Thoughts on Ben Nelson

Ben Nelson, the Demoractic Senator from Nebraska, has announced he won't seek reelection in 2012.  I guess this means that a Republican will in all likelihood take over that seat.  Nelson has been an unreliable Democratic vote in the last three years, and pundits kept saying he was trying to walk a tightrope to please his very conservative state while remaining a Democrat.  On Morning Joe this morning they were saying that ObamaCare was his Waterloo, and his vote for that legislation made him too vulnerable.

Jon Chait calls him "pathetic", explaining that he could have used his all-important vote for health care to demand some sort of conservative policy such as malpractice reform or cost controls, but instead went the more corrupt route of getting a special "cornhusker kickback" for his state- essentially he tried to make it up to his conservative constituents by being bought off instead of trying to improve the legislation.  This was captured by the Press, however, and he was pilloried as he deserved to be.  His reelection seemed unlikely in the aftermath.

A couple of days ago I took a trip to the JFK Library in Boston, and was reminded of Kennedy's book Profiles in Courage, in which he identified politicians who had taken votes that were politically difficult or even suicidal in the interest of doing "what was right for the country" instead of what would benefit them personally.  Ben Nelson could have done that, and I wonder if it wouldn't have worked out OK for him personally too.  What sickened me about the Democrats during the health care negotiations and the aftermath was their cowardly response to run away from the bill after passing it.  I wanted to see them go on the offensive- it always looks better when politicians do that.

Imagine if Ben Nelson had worked to improve the bill, and then went back to his conservative state and trumpeted its benefits, confronting his opponents on the matter and taking them on.  The optics might have looked OK.  Playing the coward didn't work out so well, that's for sure, and now he looks like a corrupt and broken man.  Bad bet.

Bankers

If what you're looking for is angry liberal ranting, Matt Taibbi always delivers.  His latest post takes on a recent article in Bloomberg in which bankers complain (whine) about how everyone hates them even though they've done so much for all of us.  Here's an exerpt from the original Bloomberg piece:

Jamie Dimon, the highest-paid chief executive officer among the heads of the six biggest U.S. banks, turned a question at an investors’ conference in New York this month into an occasion to defend wealth.

“Acting like everyone who’s been successful is bad and because you’re rich you’re bad, I don’t understand it,” the JPMorgan Chase & Co. CEO told an audience member who asked about hostility toward bankers. “Sometimes there’s a bad apple, yet we denigrate the whole.”

Dimon, 55, whose 2010 compensation was $23 million, joined billionaires including hedge-fund manager John Paulson and Home Depot Inc. co-founder Bernard Marcus in using speeches, open letters and television appearances to defend themselves and the richest 1 percent of the population targeted by Occupy Wall Street demonstrators.
If successful businesspeople don’t go public to share their stories and talk about their troubles, “they deserve what they’re going to get,” said Marcus, 82, a founding member of Job Creators Alliance, a Dallas-based nonprofit that develops talking points and op-ed pieces aimed at “shaping the national agenda,” according to the group’s website. He said he isn’t worried that speaking out might make him a target of protesters.

“Who gives a crap about some imbecile?” Marcus said. “Are you kidding me?”

The organization assisted John A. Allison IV, a director of BB&T Corp., the ninth-largest U.S. bank, and Staples Inc. co- founder Thomas Stemberg with media appearances this month.

“It still feels lonely, but the chorus is definitely increased,” Allison, 63, a former CEO of the Winston-Salem, North Carolina-based bank and now a professor at Wake Forest University’s business school, said in an interview.

At a lunch in New York, Stemberg and Allison shared their disdain for Section 953(b) of the Dodd-Frank Act, which requires public companies to disclose the ratio between the compensation of their CEOs and employee medians, according to Allison. The rule, still being fine-tuned by the Securities and Exchange Commission, is “incredibly wasteful” because it takes up time and resources, he said. Stemberg called the rule “insane” in an e-mail to Bloomberg News.

“Instead of an attack on the 1 percent, let’s call it an attack on the very productive,” Allison said. “This attack is destructive.”

Taibbi does a great takedown:

There are obviously a great many things that one could say about this remarkable collection of quotes. One could even, if one wanted, simply savor them alone, without commentary, like lumps of fresh caviar, or raw oysters.\

But out of Abelson’s collection of doleful woe-is-us complaints from the offended rich, the one that deserves the most attention is Schwarzman’s line about lower-income folks lacking “skin in the game.” This incredible statement gets right to the heart of why these people suck.

Why? It's not because Schwarzman is factually wrong about lower-income people having no “skin in the game,” ignoring the fact that everyone pays sales taxes, and most everyone pays payroll taxes, and of course there are property taxes for even the lowliest subprime mortgage holders, and so on.

It’s not even because Schwarzman probably himself pays close to zero in income tax – as a private equity chief, he doesn’t pay income tax but tax on carried interest, which carries a maximum 15% tax rate, half the rate of a New York City firefighter.

The real issue has to do with the context of Schwarzman’s quote. The Blackstone billionaire, remember, is one of the more uniquely abhorrent, self-congratulating jerks in the entire world – a man who famously symbolized the excesses of the crisis era when, just as the rest of America was heading into a recession, he threw himself a $5 million birthday party, featuring private performances by Rod Stewart and Patti Labelle, to celebrate an IPO that made him $677 million in a matter of days (within a year, incidentally, the investors who bought that stock would lose three-fourths of their investments).

...Hmm. Is Dimon right? Do people hate him just because he’s rich and successful? That really would be unfair. Maybe we should ask the people of Jefferson County, Alabama, what they think.

That particular locality is now in bankruptcy proceedings primarily because Dimon’s bank, Chase, used middlemen to bribe local officials – literally bribe, with cash and watches and new suits – to sign on to a series of onerous interest-rate swap deals that vastly expanded the county’s debt burden.

Essentially, Jamie Dimon handed Birmingham, Alabama a Chase credit card and then bribed its local officials to run up a gigantic balance, leaving future residents and those residents’ children with the bill. As a result, the citizens of Jefferson County will now be making payments to Chase until the end of time.

Do you think Jamie Dimon would have done that deal if he lived in Jefferson County? Put it this way: if he was trying to support two kids on $30,000 a year, and lived in a Birmingham neighborhood full of people in the same boat, would he sign off on a deal that jacked up everyone’s sewer bills 400% for the next thirty years?

I can't improve on that stuff, but I want to bring out another point.  When I talk to middle class and working class conservatives, they're often choked with rage about the bailouts to the financial services industry, and rightfully so.  But they also parrot Republican talking points about how the Dodd-Frank reforms and the higher taxes on the "job creators" are going to kill the economy.  These two thoughts are in conflict.

The populists on the Right are really correct about many of the problems of the bailouts.  But the obvious implication is that bankers who caused this ought to be held accountable.  Instead they want to blame Barney Frank and Barack Obama, two people with very little impact on the real estate bubble.  Populists on the Left need to make this case somehow and bring people on board, because the populists on the Right are serving as dupes for the business class right now.  It's not right.

Narratives of Mitt Romney

So much of politics, and life more generally in fact, revolves around the narratives that we generate to make sense of the world.  Politicians get defned in certain ways, and it's hard to shake a narrative once it takes hold.  So of course it's important for the candidates and the parties to work the media and the culture to nail down the narrative that they want to generate.

