presidential campaign was, after all, from the beginning financed from Wall Street. He chose his team, knowing exactly who they were. And this tells us what we need to know, about who he really is.

Now most anything different the administration may want to do -- and you have to think that along about now they'd like to do something different -- will likely require the "cooperation" of the new House Republican majority under the, er, "leadership" of "Sunny John" Boehner and the impendingly emerging coalition of crazed Republicans and panicky, weaselly Conservadems in the Senate. And of course there's no reason to trust anything new the administration may try to undertake than we should have trusted what it did undertake. It might be wise to stock up on catfood before the prices really soar.

Who could have known?

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Even with the deficit commission on the lam, Jamie Galbraith delivers what should (but won't) be a death blow

UPDATE BELOW: Zounds! The commissioners emerge from hiding for a day!

House Minority Leader "Sunny John" Boehner has taken to arguing that the Bush tax cuts aren't "what led to the budget deficit." Obviously the immediate cause is asset and revenue collapse brought on by the Bush depression, but who laid the groundwork -- for both the depression and the deficits? Of course since Sunny John's knowledge of economics is limited to shoveling in bribes in his personal Corporate Cash for Congress program, he really can't be expected to know better, can he? And apparently it's too much to hope he might keep his trap shut on stuff he doesn't know anything about.

"Secrecy breeds suspicion: first, that your discussions are at a level of discourse so low that you feel it would be embarrassing to disclose them. Second, that some members of the commission are proceeding from fixed, predetermined agendas. Third, that the purpose of the secrecy is to defer public discussion of cuts in Social Security and Medicare until after the 2010 elections. You could easily dispel these suspicions by publishing video transcripts of all of your meetings on the Internet, and by holding all future meetings in public. Please do so."

-- economist James K. Galbraith, in a statement

prepared for the Secret Commission on Deficit Reduction

by Ken

Howie and I have both been jumping ugly on the loomingly disastrous Let's Stick It to Social Security Commission brought to us by the president in cahoots with America's pillars of economic orthodoxy. While it's true, as a report on this morning's NPR Morning Edition ("Once a Critic, Obama Now Embraces Commissions") reported, that there is a long, undistinguished history of presidential commission reports that were duly filed and, after perhaps a hearty press-conference launch, never heard from again. However, I don't think this commission's report is designed to suffer the same fate.

As the Morning Edition report pointed out, a presidential commission is almost always a president's way of saying, "I don't wanna talk about it." As the Morning Edition report also pointed out, it was presidential candidate Barack Obama who derided opponent "Young Johnny" McCranky for proposing to deal with the then-new economic meltdown with -- what else? -- a presidential commission.

For a proper refutation of the kind of nonsense Sunny John is spewing about the deficit, see Kathy Ruffing and James R. Horney's Center on Budget and Policy Priorities report.

What's different about this commission -- that is, apart from its fugitive status (I expect those poor commissioners-in-hiding to start showing up any day now on milk cartons) -- is that it seems meant, not to take an awkward subject off the table, but to provide cover for the first step toward dismantling or at least drastically curtailing so-called entitlement programs long desired by certain corporate and far-right interests emblemized by corporate predator Pete Peterson. Instead of the usual commission formula of producing sensible proposals that will be safely ignored, this commission seems to have been created for the express purpose of producing intensely ideological and normally wildly unpopular plans of action which proponents can then try to strong-arm through Congress.

Which is why I'm not nearly as optimistic as Paul Krugman, in his now-famous blogpost, that ""Zombies Have Already Killed The Deficit Commission." The fact that commission co-chair former Sen. Alan "The Annoyer" Simpson is trotting out long-since-disproved (and therefore "zombie") lies about Social Security might matter if this commission's work were aimed at an impartial, well-informed decision-making authority, but in reality it seems intended to be fed into the Right-Wing Noise Machine and whatever other media echo chambers will sign on, for the purpose of simulating enough noise to induce compliance among enough members of Congress whose existences don't depend on Social Security, Medicare, or Medicaid.

