Category Archives: Government

Debt, again

Posted on by davald

We know why debt skyrocketed during the early to mid 40s. The U.S. was at war, big time. But think about this for a moment in terms of America’s collective psyche.

Europe was already engaged in a massive conflagration when Japan attacked Pearl Harbor. Congress immediately declared war on Japan, and since Japan was part of the German axis, we were forced to fight on two fronts. No problem, evidently. We Americans committed any and all resources to prevail, even, as it turned out, if our debt-to-GDP ratio soared past 100. The cause justified the fiscal imbalance.

Besides winning the war, the U.S. economy also grew.

To be sure, GDP was growing before the war, which Berkeley economist Christine Romer attributes to monetary expansion. In 1941 the U.S. was already jumpstarting industries to provide materiel to England in its battle with Berlin. That year saw real GDP soar by 17 percent. The next two years the annual GDP growth was 18 percent. Then GDP fell to 8 percent and even hit a negative 11 percent from 1945 to 1946. From then on, however, the economy grew steadily in real dollars, with only a few negative blips.

Meanwhile, as we see in the first chart, the debt-to-GDP ratio fell. Interesting. The country not only reduced its debt levels but also saw the economy expand.

Suppose the present economic conditions represent, in Krugman’s vernacular, the Lesser Depression. Suppose further that the biggest factor in ending the Great Depression was the massive fiscal stimulus required of the war effort, which also drove debt sky high, more than 120 percent of GDP. Would it not make sense, then, for the federal government to spend massive amounts of money now, even if debt levels rise?

The answer to that question depends on whether or not the U.S. is in similar circumstances as it was during the Great Depression, when so many people were out of work, banks and businesses shuttered, and the economy essentially stagnant. Again, Krugman believes the parallels are there, which is why he, among others, is calling for a massive fiscal stimulus, knowing full well that current politics makes it impossible.

One other thing is equally certain: business as usual isn’t working, and probably cannot work. Austerity under present circumstances almost guarantees economic contraction. That’s what states have been forced to practice—and how are their economies doing? (California’s Governor Jerry Brown, to name one example, just called for more draconian cuts in the state’s budget, with predictable consequences.)

I should add one other certainty. Should Mitt Romney defeat Obama and Republicans gain numerical control of both houses, the country is doomed, since the GOP is all about cuts—in both spending and taxes. Then watch the debt explode and unemployment soar. History tells us so.

Hedges and “the gap”

Posted on by davald

Writing for Truthdig, Chris Hedges sets the tone:

We have been, like nations on the periphery of empire, colonized. We are controlled by tiny corporate entities that have no loyalty to the nation and indeed in the language of traditional patriotism are traitors. They strip us of our resources, keep us politically passive and enrich themselves at our expense.

Hedges, citing Robert Gamer’s book The Developing Nations, explains that the Rest of Us are to the One-percenters as colonies are to imperials. Hedges:

In it Gamer notes that although the oppressed often do revolt, the object of their hostility is misplaced. They vent their fury on a political puppet, someone who masks colonial power, a despised racial or ethnic group or an apostate within their own political class. The useless battles serve as an effective mask for what Gamer calls the “patron-client” networks that are responsible for the continuity of colonial oppression. The squabbles among the oppressed, the political campaigns between candidates who each are servants of colonial power, Gamer writes, absolve the actual centers of power from addressing the conditions that cause the frustrations of the people. Inequities, political disenfranchisement and injustices are never seriously addressed. “The government merely does the minimum necessary to prevent those few who are prone toward political action from organizing into politically effective groups,” he writes.

So, what about the Occupy movement? Does it worry the One-percenters? Hedges thinks so.

The real danger to the elite comes from déclassé intellectuals, those educated middle-class men and women who are barred by a calcified system from advancement. Artists without studios or theaters, teachers without classrooms, lawyers without clients, doctors without patients and journalists without newspapers descend economically. They become, as they mingle with the underclass, a bridge between the worlds of the elite and the oppressed. And they are the dynamite that triggers revolt.

This is why the Occupy movement frightens the corporate elite. What fosters revolution is not misery, but the gap between what people expect from their lives and what is offered. This is especially acute among the educated and the talented. They feel, with much justification, that they have been denied what they deserve. They set out to rectify this injustice. And the longer the injustice festers, the more radical they become.