Republicans are really good at this game.  They defined Bill Clinton as "slick Willy", and the narrative of him as a liar became locked into the public consciousness.  Of course it didn't hurt that Clinton was indeed a liar, at least around the Monica Lewinsky sex scandal, giving them ammunition to fuel the narrative to which they had already commited.

My favorite Republican example of this was what they did to John Kerry: "flip flopper".  Now Kerry didn't really change positions any more than the average politician.  In fact, he changed less than many- he's basically been a consistently moderate liberal politician from day one.  But George W. Bush's campaign in 2004 successfully hung the flip flopper narrative on Kerry, even though it was Bush who had run in 2000 as a "Compassionate Conservative" and who had essentially made a hard right turn upon getting into office.  And it worked.

Republicans have tried a number of negative narratives on Obama, most notably the "socialist" one in which the president is allegedly dedicated to class warfare in a Marxist sense.  This hasn't really grabbed hold except on the far Right, though, partially due to the strong discipline of Obama and his refusal to give them much real ammunition.

Mitt Romney won't let go of this narrative, though.  He's brought it up a notch recently, in speeches like this:

Just a couple of weeks ago in Kansas, President Obama lectured us about Teddy Roosevelt’s philosophy of government. But he failed to mention the important difference between Teddy Roosevelt and Barack Obama. Roosevelt believed that government should level the playing field to create equal opportunities. President Obama believes that government should create equal outcomes.

In an entitlement society, everyone receives the same or similar rewards, regardless of education, effort, and willingness to take risk. That which is earned by some is redistributed to the others. And the only people who truly enjoy any real rewards are those who do the redistributing—the government.

As many have pointed out, this is just a flat-out lie. Obama has never said that government should create equal outcomes, and in fact has never even implied it.  His policy proposals don't lead to equal outcomes, just to Clinton-era tax rates. 

This isn't the first time Romney has engaged in flat out lies about Obama's positions.  He has accused Obama of "apologizing for America" to other countries, a clearly false claim.

So I'm hoping that Democrats and those in the media start working this narrative: Romney is a liar.  He'll say whatever sounds good in the moment, but ultimately we have a Republican nominee who believes it's totally fine to lie whenever he opens his mouth.  This can also be linked to the flip flopper narrative that is much more appropriate for Romney than it ever was for Kerry.  Here's a guy who said he was for abortion rights, and now is against them.  Was for an individual insurance mandate and is now against it.  How do we know which time he was telling the truth?  His own party doesn't really believe he's telling the truth about his positions now, which is why they keep looking for someone better.  Democrats need to beat this issue to death.

A Bipartisan Health Care Bill

Congressman Paul Ryan and Senator Ron Wyden have released a blueprint for Medicare reform, which has raised a little stir since it's bipartisan.  It's also not as extreme as Ryan's earlier plan which would have destroyed Medicare and replaced it with a voucher system.  In the liberal blogosphere people are upset with Wyden for giving Republicans some cover and making it harder to hit them with the details of the earlier plan in next year's election.

The plan is essentially to privatize Medicare, while still allowing the use of the old-fashioned system for those who want it.  There are still vouchers, but they would grow at a more realistic rate, and there would be safeguards to make sure insurance wasn't unaffordable for low-income seniors.  People would be allowed to choose more expensive plans, but would pay the difference.

Liberal wonks say this won't save any money.  Conservatives say that the free market will work its magic and generate innovation and efficiencies that will lower costs and increase value.

The issue comes down to what level of free market influence is most efficient in health care. But here I think that conservatives suffer from basing their belief in the free market for health insurance on Faith rather than evidence. Medicare Advantage has been an experiment in privatizing Medicare, and its costs are higher than traditional Medicare. In fact, Medicare's per patient costs are much lower than private insurance. The fact is that we already have a private health insurance system in the US, and it has led to much higher health care costs than you see anywhere else in the world, where government is more involved in every case.

This isn't because conservatives are wrong about the free market being more innovative- it certainly is- it's because the unusual nature of the health care industry seems to have caused the innovation to go into new and high tech treatments that are probably more effective but clearly not increasing efficiency. How many people will be willing to pay much less money for treatment that is a little less efficacious? I'll buy a Dell computer that costs half as much as a Mac even though it's only 75% as good a product, but I wouldn't do the equivalent transaction with my heart surgery.

The burden of proof that a market solution will save us money really rests with conservatives, and so far there's just not much evidence in their favor.

Deficits and Taxes

So here, via Paul Krugman, are the income tax rates at various income levels as proposed by Newt Gingrich, Republican front-runner:

Yes, this means that people at the top of the income scale will actually pay a lower average tax rate than people in the middle and upper middle (those lucky stiffs at the bottom still pay less, though).  Ezra Klein has some great points on the Republican dichotomy right now: in congress they're refusing to extend the payroll tax cut because it's not paid for, but on the campaign trail Cain, Perry, and Gingrich are falling all over themselves to make much larger tax cuts without any sign of a thought regarding how to pay for them.  So what's the result in terms of revenue?

The tax plan proposed by Republican presidential candidate Newt Gingrich would add $1.3 trillion to the U.S. budget deficit in 2015 alone, a new analysis shows, complicating his goal of balancing the government’s books.

 That's in one year alone!  It's just mind-boggling that Newt and other Republicans can spend the first half of a speech ranting about the deficits run up by the Obama administration, and then in the second half of the same speech roll out a revenue-eroding tax cut.  And nearly half the country is buying it!!!

Aaaaarrrrrrgggggghhhhhhhhh!

I do not look like this

This stuff, as reported by Paul Krugman, just drives me crazy.  Apparently Senator Olympia Snowe said this:

Fiscal shenanigans such as permanent tax increases to pay for one-year temporary measures are precisely the problem that drove our nation into a $15 trillion debt crisis.

Krugman isn't usually known for holding back, but in his post I think he hits it too lightly.  Snowe's statement is basically the opposite of the truth.

Here is a graph of the causes of our debt:

So the truth is that the Bush tax cuts were the single biggest cause of our current deficit.  Magical thinking that tax increases hurt the budget are not helpful in dealing with this problem.  And Snowe is supposed to one of the moderates!!!

Parties Get the Candidates They Deserve

I get really tired of the whining from establishment Republicans that they are totally set up to win the 2012 presidential election, but might lose because their candidates are terrible.  And they kind of have a point, in that every candidate has huge glaring weaknesses that seem to render it impossible for him/her to be nominated, except that someone has to win the nomination.

But here's the thing: the reason that there are no good candidates goes back to the wild and radical right turn made by the party over the past decade.  People don't run for president if they haven't been around politics (except for Herman Cain I guess, but I think we can agree he has a different set of problems), but ten years ago virtually nobody was in favor of the policies that are now mainstream.  Imagine the current positions from a Republican politician in 2000:

• Health insurance mandate= authoritarianism
• Taxes are too low on poor people
• Climate change is a hoax, and nothing should be done about pollution
• Muslims are dangerous, and should not be allowed the same religious freedoms as the rest of us
• Deficits are always bad, and the US should balance its budget (a particular howler given the runaway GOP deficit from 2001-2007).
• Illegal immigrants are a scourge, and must be rounded up and deported even if they've been here since infancy
• Medicare should be privatized and moved to a voucher system
• Social Security is a Ponzi Scheme and needs to be cut back severely

With so many areas in which the party has been dragged to the Right, no long-serving politician can possibly have started out his career with such positions.  I've said before that Romney and Perry have been unfarily burned by past positions that were actually quite sane and intelligent, because they don't fit the current mood of GOP primary voters.

