Everyone knows that during the depression the government hired unemployed people to work on the infrastructure, parks, etc., and isn’t doing that this time.
Back then We the People were in charge, at least to more of an extent than today. So We the People did things to make our lives better. We the People doing things together to make our lives better is called democracy.
Now government just makes the lives of the wealthiest even better. This is plutocracy.
The “Grand Bargain” is about showing the world that we can hurt people, so they will know we are “serious.”
Reading Jason Linkins’ HuffPo account of elite-pundit thinking about the “Grand Bargain,” Passing ‘Grand Bargain’ Voters Don’t Care About Is Critical To Confidence In Government, Apparently, I am struck by the similarity between the (elite pundit) Joe Klein quote Linkins references, and the elite-pundit thinking about invading Iraq.
Time Swampland contributor Joe Klein — who is confident that Congress will agree to a “grand bargain” — says that people like me who contend that voters don’t place a high priority on a grand deficit deal are correct but we need to pass a grand deficit deal anyway because reasons, shut up:
There are those on the left who will object that the deficit issue is overblown and not even a priority among voters. They are right. But we have reached the point where some sort of deal is necessary to restore the public’s, the business community’s and the world’s faith that the U.S. government can, occasionally, take significant action. I predict—tepidly, with no great confidence—that the Congress will finally decide it is time to act.
In other words, Klein is saying the elite punditry has made such a big deal about something we all know is the wrong thing to do, that the public has to see us follow through — “take significant action” — or they’ll lose confidence in the country’s ability to make things happen following a pundit frenzy like this one.
Now let’s remember the words of elite pundit Tom Friedman on why invade Iraq.
Tom Freidman, on Charlie Rose, May 29 2003: (link is CS Monitor, Thomas Friedman, Iraq war booster),
“And what we needed to do was to go over to that part of the world and burst that bubble. We needed to go over there basically uhm, and, uh, uhm take out a very big stick, right in the heart of that world and burst that bubble. And there was only one way to do it because part of that bubble said ‘we’ve got you’ this bubble is actually going to level the balance of power between us and you because we don’t care about life, we’re ready to sacrifice and all you care about is your stock options and your hummers. And what they needed to see was American boys and girls going house to house from Basra to Baghdad uhm, and basically saying which part of this sentence don’t you understand. You don’t think we care about our open society, you think this bubble fantasy we’re going to just let it go, well suck on this.”
Friedman said we had to invade Iraq so the world can see that we can use our immense power to hurt people there. Because Iraq is in “that part of the world.”
Joe Klein says we have to do the Grand Bargain to show the world that we can use our immense power to hurt people here, too.
That’s balance for ya.
The “Grand Bargain” is about hurting regular people (“shared sacrifice”) who have been sacrificing since Reagan. The rich have gotten tax cut after tax cut. Their corporations get breaks and subsidies. Wages have been stagnant since Reagan broke the unions, but prices have gone up. People used up their savings, then went into debt. Meanwhile government services for We the People have been cut, cut, cut. Our infrastructure is crumbling. Our transportation and electrical and other systems are just a mess. The safety net has collapsed. College has become unaffordable. Poverty is soaring and the middle class is disappearing.
So now regular people have to “sacrifice” to pay off the money the government borrowed to give the rich their tax cuts and subsidies. That’s the “Grand Bargain” in a nutshell.
P.S. Please read Linkins’ piece, it’s short. Linkins concludes,
” … a deal that will further immiserate Americans with painful cuts to earned benefit programs (like chained CPI) at a time when everyone’s still struggling to get by. Why anyone thinks this would restore the public trust is beyond me. Pundits really need to get out more.”
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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary
There is a big push going on to again reduce tax rates for the giant multinational corporations. See if you can guess who will make up the difference? (Hint: it will be you paying through cuts, and smaller companies that are trying to challenge the incumbency of the giant multinationals.)