Or, maybe not. We’ll see.

When I ponder the American Revolution and its causes, varied to be sure, I appreciate Hedges’s focus on the expectation gap. The American colonists, or at least their putative leaders, weren’t miserable. They did, however, sense opportunity. Why allow ourselves to be governed from afar? Why should we have to pay this or that tax yet be denied political representation? Why do we obey a king? Besides, there are fortunes to be made, none of which should be siphoned off by the Crown.

The recent uprisings in the Middle East suggest the same. People’s expectations, no doubt fueled by the West and its manifestations, changed from passive resignation to we shall overcome. Dictatorship rubs against newfound sensibilities. Therefore, remove the dictator. We’ll figure out the rest as we go along.

Despite his insight, I’m more pessimistic than Hedges. Most of us aren’t miserable, though we may be anxious. Moreover, we’re disinclined to organize ourselves politically. We’re too busy “friending” and “texting” and otherwise chatting about and sharing our decidedly mundane experiences, whether it be an infant’s laughter, a cat’s playful encounter with an iPad, or the most recent sightings of the ubiquitous Kardashians.

Hedges is certainly mindful of popular culture. Indeed, that’s a major point, expressed previously by Walter Lippman and Noam Chomsky—our consent has been and is forever being manufactured. I submit that the implicit consent serves as an obstacle to political action, whether or not organized or coordinated.

We can impose on this phenomenon the conclusions of the research done by Daniel Kahneman and others about the human psyche. We humans are inherently lazy. We’d prefer not to use our “Type 2″ mental processes, because that involves work. But the business of organizing and coordinating requires such Type 2 thinking, what Kahneman also calls “slow.” We’d rather live in the world of “fast,” where instincts rule.

Returning to the American Revolution, that was led by a relative handful of learned men passionate about the possibilities of severing “political bands.” I recall reading a short textbook in college wherein the author estimated that support for revolution among the general population was in the single digits, inadequate numbers to expect a spontaneous irruption. Urgent disdain for England needed manufacturing.

I often wonder about the Canadians, our neighbors to the north. Immersed in profound ignorance of that country’s history, I ask myself why they didn’t similarly revolt. Canada patiently waited until 1982, when it obtained legal independence from the UK, though it remains within the Commonwealth of Nations. To my eye, Canadians are doing quite nicely without the perceived need to revolt.

So, I just don’t see revolution in the cards. My realistic hope is that we reverse the thousand cuts and chip away at the system that no longer works for us—if it ever did. Discretion trumps valor.

A new manifesto, sort of

Posted on by davald

On the cover of the May 2012 issue of the Monthly Review we are treated to these sobering words, ending with a call to arms:

The world is being subjected to a process of monopolistic capital accumulation so extreme and distorted that not only has it produced the Great Inequality and the conditions of stagnation and financial instability, but also the entire planet as a place of human habitation is being put in peril in order to sustain this very system. Hence, the future of humanity—if there is to be one at all—now lies with the 99%.

Takin’ it to the streets? Not likely.

But it’s clear, or it is to me at least, that those who have dominated our economic, political, and social worlds cannot be expected to alter the rules in our favor. They’re at the top, enjoying themselves, and to hell with the Rest of Us. Moreover, because their wealth and power are so extreme, they have established major, multiple impediments to those who dare challenge the system by which they benefit.

John Bellamy Foster and Robert W. McChesney, who seem to write the lion’s share of the publication’s cover articles, offer graphic illustration of a key theme: that the immediate post-war era was likely an anomaly not likely to be revisited.

As you readily note, there’s a decided downward trend in economic production from the 60s. Extending the trend suggests negative growth in the not-too-distant future.

Why are the relative halcyon days of the 50s and 60s an anomaly? McChesney and Foster suggest six unique conditions that obtained during that two-decade period. I quote:

In the mid–1970s the U.S. economy slowed down drastically, ending a period of rapid expansion that had been fueled by: (1) the build up of consumer liquidity during the war; (2) the second great wave of automobilization in the United States (including the construction of the Interstate highway system); (3) a period of cheap energy based on the massive exploitation of oil; (4) the rebuilding of the war-torn European and Japanese economies; (5) two regional wars in Asia, and Cold War military spending in general; and (6) a period of unrivaled U.S. hegemony.