"But what about Chris Christie?  He would have been great!".  Chris Christie who hires Mulsims in his administration?  Who is compassionate toward illegal aliens?  Who believes in climate change?  He would have come up with warts just like everyone else.  Jeb Bush too. 

The Republican party has gone completely off the rails.  And they still might win the presidency!  But to get the nomination its candidates are going to have to turn themselves into pretzels to come down on the right side of all these issues.  That's going to look ugly no matter how you slice it.  So don't blame Mitt for his serial flip-flopping- blame his party.

"But both parties have been radicalized! That's the problem!"  I've heard a version of this from a few Republican and centrist friends of mine.  I generally answer them with this challenge:

Think about both parties and their mainstream platforms in, say, 2000. I can name you a half dozen major issues on which the Republican party has moved way Right (torture, religious diversity for Muslims, cap & trade/ environment, health care, progressive taxation, etc). Now think about areas in which the Democrats have moved Left- I can come up with one- Gay Rights/marriage/civil unions. That's it. If you can think of any more I'd love to hear it. (I hope you're not thinking Health Care, in which Democrats passed a bill much less liberal than that proposed by the Clintons, with ideas drawn originally from Right Wing think tanks in response to ClintonCare. The only thing that makes it seem more liberal is that it succeeded in passing).

That's a direct quote from an email to one such friend.  I sent it 11 days ago and haven't seen an answer yet.  In fact, nobody has ever given me even a lame attempt at an answer.

IntraParty Republican Critics' Shortcomings

I found this interesting:

Conservatism, despite these impressive electoral victories, is failing on its own terms. Start with the social indicators, which are the most important to conservatives. America's fast-growing and largely minority underclass shows limited signs of progress or assimilation to middle-class American life. And the white middle class -- the bed-rock of conservatism's political strength and social vision -- is showing signs of social stagnation and economic regress that should be sounding ominous claxons in conservative meeting halls but, so far, have attracted only the attention of Charles Murray. Stagnant income growth and mobility and a shrinking middle class are considered unhealthy by most conservative understandings of social health, cohesion, and well-being. While conservatives have plenty of macro ideas for increasing economic growth, they have fewer ideas about how to secure a wider distribution of new wealth.

Political and economic indicators bring more grim news. Thirty years after the arrival of the Reagan Revolution, government is bigger than ever. The Reagan years appear to have been little more than a mild speed bump in the progress of ever-larger government. The regulatory state advances relentlessly on every front. The soaring national debt threatens economic oblivion sooner or later. In short, the Reagan era, for all that was accomplished, was not an analogue to the New Deal era. In fact, the much-vaunted Reagan Revolution was not revolutionary and failed to alter the nation's basic long-term political trajectory.

I get so excited when I read sober assessments of where the conservative movement is failing, and I'm sure a conservative would feel the same way about an analagous liberal piece.  As would be expected, I agree with some of the piece, even as I don't share the author's disappointment that conservative goals aren't getting met.  The point is well-made that the Republican "starve the beast" strategy of cutting taxes now and assuming that government spending would have to be reduced as a result has been an abject failure.  I'd certainly like to see more conservatives recognize that- even if I don't share their goal of smaller government, at least it would be good if they proposed the cuts that their tax policies would actually require, rather than passing all the cost on to our children.

But this bothered me:

Of course, a reformation in conservatism demands corresponding reforms within liberalism. Liberals need to acknowledge that the American people will never support the high level of taxation -- let alone wholesale redistribution -- that would be necessary to support the future welfare state that has been set in motion. "Liberals who want a bigger welfare state and conservatives who want a smaller one have a big thing to fight about, but nothing really to talk about," noted Voegeli. "If liberals and conservatives decide they can do business with each other it will be because conservatives accept they'll never sell voters on the huge benefit reductions they ultimately seek, and because liberals decide they'll never sell the huge tax increases they ultimately need."¹⁴

...It may be that internal ideological reformation must precede bipartisan political compromise. Ideological extremists in both parties have repeatedly succeeded in scuttling tax and entitlement compromises pursued by moderate reformers in their respective parties, and at the moment, the prospects for any compromises seem remote. It is easy and crowd pleasing to blame the intransigence of the other side, but this absolves both sides of serious self-examination and self-criticism without which political progress becomes impossible for both. [Boldface is mine]

Yes, it's more of the False Equivalency Watch.  I guess since we get constant false equivalency from the media in the center of the debate, we're certainly going to get it from the Right, but it's still annoying to read.

The current debate has featured liberals arguing for a return to Clinton-era tax rates, along with increased taxes on the very wealthy.  In fact, these taxes on the rich are very popular, even supported by the rank and file of the Republican party.  Liberals, having passed the Affordable Care Act, are basically finished with major initiatives for government to take.  We're asking for the totally sustainable tax rates of the 1990s, not the even higher rates of the '70s or '60s (which were high, but sustainable too). 

And ideological extremists in the Democratic party have zero power.  Nobody listens to Noam Chomsky and Michael Moore.  Liberals may be excited by Occupy Wall Street, but the redistributive policies being pushed there have no chance of being proposed in Congress.  The moderates are fully in control of the Democratic party, and their proposed tax compromises reflect that.  It would be nice if conservatives would acknowledge that too- radicals have taken over just one party in the US, not both.

The ECB and the Test of Moral Hazard

It just occurred to me to think about the European Debt Crisis in this way: the European Central Bank is acting very differently from the way the US Federal Reserve acted in somewhat similar circumstances.

In 2008 the Fed, like everyone else, was terrified that the entire US banking system was going to come crashing down in the wake of the mortgage crisis.  So they did really extraordinary stuff to make sure that the banks could not fail.  Along with the Stimulus, this managed to keep the US out of a Depression, even if it wasn't really enough to get us booming again.

Europe now faces a different kind of debt problem: sovereign debt of the European Union member states. We're in a slow-motion run on the debt of the European countries with weaker economies.  This could be stopped by the ECB, but much to the chagrin of the liberal economists I read, they just won't do it.  German people, who control the ECB, just can't stomach the thought of bailing out lazy southern Europe.  Germans are terrified not of default by bond-issuing countries, but of inflation in Germany.

The ECB argument stresses a familiar topic in the US- Moral Hazard.  Some conservatives say that the US system should not have been bailed out in 2008, and that the investment banks should have been allowed to fail.  Yes, the argument goes, this would have created a much worse economic situation, maybe even a second Great Depression, but the alternative is to teach the banking sector that government will bail them out if they get in trouble.  Knowing that they have this safety net means they don't have to fear risk, and will continue to gamble recklessly.  Many of us would respond by noting that the Moral Hazard problem is real, but the harm in this area was worth it to avoid such a huge economic catastrophy, which would affect millions of people who hadn't done anything wrong.

But in Europe, the ECB is fixated on the Moral Hazard of allowing Greece, Spain, Italy, etc to escape their debt woes through bailout, write-downs, or even through deliberate inflationary policy.  They have to Feel the Pain so they learn their lesson!

So here we go: the ECB seems bent on demanding severe austerity for the debtor nations, which looks fated to fail since countries that slash and tax to balance budgets in a recession tend not to grow, which is what is ultimately needed to increase tax revenue and cover their debts.  This seems to be heading for another severe recession in Europe, which ought to teach Greece a lesson or two.  That must feel good to the Germans!

