6/21/12

I agree with much of what Mark says, actually.  I don't think money is all-determinative. For one thing, if the less well financed party has enough money to get itself heard, that should suffice if it has a potent message. But in past elections, whatever the party messages, both had enough money--including, probably, the Republicans in 2008. Now, however, the Citizens United decision allows heavy private and corporate thumbs to tip the scales to a previously unknown extent, and I think that the Democrats can overcome the resulting disadvantage only with a clearly superior message.

Unfortunately, Obama has a virtually impossible task because of the economy. I also agree with Mark that both Obama care and Dodd-Frank are highly imperfect bills. But who is actually responsible for these problems? I submit that the blame falls largely on the Republicans, who stonewalled Obama from the beginning. Their refusal to let him fully pursue the Keynesian solution that virtually all knowledgeable economists advocated has mired the economy in its present stasis. They are not responsible for Europe, but Obama would not be so badly hurt by Europe if unemployment were a point or two lower and our growth was better. Both Obamacare and Dodd-Frank incorporated many Republican ideas, and the party's stonewalling on those bills made sensible compromises and evaluations essentially impossible.

One point on which I do strongly disagree with Mark is his prioritizing the national debt, along with his claim, which I think is false, that Obama does not care about it. Obama and all the other national Democratic leaders have repeatedly said that we need to spend now in order to restart an economy whose growth can then pay off the debt, hopefully starting in 2014. Again, virtually all economists, apart from the partisan right, agree, and so do the lenders. So demanding that growth-promoting measures be trimmed or shelved in order to pay off the debt is self-defeating. By doing that, as has happened, we simply stop the economic growth that is the only sane way to escape the current situation.

It may well be that conservatives like Mark actually understand this, but have another reason for emphasizing the debt. Worrying about debt makes sense to most people, and therefore legitimizes in the public mind an attack on pension liabilities and public employee unions. There is definitely some merit to using the crisis to cut those problem areas down to size, but I would have more sympathy if the attack were carried out more straightforwardly, and without undercutting recovery.

I also, obviously, differ with Mark about the importance of the election. I think Romney's prescriptions will do tremendous damage, and that he will in fact carry out most of what he said he would.

The Exhaustion of American Ideologies

         There is an air of defeatism and desperation to Keith's "After November" piece. The tone reflects what seems to have become the attitude of a growing number of Democrats who give the impression of having already written off their chances for holding their political ground in the upcoming elections. This is a massive come-down from their self-assurance a mere four years ago when Barak Obama swept into Washington and drove Republicans before him like a broken army. At the time, Democrats talked confidently about a possibly permanent progressive realignment in America along the lines of FDR's post-Depression coalition.

So what alien counterforce is it that has now emerged? To hear Keith and his fellow Democrats tell it, the main problem is Big Money, which Republican plutocrats can always bring to bear and which they are now pouring in like hot fire against President Obama and the other honest progressives in government.  Keith has even carried the argument so far as to claim media bias against them, resurrecting a favorite bugbear of the Right and turning it on its head.

This narrative, however, doesn’t run very deep.  The Democrats too are funded by Big Money, and in the last presidential election cycle by even more of it generally than that which backed the Republicans. In my own home state,  for example, Representative Chris Shays, who had for many years represented the Fourth District of Connecticut as a moderately conservative Republican, lost to a former Goldman Sachs executive, who outspent him several times over.  This pattern played itself out on a grand scale as Democrats concentrated abundant financial resources on tightly contested races across the country.  On a national level – Fox News aside – the mainstream media covered the Obama campaign as though it harkened back to some wondrous combination of FDR’s brain-trust, JFK’s glamour, and  MLK’s moral gravitas.

Yet only those Republicans in the most extreme state of denial would have imagined they lost elections because of money and media bias. They lost because their ideology had run out of steam. Ronald Reagan's program of lower taxes and lighter regulation of business had been a constructive formula for addressing the serious  economic problems the country faced during the 1970's and early 80's. Giddy with success, however, Republicans allowed this formula to harden into an ideology. They behaved as though they believed the American economy had reached a state of permanent prosperity that could sustain momentum forever if supported by ever-lower taxes and ever-lower interest rates. Remarkably, Republicans even stopped worrying so much about the growth of Government, which continued its relentless pace during the Bush years, so long as higher taxes weren't necessary to pay for it.