Today, we still have the wars, always the wars. The Rest of Us lack “liquidity,” since a large chunk of us are out of work, and our wages have stagnated. Add to this the sharp decline in housing equity, relied on for so many years to pay off accumulating credit card debt and to finance major purchases, and we can appreciate that we’re ill-positioned to buy a lot of things, and consumer demand has always driven the economy. We know about Detroit’s problems, although it is in the midst now of a modest resurgence. The U.S. is still exploiting oil, though there’s not as much in the ground as there most certainly was during the relative halcyon days. We’re no longer the principal hegemon, as Europe and more recently China challenge us on the economic front. The Marshall Plan is history, as are the rebuilding of new markets. Globalization has taught us that the ebb and flow of countries’ GDPs track together. The U.S. is depressed; and so are Europe, Japan, and perhaps even China, whose recent growth rates nosedived.

Before concluding I’d like to draw your attention to another disturbing trend, one that I’ve mentioned several times. That is, our economy and the economies of Europe have been gradually taken over by the financial sector, known by the acronym FIRE, for finance, insurance, and real estate. Consider this chart, taken from the linked Monthly Review article:

Dollars siphoned off by the financial sector typically remain there; they do not circulate amongst the Rest of Us. Few, if any, of us are stockbrokers, bank CEOs, hedge-fund managers, or insurance moguls. The Rest of Us, if we’re lucky, build and repair things, maintain the assets of the One-percenters, teach children, populate spreadsheets, clean toilets, harvest fruits and vegetables, turn burgers, or blog. We spend most of what we make, and our precious dollars circulate for a bit in the consumer economy before making their inevitable way into the (mostly offshore) accounts of the very rich.

The economy and the political apparatus have not been designed or molded into systems that serve the interests of the Rest of Us. The fact that the Rest of Us greatly outnumber the One-percenters, and that we have incipient Lockean momentum, has so far escaped our recognition. Unless and until we awaken to the obvious, we consign ourselves to continuing anxiety over present and future circumstances.

We are the 99-percenters. Pass it on. Or not.

Judicial activism redefined

Posted on by davald

Conservatives have long bashed liberal majorities on the Supreme Court for “judicial activism,” suggesting that their decisions have effectively rewritten laws in opposition to Congress’s intent. A couple of such decision spring to mind: Brown v. the Board of Education and Roe v. Wade.

In these decisions the Court appears to have deduced the original intent or the verities contained in the U.S. Constitution then applied them to modern conditions, perhaps not anticipated by the Founding Fathers. Conservatives objected on the grounds that the law should be narrowly construed, giving effect only to the literal text, as is Justice Scalia’s wont.

Yet, it should be obvious even to a casual observer of recent Court decisions that the new conservative majority is bent on not just repealing Congress’s laws but writing its own. This new strategy is on display in one of the Court’s most egregious decisions, Citizens United.

As originally argued by the lawyer for Citizens United the Court was asked to make a simple answer to a simple question. Was the broadside against Hillary Clinton a “documentary” or a piece of political advocacy. If the former, the lawyers contended, then McCain-Feingold did not apply; if the latter, so be it.

But the die-hard conservatives of the Court—Scalia, Alito, Thomas, and Chief Justice Roberts—have their own agenda, their own opinion of how the country should be governed, and their own ideological views on the nature of democracy and how it should be practiced. With increasing frequency they are joined by Kennedy, who wrote the opinion on Citizens United.

So, what began as a very narrow interpretation of McCain-Feingold mushroomed into a broad rejection of just about any congressional restrictions on campaign contributions. Money, you see, is speech, and since the Constitution bars Congress from enacting any laws that abridge freedom of speech, it follows that Congress cannot restrict either political spending or contributions.