Except..... it's affecting lots of countries, even those which have been more responsible in their budgeting over the years.  And the recession will probably be worldwide.  And German bankers will probably lose their shirts too, since the loans aren't repayable and there will eventually be a default.  Lessons in Moral Hazard all around!

False Equivalency Watch

It's always good to wake up in the morning with some politics to really get the blood boiling.  Today I was watching Up With Chris Hayes on MSNBC, and there was a woman on the show from one of these "budget responsibility" centers (I didn't catch the name of the woman or the organization, and it's not up on the web yet).  They were talking about the Affordable Care Act, often referred to as ObamaCare.

The "responsible" woman made the point that when Republicans took over Congress they passed their tax cuts first and did nothing about the deficit, so Democrats were understandably uninterested in tackling the deficit under their watch.  And she said that the Democrats went ahead and passed health care without concern about the deficit, so Republicans understandably "didn't want to play".

At this point I was screaming at the television.  Fortunately, MSNBC has liberals on its panels to guard against these mushy centrist arguments that become Common Wisdom.  So a man named Starr, who had worked in the Clinton administration, pointed out that the ACA is fully paid for and does not increase the deficit.  He even called the previous statement "false equivalence".

So at least this morning justice was served.  But in how many other forums do these mealy-mouthed and lazy "centrists" do this?

Look, if you want to be honest and still argue from a centrist perspective, I guess you can say that the Republican party has been a terrible steward of responsible budgeting in the past, but that there is real indication that things have changed with the advent of the Tea Party.  I'm not sure I buy it, but it's really the only way to be honest and still give conservatives the benefit of the doubt.  Then, when we look at the 2008 Democratic congress and administration, one can certainly criticize the Keynesian deficit spending they initiated in the form of the Stimulus package.  But when we look at the signature big accomplishment, the ACA, it should be acknowledged that it is paid for.  Criticize the taxes that pay for it, that's fair game, but to call it "fiscally irresponsible" is dishonest.

This is the area in which the Mainstream Media fails us so badly.  And it's where "centrists" fail us too. 

The ECB Destroys the World

Here's something from Matt Yglesias I read this morning:

UK Can Now Borrow Cheaper Than Germany

By Matthew Yglesias

| Posted Thursday, Nov. 24, 2011, at 11:00 AM ET

If you want proof that the Eurozone's sovereign debt woes are fundamentally about the governance of the single currency and the odd behavior of the European Central Bank, then look no further than the fact that Germany's 10-year borrowing costs are now higher than the UK's. It's very difficult to explain this in terms of the kind of scolding moralism that the Germans have been deploying this fall to explain borrowing problems in the Mediterannean countries. The British aren't out-exporting the Germans. The Germans don't have a bad work ethic or a corrupt political system. The German government hasn't been more profligate than the British government in running up debt over the past 10-15 years. The Bank of England has been much less focused on fighting unemployment than has the Bundesbank/ECB. And over the past year the growth performance of the UK has been terrible as austerity budgeting crushes domestic demand and the economy continues to lack appropriate structure for export-led growth.

And yet financial markets would rather lend to the UK. Because the UK's not in the Eurozone, and because everyone knows the UK's central bank isn't going to let anything crazy happen or get into any wild games of chicken.

I didn't know anything about the European Central Bank a few months ago, and my critics would argue that I still don't know anything about it, but reading Yglesias and Krugman lately has me really depressed about what's going on there.

We keep getting forecasts of doom about European budget problems from the Right, warning that the US is going to be like Greece, just as Spain/Italy/Portugal are following Greece into debt crisis.  They keep saying that this is all because those countries spend too much, because, well, I guess because if they have a debt problem then spending too much is the only reason that can be considered.

But now that Germany is starting to have borrowing problems, even though they're the ultimate savers, running responsible budget surpluses since forever, how can we fit that into the Right's morality play?

Answer: it doesn't fit. Because the problem isn't spending- in other words, spending isn't the reason that European debt problems are spreading all over. The problem is that the European Central Bank is refusing to solve the problem because they're locked into their own morality play and want to scold the southern countries and don't want to bail them out. So now a problem that should be just in Greece (which is the one country that deserves the morality play) is leaking out everywhere, even to Germany.

The good news for American conservatives, though, is that their like-minded European friends are going to drive that whole continent into the ditch, which is going to lead to a huge recession here too, which will get blamed on Obama since he's president, which will get us President Romney. Good times!

Good links on Republican Radicalization

Some of my web-surfing this morning is relevant to my last post about the radicalization of the Republican party.  Rather than rehash yesterday's post, here are some links that bolster the point:

Here's one from David Frum about how the Republican party has changed since 2000, written by a conservative former speechwriter for George W. Bush.

Here are a couple of posts from Jon Chait making the point that Republicans aren't really interested in deficit reduction, only tax cuts, and defending President Obama's leadership around budget issues (basically making the point that he has tried being very involved, tried staying out entirely, and tried negotiating behind the scenes all at different times, and found that none of those approaches work.  In order to lead, the other party has to be willing to follow).

Radicalization of the Parties

I am so sick of the Common Wisdom that both parties in the US have become radicalized.  It's basically an article of faith among the "Third Way" crowd.  But it's a classic example of false equivalence.

Sarah Pailin, Michelle Bachman, and  Herman Cain are extremely radical- much more so than anyone I can think of in the Democratic party mainstream.  The equivalent to those politicians on the Left would be Noam Chomsky and Michael Moore- but those guys have no pull at all in the Democratic party. The list of crazy stuff said by Bachman, for example, could fill a book, and she won the Iowa Straw Poll!

Let me put it this way: think about both parties and their mainstream platforms in, say, 2000. I can name a half dozen major issues on which the Republican party has moved way Right (torture, religious diversity for Muslims, cap & trade/ environment, health care, progressive taxation, etc). Now think about areas in which the Democrats have moved Left- I can come up with one- Gay Rights/marriage/civil unions. That's it.  (Some people jump in with Health Care, in which Democrats passed a bill much less liberal than that proposed by the Clintons, with ideas drawn originally from Right Wing think tanks in response to ClintonCare. The only thing that makes it seem more liberal is that it succeeded in passing).

Obama has tried mightily to work from the Center, but every time he turns that direction the Republicans have responded by running 10 steps toward the Right.

Hey, maybe the radicals are right: maybe we need to ditch the entire modern welfare state and return to 1929 America. I'm not buying it, but that's what a huge chunk of the GOP is selling.

By the way, I recommend browsing through the Third Way website.  It's staggering- the position papers criticize the stale thinking of Left and Right, contrasting the Michael Moore position with the mainstream Republican position on every issue. In the economics paper, the authors quote Brad DeLong and Paul Krugman from the Left- two voices totally marginalized by actual policy-makers in Washington.  Then they go on to propose.... basically the exact position of the Obama administration.  Unbelievable- they want so badly to believe in their narrative that they miss what's right in front of them.

Defenseless!

I was talking with a family member about the SuperCommittee and the looming automatic cuts to the Defense budget.  Am I worried about America's security? 

No.  Why not?  The Pentagon budget will be cut 10% starting in 2013!  How can the US remain a superpower?

OK, here's my answer:

I think the US can survive a 10% cut in spending on the military, considering we currently spend six times as much as our next closest competitor.