Still, a commission that took it on the lam in response to scrutiny from a single blogger (Social Security Works's Alex Lawson) may be more vulnerable to intellectual shaming than I'm allowing. If so, the devastasting statement just delivered to the commission today, apparently at its request, by University of Texas economist James K. Galbraith (see link above for the text) might actually have some effect.

The statement really is worth looking through. For example, the chunk I've quoted above, denouncing the commission's secrecy, is in fact only one of four counts on which Galbraith argues that the commission is illegitimate -- and that itself is only the first point he makes, which he acknowledges is a political rather than economic one.

The New Deal 2.0 website provides this overview of Galbraith's statement:

James K. Galbraith’s Testimony Blasts Fiscal Commission

Wednesday, 06/30/2010 - 12:16 pm by Lynn Parramore

James K. Galbraith, one of the country’s most respected economists and a ND20 contributor, offered a statement today to the Fiscal Commission on behalf of Americans for Democratic Action, an organization co-founded in 1949 by (among others) by Eleanor Roosevelt. We at New Deal 2.0 recommend that you grab a coffee, sit back, and read this elegant, blistering, and brilliant description of why the Commission is both misguided and malignant.

Read full text of testimony here.

For a quick snapshot, Galbraith’s testimony is divided into ten sections, which address the following points:

-That the Commission’s work is illegitimate
-That current deficits and rising debt were caused by the financial crisis.
-That future deficit projections are generally based on forecasts which begin by unrealistically assuming full recovery
-That, having cured the deficits with an unrealistic forecast, CBO recreates them with another, very different, but equally unrealistic forecast.
-That the only way to reduce public deficits is to restore private credit.
-That Social Security and Medicare “solvency” is not part of the Commission’s Mandate.
-That as a transfer program, Social Security is also irrelevant to deficit economics.
-That markets are not calling for deficit reduction, either now or later.
-That in reality, the US government spends first & borrows later; public spending creates a demand for Treasuries in the private sector.
-That the best place in history (for this Commission) would be no place at all.

Our favorite line comes near the end with this withering address to the Commission: “You are plainly not equipped, either by disposition or resources, to take on the true cause of deficits now or in the future: the financial crisis.”

The point about the need to restore private credit is one the Republican deficit hawks have conveniently forgotten now that their masters the banksters have been bailed out and rendered at least relatively whole relative to the rest of us, only to blithely refuse to do what they were ostensibly bailed out to do: unjam the credit lockdown. You have to give them credit for recognizing what piss-poor judges of creditworthiness they were in the orgy of crap-loan-writing they engaged in as their contribution to crashing the economy. Still, if the banks aren't lending, what public interest is there in helping them to survive?

The only way to reduce a deficit caused by unemployment is to reduce unemployment. And this must be done with a substantial component of private financing, which is to say by bank credit, if the public deficit is going to be reduced. This is a fact of accounting. It is not a matter of theory or ideology; it is merely fact. The only way to grow out of our deficit is to cure the financial crisis.

To cure the financial crisis would require two comprehensive measures. The first is debt restructuring for the entire household sector, to restore private borrowing power. The second is a reconstruction of the banking system, effectively purging the toxic assets from bank balance sheets and also reforming the bank personnel and compensation and other practices that produced the financial crisis in the first place. To repeat: this is the only way to generate deficit-reducing, privately-funded growth and employment.

As a former top adviser in the Clinton White House, co-chairman [Erskine] Bowles no doubt know that privately-funded economic growth produced the boom years of the late 1990s and the associated surplus in the federal budget. He must also know that the practices of banks and investment banks with which they were closely associated worked to destroy the financial system a decade later. But I would wager that the Commission has spent no time, so far, on a discussion of the relationship between deficit reduction and financial reform. [Emphasis added.]