Recently in the post Beware the New Corporate Tax-Cut Scam: LIFT Is A Big LIE, I warned about the LIFT coalition of large corporations trying to get rid of taxes on profits made outside the country. Of course this would result in giant companies moving jobs, factories and profit centers out of the country.
The executives who run the giant multinationals want to be let off the hook for paying taxes on profits they make outside our borders. As an Apple executive said to The New York Times, giant multinationals “don’t have an obligation to solve America’s problems.” And to prove it, American corporations are holding $1.7 trillion in profits outside the country – just sitting there – rather than bringing that money home, paying the taxes due and then paying it out to shareholders or using it to “create jobs” with new factories, research facilities and equipment.
A new study, Democracy and the Policy Preferences of Wealthy Americans, by Professors Benjamin I. Page, Jason Seawright and Larry M. Bartels sought to gauge the political and policy priorities of the wealthy, and how these concerns contrast with the concerns of the rest of us. Amazingly, the priorities of the 1% match up with the priorities of our political class, while the priorities and needs of the vast majorities of us are ignored.
The study questioned people with wealth that placed them in the top 1%. They were asked what they felt were the “very important problems” facing the country. The most common response was the budget deficit, with 87 percent believing this to me the most important problem. This contrasts with the rest of the population, with only 7% saying this is the country’s most pressing problem. Of course jobs and the miserable state of the economy for people what are not in that 1% were cited by regular people as the most important problem.
The 1%’ers want “entitlement programs” like Social Security and healthcare cut while the American Majority want (and need) them expanded.
There is a lesson from the Cyprus situation: If you are a large depositor you need to watch your back bank. You can’t just assume someone will bail out the banks — and you. The big banks have been able to keep governments from reigning them in, while getting governments to bail them out. That game is over.
From now on you have to take a look at the bank’s books and business practices and decide for yourself if your money is safe.
Right now it looks like large depositors in Cyprus’ banks are going to take a 30-40% “haircut” – meaning when the banks reopen 30-40% of their money will be gone. This is the “bailout” alternative to the banks failing and all of the money going away.
The Cyprus lesson is that deregulation and “keeping government from meddling with business” means it’s all on you now, on your own, by yourself, to watch out for your own interests. And that’s expensive. Really, really expensive.
It’s the libertarian dream, home to roost.
Not Greece
Cyprus is not like Greece. The government didn’t borrow a lot of money. What happened is that their banks failed. Cyprus’ banks seven-or-eight times the size of Cyprus’ economy when the EU average was three times, in-part because they offered tax-haven status to depositors around the world. In particular they attracted wealthy Russian and British tax-evaders. If the banks fail they will lose their money. And they were doing what big banks do with depositors’ funds — bad loan, speculation, investing in Greek bonds… It turned out that when something is unsustainable it can’t be sustained, and this time it wasn’t. The banks failed.
But it wasn’t just wealthy Russians and Brits on the line here … Cyprus’ businesses also have their money in Cyprus’ banks. So here’s the thing: If the banks just fail it would mean that every business in Cyprus would lose their money too, and be unable to make their payrolls, pay their creditors, even pay their rent.
When Banks Fail You Lose Your Money
Here is something that most people don’t understand: When banks fail every depositor loses their money. In the depression banks failed and depositors lost their money. Regular people around the country lost their savings. This is what causes bank runs – people trying to get their money out in time. The ones who don’t get there in time lose everything.
Since the depression American banks are insured up to a certain amount by the Federal Depository Insurance C-something (FDIC), and this has prevented these bank runs. When bank fails the FDIC steps in (usually on a Friday evening), closes the bank and arranges for another bank to take over the insured accounts (usually by Monday morning) and regular depositors hardly even notice the change.
European depositors with $100,000 Euros or less are also insured, so these Cypriot depositors will be repaid at some point. Amounts over that will have to wait for the banks to be liquidated, and might or might not get some pennies on the Euro.