I recommend reading the New Yorker‘s Jeffrey Toobin as he painstakingly describes judicial activism as performed by radical conservatives appointed by presidents. Toobin concludes:

These developments have drawn some criticism, but the Court appears determined to extend the deregulatory revolution that it began in Wisconsin Right to Life and Citizens United. Last year, the Court struck down Arizona’s system of public financing of elections, which the state had passed after a series of political scandals involving fund-raising. The Arizona system gave additional funds to candidates for certain state offices who were being heavily outspent by their privately funded opponents. By the customary vote of five-to-four, with an opinion by Roberts, the Court declared the system unconstitutional. As Kennedy had in Citizens United, Roberts said that governments could never take steps to equalize opportunities for candidates in electoral contests. “ ‘Leveling the playing field’ can sound like a good thing,” he wrote. “But in a democracy, campaigning for office is not a game. It is a critically important form of speech. The First Amendment embodies our choice as a Nation that, when it comes to such speech, the guiding principle is freedom—the ‘unfettered interchange of ideas.’ ” The Roberts Court, it appears, will guarantee moneyed interests the freedom to raise and spend any amount, from any source, at any time, in order to win elections.

A brief note on debt

Posted on by davald

There seems to be consensus that accumulating federal debt poses long-run problems for the U.S. and its economy. The Right is particularly keen on pointing out the rising debt during Obama’s first term. Indeed, the Republicans like to scare the hell out of us on that topic alone, without providing much basis for the fear.

Keynes famously said that in the long run we’re dead. He was responding to critics back in the 30s who criticized his debt-financed fiscal stimulus proposals. For Keynes, high unemployment persisting over time represented a more serious problem than the long-term concern over debt. He also believed that the government was the only entity that could break the recessionary cycle, since  Depression-era people lacked sufficient money to purchase goods and services and producers couldn’t justify expanding capacity if the additional products would not be consumed.

The recent rise in government debt appears to be a global phenomenon, with some exceptions. This chart below shows government debt as a percentage of GDP for a several countries, including the U.S. (sources are OECD and FRED).

The Great Recession began in the latter part of 2007. We’ll note that federal debt levels were stable or even declining in a few countries (e.g., Spain and Ireland). Since 2007, however, debt has climbed, in some cases spectacularly so (e.g., Ireland). And for all its virtuous rhetoric, Germany’s debt is rising too. I should also note that U.S. federal debt as a percentage of GDP pushed beyond the century mark last year.

Why the increases? The likely suspect is falling revenues, occasioned by declining wages and jobs. Federal spending has continued to rise, mostly due to increased need of public services (e.g., unemployment benefits) and financing two wars. It should not surprise us that losing work and income creates further stresses on government agencies, federal as well as state and local.

In 1947, two years after the war ended, the ratio of debt to GDP was 105 percent. Then federal debt levels began to fall. Each year the ratio declined, reaching its post-war low in 1973, at 32 percent. It then rose slightly, before returning to its nadir in 1979-1981. Beginning with conservative Republican Ronald Reagan, the debt began to rise steadily, reaching its highest pre-recession level in 2006, at 64 percent of GDP.

The political debate today is between those who focus on debts and those who focus on misery. But this country weathered higher debt ratios in the past without economic collapse. It will likely survive the recent rise. Keep in mind, though, that the ratio was at its lowest when marginal tax rates were very much higher than they are today. The correlation begs a causal relationship.

Moreover, and I’ll leave here, if one is truly concerned about debts, the obvious solution is to raise taxes on those who are not just surviving the recession, they are increasing their wealth. By the way, these One-percenters are not “job creators,” as the evidence reveals.

Spending time with FRED

Posted on by davald

The St. Louis Federal Reserve houses a treasure trove of economic data. I often download their data to create my own graphs, but you’ll often see the FRED’s original graphs embedded in blogs, including those of Paul Krugman and Matthew Yglesias and even here.

The following graph from FRED shows what has happened to the aggregate receipts of our state governments.

Receipts, to no one’s surprise, depend heavily on the economy’s status. If it’s growing, receipts rise. If it’s contracting or stagnating, receipts fall off. And when receipts fall off, state legislatures turn to cutting. And when state legislatures turn to cutting, people who are already hurting hurt more. Republicans, of course, have no problem with this, as long as the rich remain coddled.

Here’s another chart, based on FRED data, showing what the states and local governments have done in response to lower revenues.

If you’re wondering why school districts are suffering, or why the roads aren’t being repaired—the above chart provides a clue.

The next two charts, again based on FRED data, reflect the remarkable changes that must have occurred from the 1970s on.

Save for the WWII downward blip, the federal government was taking in roughly as much as it was spending—until the 1970s, which ushered in deficit spending, save for the Clinton years. And what have the deficits wrought?