There were warning signs along the way. One was the 1998 collapse of Long-Term Capital Management, a hedge-fund following an investment strategy governed by two Nobel-laureate economists who were on the on the LTCM payroll. Their quasi-mystical faith in the accuracy of free-market pricing lured them into a disastrous cul-de-sac. Another danger sign was the 2001 bankruptcy of Enron,  a company whose founder Kenneth Lay was also an apostle of free-market dogma. The Enron failure was part of a much bigger breakdown at the time,  as puffed-up technology stocks, having fed on free markets, suddenly deflated. This spectacle exposed,  as market crashes always do, the weakness in the "efficient market" thinking favored by right-leaning economists.

As prosperity and rising markets resumed in the early years of the new century, these problems for a while appeared to be little more than blips in the receding past. The blips, however, were revealed as foreshadows in 2008,  when our financial markets came crashing down and threatened to take with them our banks and our general economy. People's livelihoods were at risk now,  and the general public took notice. Since 2008 was also a presidential election year, voters did their jobs and threw out the people in power. More than that, the general public seemed to have picked up an intuitive grasp of where the crisis came from.  While the Democrats had been active collaborators in much that had gone wrong, it was Republican ideology that had fueled the immediate triggers to the crisis. Big Money and media bias did little more than exaggerate what would have been a landslide victory for the Democrats in any event. They came to power fairly and with an indisputable mandate.

Unfortunately, it became immediately clear that the Democrats had learned very little over preceding decades.  Interpreting the election results as proof that  they had been entirely right all along about the powers of Government, and their political enemies entirely wrong,  they developed a romantic and atavistic obsession with FDR's legendary "First Hundred Days". They set about designing a complex of the new government programs, economic stimulus and regulation that emulated the policies of  the 32nd President, albeit dressed up now with a modernistic focus on Green Energy and environmental science.  Like FDR's people, Obama's administration was determined to drive their work home quickly while they still had the power.  The two hallmark pieces of legislation to emerge from their two years of virtually undisputed control over government were the Patient Protection and Affordable Care Act and the Dodd–Frank Wall Street Reform and Consumer Protection Act, overhauling health care and finance respectively. While both of these Acts addressed genuinely glaring problems, both were massively over-engineered and were from the start doomed to bog down in a minefield of unintended consequences. More ominously, the money to pay for it all drove the federal budget deficit, already arguably at unsustainable levels, to unprecedented heights.

 And just as the Republicans in better days had their ideological apostles, so do the Democrats now. The most visible of these in the economic sphere probably is Paul Krugman, yet another Nobel Laureate ruined by fame. He has labored mightily to convince his party, and all of us, that the only problem with our current outsized budget deficit is that it isn't outsized enough. His most recent book entitled "End This Depression Now!", complete with exclamation point, sounds as though it could be the work of a self-help guru promising all good things to anyone bold enough to follow the formula and not ask stupid questions. We’re being instructed to keep pounding the fiscal pumps like real men and abandon worrywart concerns about deficits.

The voting public, however, isn’t having much of this and is asking lots of questions, many of them not as stupid Dr. Krugman would have us believe. With their momentum now stalled, the Democrats have good reason to worry about the coming election. Campaign finance is a legitimate issue for discussion,  but it is largely a red herring in the current environment. If the Democrats lose more ground, it will be not because any financial disadvantage, but because,  as with the Republicans last time around, their policies are failing and they’ve run out of ideas.

I suspect the Democrats, having over-estimated their standard-bearer in the last election, may be underestimating him now. He is, in my opinion, one of the most gifted politicians and orators of our era and is likely to overwhelm Mitt Romney in debates. Obama may have a weak record to defend, but so does Romney,  who cannot escape answering for the dysfunction of his own Party. There is a very good chance the President will regain the loyalty of his wavering followers, even if not their bright-eyed enthusiasm,  and that he will win over a fair number of Independents.

Contrary to the usual most-important-election-ever rhetoric now emanating from both sides, however,  I personally don't think it makes a great deal of difference who wins in November. Whoever emerges with the Presidency and control of Congress will face the same set of intractable problems that exists now. And since both parties remain beholden to tired ideologies, our next crop of leaders will find themselves mostly trying to re-shuffle a deck of weak cards that have already been played.