On top of that, when banks fail you can’t get normal financing. It becomes difficult to borrow to meet the next payroll even though you have more than that due from receivables, or to get financing to upgrade your equipment even though your cash flow can handle the payments…
So governments have to step in when there is a systemic banking-system failure. If they don’t the entire economy in that country basically just shuts down.
The Cyprus Deal Means You Have To Watch Your Bank
So Cyprus needs to bail out its big banks or lose everything, and the government is making a deal with the International Monetary Fund and German and other banks for a loan to keep things going. It looks like the Cyprus bank bailout deal means depositors with amounts over the insured level are “taking a haircut” and losing 40% of their money.
Before this happened in Cyprus you usually large depositors could stick their money in a generic “bank” and if something happened a government would step in and get you most, if not all, of your money. Banks were generic banks, they held you money and when you needed it you could just get it.
But now there is a lesson: banks can fail and government might not step in and bail everyone out. You can lose your money.
You can lose your money.
This means you have to pay attention to which bank you are putting your money in. You need to look at the particular bank you are putting your money into and understand if they are playing games, speculating, hiding things from their books, making bets with a “London Whale,” using fantasy valuations or “repos” to make their books look better, laundering money for drug dealers or terrorists, etc.
It’s on you, because government’s aren’t doing it. Whether it is due to deregulation or “regulatory capture,” the banks are doing what they want, when they want and to whom they want. And no one is holding them accountable. You can lose your money.
Government is no longer functioning when it comes to big banks, so you have to do the work yourself. You can lose your money so you have to know if your bank is on the level. Good luck with that.
Anti-government types, you got what you wanted. Government is not “meddling” with businesses – at least not with the big banks. So sit back and enjoy the ride.
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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary
First it was Fix the Debt, with tax-dodging corporations “leading the charge for massive new corporate tax cuts paid for with cuts to Social Security, Medicare, and Medicaid.” Now there’s a new “LIFT America coalition,” pushing for massive, massive corporate tax cuts, without bothering about cutting benefits. LIFT stands for “Let’s Invest for Tomorrow,” but as Citizens For Tax Justice (CTJ) points out, it really ought to be called LIE, for “Let’s Invest Elsewhere.”
The executives who run the giant multinationals want to be let off the hook for paying taxes on profits they make outside our borders. As an Apple executive said to The New York Times, giant multinationals “don’t have an obligation to solve America’s problems.” And to prove it, American corporations are holding $1.7 trillion in profits outside the country – just sitting there – rather than bringing that money home, paying the taxes due and then paying it out to shareholders or using it to “create jobs” with new factories, research facilities and equipment.
The economy is not working for We, the People. But even with $4 trillion already cut from deficit projections, a deficit drop of about 50 percent as a share of gross domestic product, and Congressional Budget Office projections that the deficit is stable for the next 10 years Washington remains focused on even more economy-killing austerity. It’s talking only about what and how to cut instead of how to meet the needs of the people of the country and grow the economy.
This fight over spending cuts led to the “sequester,” which might take us back into recession. The fight will now roll into another manufactured crisis over the continuing resolution, with a government shutdown as the hostage, and of course this will be a further drag on the recovery.
Economics 101, Europe’s austerity experiment and the experience of history all tell us that cutting government is contractionary policy. Cutting government cuts economic growth and costs jobs, which leads to to lower tax revenue and higher government expenditures. Economics 101 and the experience of history also tell us that government investment in jobs, infrastructure, education, research and the rest grows the economy, which fixes deficits. Cutting deficits and debt is important but clearly should not be done when the economy is weak. This is the time to invest, and the investment returns will pay for the investment and more.
Again: There is no real discussion or debate about what we ought to be doing to make this economy work for working people. There is only discussion of what and how to cut. This is the wrong approach to our economic problems.
CAF is presenting job-creating and economy-growing ideas that ought to be debated so we can begin to turn this economy around and make it work for all of us instead of just a few of us. Jobs and growth fix deficits.