The SuperCommittee Fails- The Sky is Not Falling

The SuperCommittee has failed to come to an agreement.  It's been pretty obvious the last few days that this would be the case.  For me it comes as a relief, since I was concerned that Senator Kerry and other Democrats were going to give away the store in the face of Republican intransigence. 

As I look at Politico's front page, I can't even bear to read the stories about who is to blame.  I expect the "pox on both your houses" view to be the overriding narrative in the Mainstream Media.  The Dow dropped 250 points today, which is apparently due to the lack of a deal.  Let me make a few points:

• This isn't really a big deal.  The law that created the SuperCommittee also mandated automatic cuts to go into effect in the case of failure to agree.  These cuts hit the Defense budget worst of all, which is OK with me, although they hit domestic discretionary spending too, which is not so great.  But they don't touch Social Security or Medicare, which is very important.
• The Bush tax cuts are still set to expire at the end of 2012.  When that happens, the medium-term budget problems will be nearly solved, if the Democrats can just hold firm- which is a big if.
• If you want to blame someone, it's really not hard to parse the whole thing out.  Democrats insisted on a mixture of spending cuts and revenue increases to solve the budget gap.  Republicans insisted that there could not be one dime of tax hikes.  They pretended to offer some revenue increases, but said that they would only do so if the Bush tax cuts were also extended permanently, which would be a huge tax cut compared to the status quo law.  Now again, this is all OK with me- I think the Democrats would have taken a deal with token tax hikes in exchange for wholesale slashing of Social Security and Medicare, which would have been a policy and political disaster for them.  Thank God the Republicans can't take yes for an answer. 
• The MainStream Media's portrayal of the blame pie was summed up nicely by Paul Krugman a few days ago.  I can't find the passage, but it was something like: Media: The parties can't get together because Republicans won't raise taxes and Democrats won't touch entitlements. Obama: I am willing to reform entitlements in exchange for tax increases. Media:  Democrats are not willing to touch entitlements and Republicans won't accept tax increases. It's just that simple; Democrats are willing to cut spending, and seem willing even to slash social programs to get a deal, but they aren't going to do those things because they want to, they do them in exchange for something else.  Since Republicans have nothing they're willing to offer, there's not going to be a deal.

An Ayn Rand Diversion

OK, a little break from the nws of the day, and a point that's been rattling around in my brain for a few days:

Ayn Rand is a mid-20th century novelist and philosopher, much revered by many on the Right.  She was the leader of a movement at that time called Objectivism, which as I understand it posited that morality should not be based on traditional religion, but rather people should do what benefits themselves without regard to others.  From the Ayn Rand Institute:

1. Reality exists as an objective absolute—facts are facts, independent of man’s feelings, wishes, hopes or fears.
2. Reason (the faculty which identifies and integrates the material provided by man’s senses) is man’s only means of perceiving reality, his only source of knowledge, his only guide to action, and his basic means of survival.
3. Man—every man—is an end in himself, not the means to the ends of others. He must exist for his own sake, neither sacrificing himself to others nor sacrificing others to himself. The pursuit of his own rational self-interest and of his own happiness is the highest moral purpose of his life.
4. The ideal political-economic system is laissez-faire capitalism. It is a system where men deal with one another, not as victims and executioners, nor as masters and slaves, but as traders, by free, voluntary exchange to mutual benefit. It is a system where no man may obtain any values from others by resorting to physical force, and no man may initiate the use of physical force against others. The government acts only as a policeman that protects man’s rights; it uses physical force only in retaliation and only against those who initiate its use, such as criminals or foreign invaders. In a system of full capitalism, there should be (but, historically, has not yet been) a complete separation of state and economics, in the same way and for the same reasons as the separation of state and church.

As you can see, religion, Christianity or otherwise, doesn't get any emphasis here.  In fact, this philosophy seems completely antithetical to Christianity with its emphasis on charity to the poor and loving one's enemies.  Which makes it so puzzling that the Randian philosophy has taken hold so strongly with politicians from the Republican party.  Paul Ryan is said to be a strong devotee, as is Newt Gingrich.  Both also claim to be Christians, espousing strong pro-Life abortion views based on their beliefs in God.

There's just no way to square this circle.  Ayn Rand was an atheist.  She was actively hostile to the ideas of Jesus and pretty much any other religion.

I'm not a Christian either, so I'm not offended by any of this.  But the extent to which the Evangelical Christian Right has been sullied by support in the churches for government policies that are the exact opposite of the teachings of Jesus is just staggering.  By their strong support for two pieces of their agenda (abortion and gay rights), Republicans have pulled this whole community over to an economic philosophy that a Christian theologian would never countenance.

The Party of the Rich

Great piece from Rolling Stone detailing the Republican party's shift to become the "party of the rich".  The conclusion:

...equating taxation with theft – is exactly the kind of talk that dismays old-line Republicans. Many of those who fought for years at the side of Ronald Reagan say they no longer recognize traditional GOP values in the new Republican Party. Fighting for the rich, after all, is not the same as championing the right.
"You can look up my record: On conservatism and taxes I was better than Jesse Helms," says Simpson, the former senator. "But whatever happened to common sense? People are going to look around in five or 10 years and say, 'Whatever happened to the things that made me comfortable? That made our streets and schools good things?' And they'll look, hopefully, at Grover Norquist. I can say to you with deepest sincerity: If this country and this legislature are in thrall to Grover Norquist, we haven't got a prayer."

Superthoughts on the SuperCommittee

Lots of sturm and drang about the SuperCommittee, which has a deadline of Wednesday to come to agreement or face the prospect of automatic cuts to domestic programs and the defense budget.

It's become pretty clear that Republicans on that committee (and just as importantly, in the House) are not going to allow a deal that raises revenues to any significant degree.  The proposals that do manage to cut out some loopholes also include making the Bush tax cuts permanent, even though they are due to expire after 2012.  So essentially the GOP offer in the SC is to raise some taxes, while extending much more in permanent tax cuts, all in exchange for drastic cuts to domestic programs, Social Security, and Medicare.  As you can imagine, I don't see this as much of a deal.

Liberals now have all the leverage- the Debt Ceiling deal that led to the SuperCommittee looks like a well- negotiated one for Democrats at this juncture.  If Congress does absolutely nothing, taxes go up in 2013 and the medium-term budget problems are practically solved.  And Democrats control the Senate and the Presidency.  They're holding four aces.

So naturally they'll fold.  Senator Kerry has been rumored to be considering the GOP deal in the SuperCommittee.  President Obama could still veto of course, but his history of compromise doesn't exactly fill me with confidence.

Don't get me wrong- like the Democrats, I am willing to accept big cuts to domestic programs as well as the military.  But I would accept those not because I believe we should cut, but because in politics one has to compromise and I realize that many don't share my values.  But Democrats seem to have confused compromising with caving in.  Democrats need to be firm in refusing to consider cuts that aren't accompanied by significant revenue increases- that's what compromise is.  Let's see if they can stick to it.

What if the Fed is Playing for Team Republican?

So here's what I've been thinking about with regard to macroeconomics recently:

What if the Republicans win in '12 and start austerity policies, but at the same time the Fed finally starts getting really active and floods the money supply, announces 4% inflation targets, etc? As I've predicted before, Republican fiscal policies will throw the country back into severe recession (if the European debt crisis hasn't already done the trick, that is). But the more I read about the role of central banks, the more I wonder if, even with interest rates already at rock-bottom, they could do more to improve the economy.