At the end of 2011, the debt had grown to $9.3 trillion. We’ve been fighting wars and coddling the rich, after all.

If someone approached you on the street with the question—”Should the government have a balanced budget?”—my guess is that you’d instinctively say yes. That is, the government’s expenditures should not exceed its receipts.

Once again, we can see that federal expenditures rose faster than revenues beginning in the 1970s, with the exception of the Clinton years.

I have mentioned “the Clinton years” a couple of times. Clinton’s tenure was sandwiched between Republican administrations. For all their bluster about fiscal prudence, Republicans hardly practice it when given the reins.

The above graph suggests that it’s far easier to cut taxes, and therefore diminish revenues, than it is to cut spending. When we’re given the opportunity, we vote to cut our own taxes. But we always retain the right to complain about lousy government service, failing to appreciate the causal relationship between the two.

This next graph is a bit misleading. I’ve divided federal receipts by population.

What’s misleading about this curve is the Great Divergence—when the incomes of the very rich soared while everyone else’s stagnated or fell. Even with the sharp reduction in marginal tax rates, the very rich are mostly responsible for driving up federal taxes. In the main, however, when the economy does well government receipts increase.

To be sure, federal tax receipts from corporate income have also risen.

Corporate tax receipts appear to be quite sensitive to economic cycles. Look at the sharp drops in revenues during the last two recessions. But we also see a large spike in corporate tax revenues as the housing bubble expanded along with rising Wall Street fortunes.

The Rest of Us can only hope for a better future, one in which jobs are plentiful, wages are sufficient, anxiety over medical issues is relieved, retirement is met with joy rather than dread, schools properly educate, the air is clean, the water is pure, and everyone is happy.

Not going to happen. The FRED tells me so.

Why so many poor?

Posted on by davald

I suspect that every time people gather to recite the Pledge of Allegiance or sing the National Anthem they implicitly believe that they exist in the greatest country on earth. So, I’ll stick with this motif for a moment to pose some questions.

I begin with a fundamental question: If this country is so great, why are so many of us poor?

According to recent estimates, about half of all Americans are poor or near-poor. One out of every two Americans lives in poverty. Whatever the causes, the mere fact that half of us are struggling to survive should sow doubts about our greatness.

If this country is so great, why are so many of us lacking jobs?

If this country is so great, why do we coddle the rich at the expense of everyone else?

If this country is so great, why does our education system suck?

If this country is so great, why do we spend so much on health care while leaving more than 40 million of us without any insurance at all?

The Republican majority in the House passed a budget yesterday. If it became law, the poor would be punished further. Here’s the New York Times editorial on the subject:

For more than a year, House Republicans have energetically worked to demolish vital social programs that have made this country both stronger and fairer over the last half-century. At the same time, they have insisted on preserving bloated military spending and unjustifiably low tax rates for the rich. That effort reached a nadir on Thursday when the House voted to prevent $55 billion in automatic cuts imposed on the Pentagon as part of last year’s debt-ceiling deal, choosing instead to make all those cuts, and much more, from domestic programs.

The paper’s editors entitle their essay “The Human Cost of Ideology.” They go on to enumerate the toll the Republicans would exact on our most vulnerable citizens. The Democratic minority offered a counter proposal, which was summarily dismissed by the Republicans. The editors:

House Democrats offered an alternative bill that would replace the $109 billion sequester by raising taxes on the wealthy, ending oil company tax loopholes and cutting farm subsidies, but it was rejected. Republicans are determined to protect millionaires and defense contractors, no matter the costs to the country.

“…with liberty and justice for all.” Really?

Going backwards

Posted on by davald

The Marysville School District, on the first day of Teacher Appreciation Week, announced that it would layoff some two-dozen teachers and many more support staff and specialists in response to further state cuts in education. If the numbers stick, and they typically don’t by the time September rolls around, the remaining teachers will have more students in their rooms. Nor will they have the support of counselors to deal with unruly behaviors. Students will be denied music programs, among others.

Marysville, of course, is hardly unique. Education budgets have been cut all across the country. But no place has been harder hit than California, which used to boast of the world’s best education systems, from kindergarten through graduate school. Now it ranks at or near the bottom.

This piece, written by a San Francisco teacher, provides dismal statistics.