The Vast Trade Deficit Drains Our Economy And Jobs
Recently the 2012 U.S. international trade deficit in goods and services was announced. It fell slightly in 2012 (due in part to a decline in petroleum imports), to $540.4 billion from $560 billion in 2011. But 2012 saw a record trade deficit of $315 billion with China – approaching $1 billion a day. That is $540 billion a year drained from our economy, $315 billion of that just to China.
This vast trade deficit represents the loss of millions of jobs, tens of thousands of factories and entire industries. It hits at our ability to fix our economic problems. In particular, this problem affects our manufacturing companies, which provide solid, middle-class jobs and exports that strengthen the country.
Instead of the current focus on budget deficits, Washington should be talking about how to fix this vast trade deficit. Here are some of the things they should be talking about — and doing.
Fix Currency
Countries manipulate their currency rates because a “weak” currency means products made there are much more price-competitive. China’s currency is still estimated to be at least 20 percent below “market” rate, meaning goods made in China cost at least 20 percent less than goods made here, even before you factor in other things China does to give itself a trade advantage.
Confronting currency manipulation offers the biggest “bang for the buck,” requiring no tax dollars and reaping huge returns, shrinking the federal budget deficit by between $78.8 billion and $165.8 billion over three years.
Fixing this one problem could create between 2.2 million and 4.7 million jobs and increase GDP between 1.4 percent and 3.1 percent, helping manufacturers in particular, gaining between 620,000 and 1.3 million of those jobs. It would reduce the U.S. trade goods deficit by at least $190 billion and as much as $400 billion over three years.
Reform Trade Agreements
A $540 billion trade deficit doesn’t come from balanced trade; it is the result of one-sided trade agreements we have entered into. These trade agreements exposed America’s companies, workers, factories and tax base to direct competition with non-democracies, impoverished and exploited workers and countries that do not protect the environment. That could only go one way.
We have a democracy, in which people have a say. So they say they want good wages, safe workplaces and a clean environment. When we open that system up to direct, unregulated competition from places where people have no say and are told they can’t have those things, we put our democratic system at a competitive disadvantage in world markets. We make it a disadvantage to protect the environment, pay well, provide benefits, protect worker safety and the other things that we do and others do not do. Those become just “costs” to be eliminated.
Those trade agreements could have had different terms that lead to different results that lifted working people on both sides of the trade border instead of pushing terrible and increasing worldwide inequality. They could have lifted environmental protections on both sides of trade borders. They could have increased worker and consumer protections. They still can.
Our country’s trade agreements can still be reformed to do these things, rebalancing trade and lifting people and the environment. Future trade agreements should learn the lessons.
Bring Back The Bring Jobs Home Act
Last year Senate Republicans filibustered the Bring Jobs Home Act, but the bill had tremendous public support. It should be revived.
The Bring Jobs Home Act would have cut taxes for U.S. companies that move jobs and business operations to the United States, and ended tax loopholes that reward companies for shipping jobs overseas. The bill would have allowed companies to qualify for a tax credit equal to 20 percent of the cost associated with bringing jobs and business activity back to the United States. It would have closed a loophole allowing a company moving jobs overseas to deduct various relocation costs.
Additionally, any new bill should tax the overseas income of U.S. corporations the same way domestic income income is taxed, so there would be no tax advantage to them from shifting income and jobs overseas.
Strengthen Buy America In Federal And State Procurement
There is no reason our own government should be undermining American manufacturers. “Buy America” provisions should be a mandate on federal, state and local government purchases, consistent with our trade laws. To accomplish this, our bottom line should be:
Many state-level procurement laws are very weak. As a result, a lot of tax dollars go to purchase goods made overseas instead of goods made in the USA. States should also strengthen their procurement policies to promote buying American-made materials.
The Invest in American Jobs Act of 2013, announced Tuesday, is a good start and deserves support and discussion. The Act strengthens Buy America preferences, closes loopholes and improves transparency in the federal waiver process.