And Galbraith argues effectively that Social Security should be beyond the purview of a deficit commission because it doesn't create debt, it simply moves money -- money that not only has deserving recipients but is spent, unlike the money the banksters and their cronies have been piling up.

Social Security is a transfer program. It is not a spending program. A dollar "spent" on Social Security does not directly increase GDP. It merely reallocates a dollar from one potential final consumer (a taxpayer) to another (a retiree, a disabled person or a survivor). It also reallocates resources within both communities (taxpayers and beneficiaries). Specifically, benefits flow to the elderly and to survivors who do not have families that might otherwise support them, and costs are imposed on working people and other taxpayers who do not have dependents in their own families. Both types of transfer are fair and effective, greatly increasing security and reducing poverty -- which is why Social Security and Medicare are such successful programs. . . .

{C]utting Social Security benefits, in particular, merely transfers real resources away from the elderly and toward taxpayers, and away from the poor toward those less poor. One can favor or oppose such a move on its own merits as social policy -- but one cannot argue that it would save real resources that are otherwise being "consumed" by the government sector. [Emphasis added.]

AND AFL-CIO PRESIDENT RICHARD TRUMKA WEIGHS IN

Also scheduled to report to the commission today was AFL-CIO President Richard Trumka, whose prepared statement included this (there are footnotes in the online text which I've left out):

We need to be clear that President Obama is not to blame for getting us into this mess. Two weeks before he took office, the Congressional Budget Office (CBO) projected a budget deficit of $1.4 trillion for 2009—and annual deficits averaging well over $1 trillion for the coming decade.

We should be honest about what’s causing deficits over the next ten years. According to the Center on Budget and Policy Priorities, “The tax cuts enacted under President George W. Bush, the wars in Afghanistan and Iraq, and the economic downturn together explain virtually the entire deficit over the next ten years.” And “without the economic downturn and the fiscal policies of the previous administration, the budget would be roughly in balance over the next decade.”

Although more than half of the 2009 deficit is due to the recession, Council of Economic Advisers Chair Christina Romer points out that “in the absence of [Bush administration policies that we failed to pay for], we could have had an economic downturn as severe as the current one and responded to it as aggressively as we have, all while keeping the budget roughly balanced over the next ten years [2010-2019].”

We should also be honest about what’s causing projected deficits over the long term. We do not face a crisis of entitlement spending generally, caused by the retirement of the Baby Boomers. In the long term, we face a crisis of public and private health care costs growing faster than GDP, especially after 2035. Social Security has its own source of dedicated funding and is not responsible for our unsustainable long-term debt, and spending on other entitlements is projected to fall as a share of the economy over the long term. [Emphasis added.]

Of course the deficit hawks can always be counted on to be in the forefront of the resistance to any serious effort to rein in health care costs.

It would be interesting to get an idea of the commissioners' responses to the Galbraith and Trumka testimony, but I assume the Secret Commission has gone back into hiding. Soon to be seen on milk cartons in a supermarket dairy case near you?


THURSDAY UPDATE: WHAT DO YOU KNOW? THE
COMMISSION EMERGED FROM HIDING -- FOR A DAY

Well, my goodness, the D.C. Deficit Hawks' Club, I mean the Secret Deficit Commission, slipped out of the attic yesterday to hold what at least one source called "a rare public session"!

I wish I could say this seems in some way significant. I mean, if this was the day set aside for what the defhawks no doubt consider wild-eyed radical lefties like Jamie Galbraith and AFL-CIO President Trumka, why bother going through the motions unless you do it publicly? Never mind that Galbraith has become one of the country's most respected economists; the quickest glance at the statement he was bringing tells you that not a word of it will be given the slightest attention. And when was the last time anyone inside the District of Columbia felt any need to pay attention to anything having to do with organized labor?

Let's wait and see how open the DCDHC, I mean the SDC, is when it comes to actual commission work.

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