So if the Republicans win and implement austerity starting in 2013, but the Fed comes out with guns blazing and higher inflation targets, then you have a mixed outlook for the economy according to conventional analysis. But Fed action may be enough to fuel growth. And the Republicans in elective office will get the credit. Liberal screeching about the Fed's refusal to do enough when they were in charge will be too obscure to gain any traction. I'll start wondering about the Fed managers' independence, as they would essentially be partisan players under this scenario. (The Federal Reserve Board is appointed by the President and confirmed by the Senate, but politicians have no control over their actions once they're in office).

Then again, my guy Obama reappointed Bernanke and has been slow to fill other vacancies. This might be seen as a huge failure when all is said and done.  Bernanke was always known to be a conservative- here Obama's attempt to show his "new tone in Washington" may bite him in the rear.

Tough to know what to root for when!

Mitt Romney and Flip Flopping (updated)

So Mitt Romney has worked on his answer to the criticim of being a flip-flopper.  Here's something from a recent debate:

Again, it was Harwood who got to the heart of the matter, pivoting from a question about Romney’s seemingly shifting views on an auto industry bailout to a query about whether he lacked a core.
It has been a charge that has dogged him since Romney abandoned his 1994 and 2002 support for abortion rights, his 2003 backing for a regional greenhouse gas pact, and the endorsement of gay rights he expressed during his 1994 Senate campaign and 2002 candidacy for Massachusetts governor.
Romney replied this time: “I have been married to the same woman for 25 - excuse me, I will get in trouble - for 42 years. I have been in the same church my entire life. I worked at one company, Bain, for 25 years. And I left that to go off and help save the Olympic Games.”
Finding his sealegs, he continued, “I think it is outrageous the Obama campaign continues to push this idea, when you have in the Obama administration the most political presidency we have seen in modern history. They are actually deciding when to pull out of Afghanistan based on politics.”
Then, Romney added a red-white-and-blue coda: “Let me tell you this, if I’m president of the United States, I will be true to my family, to my faith, and to our country, and I will never apologize for the United States of America. That’s my belief.”

So that's his explanation for his changed positions on so many key issues over his political career, and it seems that many in the media have lapped it up.  I heard commentators on Morning Joe praising this answer to the skies.

I can't understand what people are talking about.  Noboby's ever questioned Romney's faithfulness to his wife or to the Mormon Church.  It's a totally separate question.  I don't doubt that he has a personal "core". I doubt that he has a political one.  Think about this laundry list:

• He was pro-choice when he was governor of Massachusetts.  Now he's radically pro-life
• He passed universal health care with a personal mandate in Massachusetts.  Now he claims the very similar Affordable Care Act is an assault on liberty
• He believed in Climate Change, along with the scientific consensus, but now is a total denialist
• He supported cap and trade, a market-based solution to pollution controls (along with John McCain), until he decided it was an assault on business
• He's been all over the place on the Auto Bailout, supporting it before it happened, and now criticizing it because Obama took the advice.

I go back again to the amazing conservative media machine's ability to tar any non-conservative with any criticism through constant repetition.  They decided to make John Kerry a "flip flopper", in spite of the fact that he's been a consistent moderate liberal his whole career.  And now comes Romney, with 180 degree turns in policy constantly- I wonder if this issue will gain any traction during the general election.

As I've said before, the moderate "Wall Street Journal Conservatives" I know are ready to vote for Romney, believing that he's just lying about his extreme Tea Party positions to get the nomination.  They assure me that he'll pivot to sanity in time for the general election and as president.  Of course that same belief is held by Tea Party types, who don't want to vote for him for the same reason.  But the moderates ready to vote for him need to remember that he'll be working on re-election once he's elected, and it sure looks like the path to re-election for Republicans is to govern hard right.  It worked for Bush II, and Reagan, and the moderate path failed for Bush I. 

One thing I know is in Romney's "core"- winning.

UPDATE: Here's another great post from TNR on Romney's meta-flip flopping.

Somewhat lost amid the tizzy over Rick Perry's “oops” moment this week was that the former Massachusetts governor flip-flopped on whether or not he flip-flops. Observe Romney justify his many shifting views to a New Hampshire town hall audience in late September:

“In the private sector, if you don’t change your view when the facts change, well, you’ll get fired for being stubborn and stupid,” Romney said. “Winston Churchill said, ‘When the facts change, I change too, Madam.’”

The Churchill quotation, as many noted gleefully, is in fact properly attributed to John Maynard Keynes. But that doesn’t matter anymore, because since then Romney has changed his mind. He’s actually not a flip-flopper! During Wednesday night’s GOP candidate debate, when confronted with accusations of flip-floppery, Romney readily counted himself among the stubborn and stupid: “I think people understand that I’m a man of steadiness and constancy.”
Someone call Jorge Luis Borges, because Mitt’s flips and flops are getting downright meta.

Rick Perry's Brain Fart

Well, it's fun for us liberals watching conservatives have uncomfortable moments while campaigning, particularly a candidate as arrogant and undeserving as Rick Perry. 

At the same time, his inability to remember the third department he'd cut if he were president is understandable.  I've drawn a blank under pressure like that, and I suspect most of us have.  Unfortunately for Perry though, it fits the narrative that's already hurting him, that he's not very bright and he's too lazy to prepare for debates.

But to build on the point I posted about a few days ago, the gaffe isn't the reason Perry should be finished as a candidate.  The more we get to know about this guy, the more clear it is that he's a lot like George W. Bush- not too bright, and more importantly a man with no intellectual curiosity or sense of seriousness.  We can't picture him soberly sitting down and studying an issue.  Like Bush, I'm sure he'd make decisions "from the gut", and we saw how that went in the 2000s.

As an aside, I'm reminded again of the puzzling Republican talking point that Obama can't speak without a teleprompter.  Obama is remarkably articulate and good at thinking on his feet- he's actually great at speaking extemporaneously.  Rick Perry is the guy who really needs a teleprompter.  Sometimes I think Republicans have gotten so good at creating negative narratives of their opponents that they just pick issues that don't even have a grain of truth, just to prove to themselves that they can do it.  It's like they get bored 'cause it's so easy for them. 

"Hey, let's start hammering Obama for the way he talks so technocratically and boringly now that he's president!"
"No, that's too easy!  Let's say he's so dumb he needs a teleprompter all the time!"
"No way- that's so obviously untrue that Americans will never buy it"
"Hey, let's try it anyway!  A hundred bucks says I can pull it off"
"Alright, you're on!"

Herman and Clarence

As the Herman Cain sexual harassment scandal continues to percolate, I keep hearing it compared to the Clarence Thomas- Anita Hill brouhaha 20 years ago, and there are lots of similarities.  Black conservatives, with questionable qualifications, dealing with old allegations of sexual improprieties and blaming the liberal media.

Of course the liberal media did spend a little time picking at the various indiscretions of Bill Clinton, but that doesn't seep into the conservative imagination, as it impedes their narrative.

But I find myself saying the same thing about Herman Cain that I said about Clarence Thomas many years ago: don't reject him because of sexual harassment allegations that can't be proven either way; just reject him because he's unqualified for the position for which he's being considered!  We didn't need a sex scandal to know that Thomas's resume was very thin and very undistinguished when he was nominated- a Democratic Senate could have rejected him based on that (Lord knows a Republican Senate now would never allow a Supreme Court nominee who is that radical on the other side to be confirmed these days).  Similarly, Herman Cain is a clown, with no knowledge of most of the things government does.  He's funny and entertaining, but he'd be a terrible president.   That's all we need to know.