These are a few examples of the things that Washington should be talking about. These proposals solve real problems in practical ways that help the American people.
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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary
If you are a citizen in a democracy you need to have correct information about important issues so you can make decisions and know who to hold accountable for things they do. But you wouldn’t know anything if you follow America’s corporate news media. For example, you certainly wouldn’t know that the deficit is currently falling at the fastest rate since the end of WWII. (Only 6% of the public knows that the deficit is falling, not rising.)
Watch as NBC News (March 1 broadcast) blames “both sides” and “Congress” for the sequester cuts that could bring in a new recession:
Visit NBCNews.com for breaking news, world news, and news about the economy
“Congress” has left town – not that Republicans adjourned without doing allowing votes.
“No serious attempt all week long” to stop this.
“President didn’t rise above political rhetoric.”
“Both sides maintained the blame game.”
This is the story of Bob The businessman.
Suppose a local businessman, let’s call him Bob, went around town raising money from the townspeople to open a car dealership. Dozens and dozens of people in town invested, putting in $1,000, $5,000, and a few putting in as much as $50,000 and $100,000. Bob raised a lot of money for his business.
After a while the investors found out Bob the Businessman was using some of their money to help his brother run for Mayor and several cousins to run for city council, and some of it to make his wife head of the Arts Council for a good salary. Then they learned that he was using some of it to fund a local organization that did nothing but push for tax breaks for . . . businesses just like Bob’s. (And to push for “deregulation” letting Bob use his company’s money to do things like … fund the organization.)
In the election his brother was elected Mayor and his cousins took over the council. Once in charge of the city, they pushed through a big contract for Bob to supply cars to the city (many of which the city didn’t even need.) The city also exempted Bob’s business from taxes, even giving it subsidies.
This all of course made the car dealership very profitable, and the investors started asking when they are going to get a dividend. But they found out that Bob’s business has opened a subsidiary based at a post office box in the Cayman Islands. This Cayman Islands subsidiary had been buying cars from the manufacturer at wholesale and turning around and selling them to Bob’s parent company for just under what the dealership sells them to the public for. As a result all the profits went to the Cayman Islands subsidiary, and Bob wasn’t bringing any of it back to distribute to the shareholders!
Next the investors learned that Bob had been living really high on the hog, paying himself many millions of dollars.
When the local investors got fed up, they gathered to protest in front on Bob’s business. “You shouldn’t be using our money to get your brother elected mayor,” said one. Another said, “You shouldn’t be using our money to give to the arts council!”
By then Bob owned all the newspapers and TV and radio stations in town, and they were all telling the rest of the town that the protesters were all communists. His brother the mayor sent the police to arrest them.
Next Bob got the city to relax the regulations that specified how well the cars he sold should work, and started selling cars with defects to the townspeople. The city also limited lawsuits. The customers cheated by Bob couldn’t do anything about it!
Over time Bob’s actions forced all of the honest, responsible car dealers to either operate the way Bob did, or go out of business. The character of the whole town changed.
Eventually, though, Bob’s business practices became so bad that most of the townspeople went to the city and demanded that they do something about it. The city conducted an “investigation” and reached a settlement with Bob’s car dealership. The dealership agreed to pay a modest fine, which meant the investors were on the hook to pay it out of any dividends they might receive. (The city’s lawyer who negotiated with Bob later left and got a very high-paying job working for … Bob.) Bob got to keep the enormous amounts he had been paying to himself.
Bob lived happily ever after.
This fable in no way is meant to make you think about the way that modern American corporations and the current American political system operate.
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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary
Tuesday’s post, 40% Of Americans Now Make Less Than 1968 Minimum Wage, was updated with this chart:
The chart shows that wages used to go up as productivity went up, but in the 1970s they decoupled. Productivity kept going up but wages stagnated.
Now, here’s another chart. This chart shows that financial-sector and non-financial-sector compensation used to rise together, but in the late 70′s / early 80′s they decoupled. Financial-sector compensation took off, while non-financial-sector compensation did not.