Keith mentions the possibility of a third party emerging in the U.S.  There's surely no comfort in the prospect of a third party on the extreme right or left. Such a development would lead us even further down the road than we already are towards a mass-scale version of the morass now enveloping Greece. I agree, however, that a different kind of third party could be welcome. This would be not so much a bland "centrist" party as one that  would pick and choose strong but non-ideological core values and then take bold steps to address problems. Such a party would be genuinely committed to financial prudence and fairness at the same time. It would embody the spirits of pragmatism, efficiency and innovation, and would have no affinity for political grudges, dogmas or grandstanding. While there seems little immediate prospect for such a force materializing, we can all hope that the "better angels" of American democracy are still secretly at work somewhere, ready to exert a benign influence when the time is right. Unfortunately, an extreme crisis may prove to be the necessary catalyst. 


6/15/12

After November

The overwhelming financial advantage of the Republicans, their ability to undermine Obama by sabotaging the US recovery, the weak Democratic political campaign, and the grinding problems of Europe ensure a Republican sweep in November. Romney will be the new President, and he will have a majority in the Senate as well as overwhelming control of the House--and they of him. The question, then, is what will happen over the next 3-4 years.

The Republicans believe that economic recovery requires, first, an unpleasant period during which we get our fiscal house in order by cutting back on entitlements and government spending, and second, government support for private investment. They do not believe in government investment as such, apart from the military and police sectors. Consequently, a dramatic remake of the federal budget will be enacted, as they forthrightly promise. A balanced budget without tax increases on the investor class--that is, corporations and the wealthy--will be the goal, and will include increased defense spending. The Obama healthcare bill will be repealed, and the Republicans will seek to replace Medicaid and Medicare with a voucher system whose levels are geared to reducing federal deficits. Most other social programs, including the EPA, welfare, and industrial regulation will also face drastic financial reductions or total elimination. Farm welfare and tax incentives for carbon-based energy production will survive, however, and probably even increase.

Although Democrats will protest and use parliamentary maneuvers to block what they can, and the surviving liberal press will likewise fuss and fume, they will be talking only to themselves, and a continuing din of right wing advertising and media favoritism will largely drown out their objections. Nor can Democrats at local, State, or federal levels realistically hope to regain office, because the Republicans have a permanent and overwhelming monetary advantage, which has been demonstrated to be highly effective with the electorate, and they will also continue to benefit from voter eradication strategies in the States, of which they will control many more in the Romney sweep.

As  economic theory predicts, and the experience of Europe is now demonstrating, the austerity program that Romney promises will not actually restore fiscal order, and it will very clearly increase disparities of wealth. We can expect an increasing number of Americans to become jobless, members of the underground economy, dispirited, disqualified for 21st century jobs, and, in more and more cases, very angry. Although similar trends will grow throughout the world, the highest performing levels of the US economy should be able to sustain their sales and increase profits through their international operations. Similarly, those businesses that cater to the wealthy should thrive, and a flood of people moving down the income ladder might sustain sales and profits at the businesses like Walmart or Dollar Stores that cater to those with low income.

I say that US corporations should be able to sustain international sales, but that possibility would disappear if Romney pursues the beligerant foreign policy he has suggested. Even if he does not start a shooting war with Iran, however, anything like a return to the W. Bush policies would probably trigger international trade wars that could go far toward dismantling the free trade measures that have prevailed since World War II. Since that would, of course, be very problematic for the corporate world I tend to discount the possibility that a Romney foreign policy would resemble his campaign positions.

Some writers have posited that Romney's election and a sweeping Republican triumph in November would lead to something like permanent oligopolistic rule, with the only significant disagreements being within the ruling class. That does seem to me a possible endpoint of what must be a devolution that takes several election cycles. Several conceivable scenarios could seriously derail that development, such as warfare, civil chaos, Democratic resurgence, the formation of an effective new political party, plague or other cataclysmic natural disasters, or technological breakthroughs that overturn the existing economic structure.  So there is always hope.

6/11/12

The Wisconsin Recall - Another View

           Keith below presents a well-reasoned and fairly balanced discussion of the recent recall election in Wisconsin. His main purpose seems to be to chide his fellow Democrats against misconstruing the political significance of this development. The circumstances surrounding the recall, however, I think reveal a problem more fundamental than partisan political strategy.

          At the risk of sounding like the kind of idiot who quotes himself, I’m going to quote myself here. The excerpt is from a review I did of Michael Lewis's Boomerang, a recent compilation of his earlier reportages on several of the world's financial flashpoints. He writes on Greece, Ireland, and Iceland, but it's his take on the American state of California that has the most direct relevance to the present imbroglio in Wisconsin. This is the way in which I attempted to summarize the picture that Lewis paints.