Of course Cain is also probably a serial sexual harasser of women.  As was Bill Clinton.  JFK famously demanded a new woman every day to relieve his urges while in office.  These guys are all narcissistic megalomaniacs- I think those traits are probably necessary to put up with everything that politicians have to put up with.  So no surprise to see Herman Cain in the same light, not because he's Black or conservative, but because he loves being the center of attention- just like everyone running for president.

Predictions (updated 11/5/2011)

I do not look like this

I want to put some stuff on the record, for future "I told you so's" or future "Doh's!":

1. If the economy is really bad in 2012, it doesn't matter who the Republican nominee for president is, he'll win.  If the economy is so-so, like it is now, it's a toss-up
2. If the Republicans sweep in 2012, and implement the austerity policies they are campaigning on, the US economy will do very badly- tax cuts and spending cuts will not revive the economy, and will in fact make it worse.  Plus the deficit will be even worse.
3. It is possible, however, that President Romney, knowing that #2 is true, will somehow find a way to avoid these cuts and will do much of what Obama would do.  I think it's more likely, though, that he'll be forced into self-defeating policies.  After all, the House will be Republican and filled with True Believers, and they won't let him do stimulus.
4. It looks like the European debt crisis might lead to Greek and other default along with the end of the Euro.  If this happens, there will be a terrible worldwide recession no matter what the US does.  In that case, whoever is president of the US at the time will be blamed, even though he will be totally powerless to do anything about it.
5. UPDATE- One more point 11/5/2011: The actions of the Federal Reserve Board have been undercovered in the news.  The Fed announced this week that it expects unemployment to remain high for three years, but intends to do nothing about it in order to keep prices stable.  The Fed could do things- print money essentially, to spur inflation- but won't do that right now.  So on to the prediction: If the Fed takes massive action, such as targeting nominal GDP as many are urging, that would lead to economic growth and lots of good things.  If this happens soon, President Obama will get the credit.  If it happens in 2013, the next president will get the credit for the recovery.  Neither President Obama nor President Romney/Perry/Cain will have any control or deserve any credit for Fed action.  Obama can, however, be credited with the blame for the Fed not doing anything yet, since he re-appointed Bernanke and has not pushed for other Fed governors who would be more inclined to activity.
6. OK Still another point 11/5/2011: While I'm updating my predictions, I want to repeat one I've put down here before: If Republicans take control of the Senate, they will eliminate the filibuster as soon as the Democrats make noises about using it the way Republicans have been using it these past three years.

The Connection Between OWS and Government Employee Union Busting

I was listening to a story on the radio today about the fight in Ohio over the Wisconsin-inspired anti-public union law that was passed by the legislature and led by Governor John Kasich, but which has been put on the ballot and may be repealed by voters.  It got me thinking about the connection between union-busting and income inequality.

Here's what I mean: unions protect the wages of working class and middle class people.  But unions have been on the decline for 30 years, and the only sector left in which they're truly strong is among public employees.  That's where you see working people (road crews, city bus drivers, firemen, police) and lower-pay professionals (teachers, protective service social workers, clerks in government offices) making reasonable wages, while their brethren in the private sector have been falling behind badly.

And what is the topic du jour today, in light of the Occupy Wall Street protest?  Income inequality.  We've all been hearing about the incredible pay increases among the "top 1%", but have thought less about the pay decreases (or more accurately, flat pay) of the middle class.  But this is an important issue too.

From the 1940s to the 1970s, middle class pay increased.  There were lots of good jobs in unionized industry, which probably pushed up pay in non-union shops too.  But with globalization and the departure of lots of textiles and manufacturing elsewhere, the downward pressure on blue collar labor has been intense.  Union shops just closed and the factories moved elsewhere where labor costs were cheaper.

But the result is that now the blue collar jobs that are left don't pay very well.  Our economy has moved to one domintated by the service sector, and retail and fast food industries have effectively blocked unions.  The pay at Walmart and Burger King is terrible compared to the pay at a factory 40 years ago, but that's where the jobs are now.

So Conservatives, in their bid to destroy their opponents in the union world, have turned their eyes to government sector unions.  The Ohio and Wisconsin laws don't just cut benefits, they outlaw union dues being collected from paychecks, effectively destroying the unions entirely.  Of course, there aren't enough Big Business conservatives to support such legislation, so they have to get votes from somewhere else, and they've hit upon a really smart strategy: splitting the middle class.

The voter who works at Walmart has crappy pay and crappier benefits.  He looks at the DPW worker, with similar skills, making a living wage for the government, and he's getting angry about it.  And he should be angry!!!  But the right wing machine has figured out how to get him angry at the DPW worker, instead of getting angry at Walmart.

If Liberals want to win this battle, we have to turn the anger of the middle class away from government workers and toward the elites who are leading these changes.  After all, government workers aren't getting paid any more than they ever were- the change is that private sector workers are getting paid less.  Maybe Occupy Wall Street can help lift that narrative.

Business People and Their Assumptions

I was really struck this week by the article here from Matt Taibbi which I blogged about a few days ago.  I also sent it out to some of my favorite correspondents in the business world- I always like to see how the Wall Street Journal crowd reacts to bomb-throwers like Taibbi.

From one correpondent (we'll call him J) I got the following.  First, an exerpt from Taibbi:

FREE MONEY. Ordinary people have to borrow their money at market rates. Lloyd Blankfein and Jamie Dimon get billions of dollars for free, from the Federal Reserve. They borrow at zero and lend the same money back to the government at two or three percent, a valuable public service otherwise known as "standing in the middle and taking a gigantic cut when the government decides to lend money to itself."

Or the banks borrow billions at zero and lend mortgages to us at four percent, or credit cards at twenty or twenty-five percent. This is essentially an official government license to be rich, handed out at the expense of prudent ordinary citizens, who now no longer receive much interest on their CDs or other saved income. It is virtually impossible to not make money in banking when you have unlimited access to free money, especially when the government keeps buying its own cash back from you at market rates.

Next, the response from my correspondent:

Economics 101 tells you this can’t be true. If it were that easy to earn huge profits in the banking industry, we would see globs of new entrants and profits across the industry would come down. Barriers to entry aren’t that high.

And finally, the rant from yours truly:

Barriers to entry aren't that high????? Are you serious? Of course barriers to entry for major banks are high! There's a huge advantage to being an existing monstrously large bank. You seem to miss the whole point of this argument because you have a bedrock assumption that Finance is an Efficient Market because...... well why exactly? The whole point is that the industry is NOT efficient because we've developed into a Crony Capitalist system in which the currently powerful people set rules to make sure that they stay powerful.

Look at the banking industry- they're making record profits. Are there new entrants into the industry? Has any company replaced Lehman or Bear Stearns? Do you have a theory as to why it might be that the answer is no? Are you trying to argue that banking industry profits aren't as large as they seem? I'd really like you to clarify this- I'm staggered.