Correlation isn’t causation, but just sayin’…
In the post, 40% Of Americans Now Make Less Than 1968 Minimum Wage, I wrote this about that:
This means the gains went … somewhere else. See if you can guess who got them? (Hint: it’s the 1%; this is one driver of the terrible income and wealth inequality.) This breakoff of wages from productivity growth is partly (largely?) the result of trade agreements that pit Americans against exploited workers in non-democracies. This weakened the bargaining power of unions, moved factories and industries out of the country, devastated entire regions of our country — and gave the giant multinational corporations, Wall Street and the billionaires the leverage they needed…
(*Click charts for sources.)
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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary
Tom Friedman says the way to get the economy moving is with a “grand bargain” that “slows the growth of both Social Security and Medicare entitlements” along with “reform” that cuts taxes for the rich and corporations.
Tom Friedman says this will provide “certainty,” so companies will have “confidence” and will invest and hire.
You see, the problem isn’t high unemployment leaving people out of the economy, resulting in businesses not having enough customers coming in the door. That is not the reason businesses don’t feel confident enough to expand and hire.
And the budget problem isn’t because Bush doubled the military budget after Reagan did the same, after cutting taxes on the rich… And never mind that the budget didn’t have a deficit before those things… And never mind that they said they were “cutting the government’s allowance” and “starving the beast” in order to manufacture a deficit crisis so they could scare people into cutting the things we do to make our lives better. Never mind that they said that was the plan…
The real problem with our economy is that regular working people have too much, and the wealthy and their corporate masks have too little.
And we need a “Grand Bargain” imposed on us from the top, instead of just going with the results of the election we just had or all of the polls in which people said they want JOBS, higher taxes on the wealthy and corporations, military spending decreased, and better retirement and health care packages for regular people…
Tom Friedman thinks the wealthy people at the top should be making the decisions, not the people.
Surely anyone can see the wisdom in that, right?
And yes, this post is in the category “Plutocracy”
Update: TRADE DEFICIT. Dean Baker at CEPR says the problem is the trade deficit, in The Educate a Cab Driver, Educate Thomas Friedman Campaign:
Our cab driver could also explain to Thomas Friedman how a trade deficit of 4 percent of GDP (also $600 billion in annual demand) affects the economy. The national income accounting that students learn in intro economics is that GDP = consumption + investment +government spending + net exports. If we have a trade deficit of $600 billion then we need to have the other categories fill that gap to get the economy back to full employment.
In the last decade the demand created by the housing bubble filled the gap created by the trade deficit. In the 1990s the demand created by the stock bubble filled the gap created by a somewhat smaller trade deficit. Now we have nothing to fill the gap. And if anything Friedman’s remedies go in the wrong direction.
Florida Senator Marco Rubio gave a “Republican Response” to the President’s State of the Union address. He said that taxes cause employers to reduce hours or lay people off. Others say that raising the minimum wage will mean layoffs. Let’s take a closer look at that.
In Wednesday’s post, What Do Republicans, Rubio And Rand Have If They Don’t Have Deficits? I focused on one line from Rubio’s speech,
One line of Rubio’s stands out: “Because more government raises taxes on employers who then pass the costs on to their employees through fewer hours, lower pay and even layoffs.”
With this Rubio is trying to scare people who are worried about jobs. Business taxes are on profits. Good businesses employ the right number of people, so a company that is making profits isn’t going to reduce staff or hours. That is simply preposterous to anyone who has ever run a business.
I was in a local CVS store today. There weren’t enough employees in the store, and there was a long line of people waiting to pay for items at the only checkout register. There was also a long line of people in line at the pharmacy. I saw a one person give up, leave their nearly-full carrier on a shelf, and just leave the store. I saw another person come in the door, take one look at the line and leave. I left without buying anything and went to a different store — not a CVS, for what I was looking for.