“I'm pretty sure that Michael Lewis is a Democrat, but he writes without ideological blinders. He obviously admires the Republican Schwarzenegger (Lewis reports on  a bicycle jaunt and meeting he has had with the former California governor) for his intellectual honesty, optimism and relentless energy. However, even the redoubtable strongman, by his own admission, proved helpless against the problems of California. The state's voters embraced him initially and then eight years later threw him out of office, his approval ratings having crashed through the bottom of the floor. In Lewis's rendition, the travails of California sound depressingly like those of Greece. A land of shallow idealism mired in administrative incompetence, California promises everything but is willing to pay for little. The state's perpetual budget crisis seems to be without the slightest hope of being resolved at any point in the foreseeable future. Arnold seems disappointed but has taken it all in stride and moved on with his life. He says he had fun trying.

"Lewis realizes he could visit just about any city in the state and find a relevant crisis to observe, so he picks a few. The mayor of one of them - San Jose
-  (a Democrat by the way) sums up pretty well the problems of his city and most of the others when he points out that he could terminate every single current employ in his government and not save enough money to pay the pensions and post-retirement benefits of the former employees. He could then tax his wealthy citizens into oblivion and, having thus destroyed his tax base, still not put much of a dent in the problem. Apparently believing themselves much richer than they were - particularly during the Fin de si├Ęcle boom years - government officials had fecklessly backed away from confrontation with the public service unions, who were thus able to assume a largely free hand in crafting pay and benefit packages. The day of reckoning came much sooner than even pessimists had imagined.

"On his way out of the Mayor's office, Lewis asks as couple of his aids for suggestions about where, given his investigative focus, he should go next. Without hesitation they both point him to Vallejo, and Lewis makes a beeline for the place. Three years earlier, Vallejo became one of the few municipalities in the United States ever to file for bankruptcy, overwhelmed by reckless promises made in happier times to its public employees. By the time Lewis gets there, the city has few active public employees left and is a shell of itself. Many of its homes are in foreclosure and its taxable population is drifting away. Street maintenance is non-existent, and crime is rising.

"Paradoxically, though, it's in reporting on Vallejo that Lewis discovers more glimmers of hope than he has managed to find elsewhere, for much the same reason that former drug addicts can sometimes be inspirational: hitting absolute rock bottom creates a certain clear-sightedness about problems and a motivation to correct them. Lewis meets the recently-hired city manager, Phil Batchelor, who has come reluctantly out of retirement to take the job. A sober, unassuming man, his one precondition for doing so was that the city council members all sign a written pledge to him they will start behaving in a civil manner towards one another. It seems someone had recently thrown a severed pig's head onto the floor at one of their meetings. Having been able to discharge most of their debt in bankruptcy and renegotiate their labor contracts, Vallejo has the chance for a fresh start, and Batchelor is determined to make the best of it. He's not interested is apportioning blame to anyone for past failures and is pragmatically focused on solving problems one at a time.

"Lewis also spends time with a 41-year-old Vallejo fireman named Paige Meyer. Meyer has seen his compensation and benefits cut sharply, but is nonetheless still passionate about his work. He treats fighting fires as though it were a calling, and is re-inventing the job to make do with fewer resources, even though Vallejo apparently has many more fires than other comparable communities. He seems to have no bitterness and to enjoy his life despite the financial devastation around him.

"Putting all these stories together, it's not hard to get Lewis's vision of what has happened to our developed Western economies. He doesn't preach, but rather like Dickens' Ghost of Christmas Future, he lets the grim facts unfold and speak for themselves. The common denominator here is the illusion of easy money, which our modern financial markets have conjured up for us and which has fooled everyone from multi-millionaire bankers to municipal street cleaners into thinking that everything they want is there for the taking. Lewis doesn't say it directly, but he appears to regard the problems of places like Greece and Vallejo as indicative of what lies in store for all of us who fall prey to illusions that life is easy and money is free."

          Certain American commentators nowadays seem never to tire of pointing out sagely that the United States is not Greece. They might also remind us, fairly enough,  that Wisconsin is not California. Nonetheless, all of these crises have common roots, and all are symptomatic of a global breakdown in the model governing the world's developed economies.  This model is neither "capitalist" nor "socialist", in the nineteenth-century lingo that economists sometimes still employ, but a hybrid in which market-oriented production entities co-exist with monopolistic government service providers. And while market forces still provide a degree of restraint over the private sector (with banking a partial exception), no such organic discipline exists to reshape ineffective and inefficient government services. As a result, following the course of least resistance, politicians continue to fund old programs even as they create new ones, and they tend readily to accede to employee demands for growing compensation and benefits. All of this ensures that government's share of the economy will grow relentlessly, as indeed it has throughout most of the last century.