The San Francisco Unified School District (SFUSD) opened contract negotiations by sending out over 500 layoff notices. It tried to split the union by attacking seniority, and then proceeded to demand even larger concessions by, for example, asking to raise class size in K-3 from 22 to 25 stuents.

We already rank highest in the number of K-12 students per teacher, with an estimated 20.5 students per teacher–the rest of the country averages 13.8, according to the California Budget Project. This will make things worse for students and educators trying to work in an already underfunded system.

I hate this shit.

Another reason why Republicans are phonies

Posted on by davald

The House Armed Services Committee on Wednesday backed construction of a missile defense site on the East Coast, rejecting Pentagon arguments that the facility is unnecessary and Democratic complaints that the nearly $5 billion project amounts to wasteful spending in a time of tight budgets.

The AP article appeared in this morning’s Everett Herald. It betrays GOP duplicity and hypocrisy. If we thought that Republicans were all about fiscal probity, by this committee vote we can be assured the opposite.

The chief proponent of constructing the site, Rep. Michael Turner, R-Ohio, said, “We need to proceed with missile defense whether this president wants to or not.”

And if the Pentagon deems it unnecessary, unworkable, and financially wasteful that shouldn’t count?

Gen. Charles Jacoby, the head of U.S. Northern Command and North American Aerospace Defense Command, told Congress earlier this year, “Today’s threats do not require an East Coast missile field, and we do not have plans to do so.”

It’s tough to kill Star Wars. Since Reagan launched the initiative Congress has spent $150 billion; it intends to spend almost $50 billion more.

Democrats countered that throwing billions at a missile defense system plagued by failures made no sense, especially when the threat from the two nations was highly uncertain and many in Washington are demanding fiscal discipline.

Game over

Posted on by davald

That’s the New York Times heading for James Hansen’s op-ed this morning. For whom or what? The planet.

Hansen is accused by climate change skeptics and deniers as “an alarmist.” But if he is alarmed, we should be too. The reason is quite simple: Hansen, more than anyone else on the topic, knows climate science.

Yes, I appreciate that one shouldn’t ordinarily appeal to authority. On the other hand, we know that Hansen has been studying the link between greenhouse gas emissions and climate sensitivity for most of his adult career, spent mostly at NASA. He made predictions way back in 1981 about what would happen should carbon dioxide concentrations increase; and those predictions are proving true.

Hansen is particularly concerned at the moment about the extraction, transportation, and ultimate consumption of the oil deposited in tar sands and shale, most of the former being in Canada. The stuff has twice the carbon content as conventional petroleum. He avers that President Obama could prevent the shipment of oil from Canada to southern U.S. ports. Hansen:

GLOBAL warming isn’t a prediction. It is happening. That is why I was so troubled to read a recent interview with President Obama in Rolling Stone in which he said that Canada would exploit the oil in its vast tar sands reserves “regardless of what we do.”

If Canada proceeds, and we do nothing, it will be game over for the climate.

…

President Obama has the power not only to deny tar sands oil additional access to Gulf Coast refining, which Canada desires in part for export markets, but also to encourage economic incentives to leave tar sands and other dirty fuels in the ground.

Atmospheric carbon dioxide concentrations have increased from 280 parts per million before the industrial revolution to their current level of 393 ppm. Hansen:

The tar sands contain enough carbon — 240 gigatons — to add 120 p.p.m. Tar shale, a close cousin of tar sands found mainly in the United States, contains at least an additional 300 gigatons of carbon. If we turn to these dirtiest of fuels, instead of finding ways to phase out our addiction to fossil fuels, there is no hope of keeping carbon concentrations below 500 p.p.m. — a level that would, as earth’s history shows, leave our children a climate system that is out of their control.

Hansen has long pushed for a carbon tax that gradually increases. He would have the federal government collect the tax revenues from the oil producers then distribute all the dollars on a per capita basis. Hansen:

This market-based approach would stimulate innovation, jobs and economic growth, avoid enlarging government or having it pick winners or losers. Most Americans, except the heaviest energy users, would get more back than they paid in increased prices. Not only that, the reduction in oil use resulting from the carbon price would be nearly six times as great as the oil supply from the proposed pipeline from Canada, rendering the pipeline superfluous, according to economic models driven by a slowly rising carbon price.

I’m sure the Koch brothers are stepping to the front of the queue to start paying their carbon tax. Not.