          Various Catch-22 problems ensue. The most obvious one is that the growing tax burden needed to pay for government  weakens the private sector, contributing to unemployment and other private-sector failures which in turn increase the demand for more government spending. The less noted Catch-22 is the problem that the essential services of government itself become squeezed as money is diverted towards non-essential and wasteful ends. As Keith points out, the anger that many people feel towards government stems less from a belief that they are spending too much money on government than from a knowledge that they are receiving inadequate services in return. I would suggest that this problem in general does not result from incompetence  among of people in government, but rather is inherent in the nature of government monopoly.  And the problem would seem only to get worse as time progresses.

          Analyzing such a system on a theoretical level, it would seem inevitably inclined towards a terminal breakdown at some stage in its existence. To borrow a Marxian notion, the system would appear doomed by an inescapable internal contradiction. In the United States, the most serious long-term problem exists at the federal level. Here, however,  a temporary safety valve is provided by the ability to incur debt-financed deficits, and the concurrent ability the support this debt with unconstrained quantities of fiat money. Our powerful Federal Reserve Bank has now learned how to utilize "quantitative easing" and other monetary gimmicks to repress the rise in long-term interest rates normally be expected from such practices. All this may well postpone the day of reckoning for a while longer at the federal level.

          It is, however, our state and local governments that sit on the cutting edge of the current crisis. Like Greece, they lack control over their own currency, and additionally many of them face hardwired legal constraints on most forms of deficit financing. Hence, unlike their federal brethren, they must face reality and either cut services or raise taxes. And increasing taxes in many cases risks undermining the economic basis on which even existing taxes might be paid in the future.

          Scott Walker has applied a blunt instrument in attempting to grapple with the problems of Wisconsin. The impact of what he has done is indeed cruel and unfair to those people who have built their lives around the honest assumption that they could count on a certain level of financial well-being for their lives. But is the fault his, or that of earlier politicians who made unsustainable promises in the first place?  He has won his victory operating through democratic channels and has overcome an opposition that has been every bit as vicious as the rightwing "lunacy" that Keith decries.

          I certainly have not studied the problems in Wisconsin in any depth, but I suspect that Scott Walker may be protecting his people from a much more painful resolution at some point in the future. We might soon see a cautionary foreshadow in what's probably about to happen to the people of Greece.

6/6/12

Meaning of Wisconsin Recall Vote

The Wisconsin vote for Scott Walker should make liberals think. Democratic commentators, as on MSNBC, try to dismiss this vote as due entirely to the funding differences, which will not be as great in the Presidential race. But the WI voters are among the most union-friendly and progressive of all in the US, Walker is a certifiable villain, and despite Walker's 71/2:1 spending advantage the ground campaign that the Democrats waged surely provided all voters with plenty of information. I think, therefore, that the result accurately expresses an actual voter preference--not just a triumph of rhetoric, framing, or advertising.

But what is that preference? Let me suggest that many voters are siding with Republicans because they don't think government is giving value for their money. It's not that they object to most government programs, but that they don't think government carries out any programs very well (except for military and, perhaps, police functions, for which they have little information). They question Obamacare not for insuring people, but because it's a government program, and while few people have had a bad experience with a health insurer, almost everyone has experienced frustration and waste when dealing with a government agency.

In saying this I do not mean to minimize the role of Republican propaganda and policy. Since Reagan, Republicans have starved the government of the money it needs to do its job well, and then blamed government bureaucrats for functioning badly. I am sure this trickery, along with propaganda, has played a substantial role in the public perception that the government isn't performing well. But there is also a real problem of government accountability. Government is a monopoly, and we all know how difficult it is to deal with such an entity. With only one mayor, governor, or President, and hundreds or thousands of government departments, the problem of making government truly responsive and accountable is a very difficult one to solve. In the experience of most voters, it hasn't been solved, and Republican propaganda takes care of any doubts.

Bottom line: I think the vote in Wisconsin, and the amazing support that Republicans have gained despite the lunacy of their ideology and the horrible track record of their leadership, owes more to the fact that only Republicans are saying "enough" about government, and less to any support of their actual policy objectives.