OK, J gets to respond:

The excerpt says that Blankfein and Dimon can borrow from the Fed for next to nothing and then turn around and lend it to ordinary people at high rates, pocketing obscene profits from the rate difference. Several points: (1) I never said it’s easy to become a “major bank,” so I’m not sure where you got that. Banks don’t have to be huge to get low rate loans from the Fed and then make loans to ordinary people. (2) Banks are aggressively competing with each other to get my business, and if profits from this “free money” scheme were as readily plentiful as you and the Taibbi think, then fundamental, widely accepted economic theory would say the interest rate disparity would come down, even if it were a quasi-Efficient Market. (3) The biggest profit margins for the major banks don’t come from the consumer lending anyway, but rather from investment banking. Goldman Sachs (Blankfein) isn’t even in the consumer lending business as far as I know, and JPMorgan (Dimon) has LOST money on its mortgage and credit card business while raking it in on the investment banking (http://www.reuters.com/article/2010/01/15/us-jpmorgan-idUSTRE60E1UO20100115). Look at the profit of the largest consumer lending bank, Bank of America, and you can see how highly variable it is (http://ycharts.com/companies/BAC/profit_margin).

So I maintain my position that this Free Money argument is flawed. The problem is with investment banking, not consumer banking.

Naturally I spotted the flaw in his argument:

Of course the problem is with the investment banking side.  But the solution has been to take the money from the consumer banking side, using easy money to recapitalize the banks that lost all that money on the investment banking side.

Again you talk about economic theory, claiming that it proves it just can't be that banks can make money so easily, as consumer interest rates would come down.  But again, the whole point of Taibbi's post is that those rates have not come down because of the crony capitalist nature of the whole enterprise, in which government intentionally guarantees profits to banks in order to make up for the huge losses of 2008 and keep them afloat.  In other words, the huge bank profits are a feature of federal policy, not a bug. 

On another part of the topic (J's comments in red, mine in maroon),

The alternative to bailing out a few banks was a massive meltdown and collapse far greater than we actually experienced, leading to devastating unemployment. Dodd-Frank will help ensure that the situation does not repeat itself, and that irresponsible companies will not be saved. Anyone who thinks there’s still an implicit government guarantee is deluding himself.

I agree that government had to do something. I think there's even a good argument for bailing out the banks rather than nationalizing them. But you have to admit that the solution chosen didn't force the banks to accept the pain that their businesses practices should have led to. And I hope Dodd-Frank works too, but of course the banks are fighting everything in it- that's why Taibbi is so pissed, because the same guys who caused the crisis are trying to stop the solution to the next crisis- that's why he (and I) are so mad at bankers- not so much that they brought down the economy, but more that they now see themselves as being persecuted- they should be groveling and begging forgiveness. And I think you're the one deluding yourself about the government guarantee- what makes you think a subsequent government will allow a "Too Big to Fail" institution to go belly up? You just said we were right to bail them out before- why wouldn't we do it again?

There are two reasons the situation will not repeat itself. First, Dodd-Frank is increasing capitalization requirements and the “cost” of becoming a Too-Big-To-Fail (TBTF) institution. Second, I believe public sentiment is far less likely to support bailouts in the future. I have no problem with increased regulation to ensure there are fewer TBTFs or that there are protections against the risk of system-wide meltdown. But don’t make the mistake that any regulation is good regulation. I see examples in the mutual fund industry (money market funds in particular) that are purported to protect against another financial crisis, but that actually miss the mark and instead impose unnecessary burdens on the industry without improving consumer protection. If enacted, they would definitely INCREASE costs to consumers and probably INCREASE risk to the markets. To the extent specific regulations proposed for banking are similarly unhelpful, I hope the industry will resist them.

This is the theme I keep hearing from Finance guys: essentially that the cure (government regulation) is worse than the disease.  I address that issue a bit with my next correspondent below.

From another correspondent in the financial industry (I'll call him N) I got this:

One of the major issues facing our society right now is crony capitalism - which is the marriage of government and business. Business would prefer not to compete - they don't want to play fair and will use government influence and rules to tilt the playing field in their direction if they can. What we're seeing on wall street, and in the car industry and in the green tech industry, and in the farm industry is the use of government to put profits into corporations. 

You and I have different solutions to the problem. From what I understand, you believe in stricter regulation to prevent business abuses. I think that the problem is in fact the influence of government and their involvement in industry that is the cause of the problem. If the humans in government are making decisions that influence profits, then the humans running the businesses will try to influence the government, through lobbying and other less savory means. My solution is to get government out of the influence business (out of the picking winners business, out of the saving companies business) and let a robust free market control business.

It is only businesses that are forced to compete for customers that will do what is right for their customers. If they do wrong, they should fail. So I was against all of the bailouts, and I'm against more regulation because that just makes the problem worse.

Look at the industries where government is heavily involved (finance, healthcare, anything to do with the environment) - this is where things are screwed up. The healthy growing innovating industries are the ones where there is less government involvement.

A little back and forth now.  From me:

I agree that my position of increased government regulation is imperfect and open to problems with unintended consequences, stupid regulators, and all the rest. Here I paraphrase Churchill and respond that government regulation is ineffecient, prone to abuse, and loaded with unintended consequences. The only thing worse than govenrment regulation of the financial industry is: Any Other Solution you can name.

I love the moral lesson of letting the big banks all come crashing down, with lots of big stockholders losing their shirts. The problem is that it would have brought the rest of the economy down with it. In the 1930s unemployment was 25%+. And the actual people involved, the ones doing these reckless deals, would still be fine, since they've been banking money during the good times. And since the whole industry did it, most of them would get jobs again anyway, since there isn't anyone else to hire who isn't tainted. So the trouble with letting Creative Destruction do its work is that in these large financial firms the incentives for individuals aren't set up properly. I don't see how to set them up properly without government intervention- do you?

Right now the Financial System seems rigged to benefit the big players. Goldman Sachs can screw over a whole swath of investors, but these people have nowhere else to go when they want a certain kind of deal done, right? I don't see that taking government further out of the industry will do anything but make this problem worse. It's too easy to rip off people right now- we take out enforcement and it will get harder? The theory sounds good, but I don't think you can garner much evidence that capitalism actually works this way- the financial markets aren't that efficient.

Anyway, I agree Crony Capitalism is a huge problem. What's interesting is that the Tea Party and the Occupy Wall Street crowds are both angry about the government-business n exis and how it harms prosperity for all of us (especially the middle class). But the TP focuses the rage on government, while OWS focuses it on business. Maybe we should get out of this duality and look at the whole system.

His response:

How come most industries don't suffer this problem? Why doesn't Apple screw their customers? The executives have banked millions, and yet they continue to do what's right for their customers, despite this fact. BTW, I have no illusions that Apple execs any less greedy than bankers.

It's not just Apple, nor is it just technology. I can point to industry after industry where the companies serve the needs of their customers and are constantly improving their products - without any government regulation.

I will grant you that the financial services industry has a broader impact on society - but the fact that we have not let banks fail is precisely the problem. In fact, the real problem is that we have not let the bond holders lose a ton of money. People who b bank stock know they are taking a lot of risk - but they have serious upside if the stock does well. Bond holders do not have a big upside. So the real role of a bond holders is to carefully assess the risk involved in the company to who they are lending. But if a bond holder knows they will be made whole no matter what happens, what is their incentive to scrutinize the people to whom they are lending money.

By the way, what regulation would have prevented the crisis of 2008?

 

 And me:

First of all, you won't hear me complaining about "greed". It's a human condition, and we're not going to change that. The best thing about capitalism is that it's a system that can channel greed to benefit the whole society. Capitalism works tremendously well in the area of consumer electronics, and more regulation is certainly not needed.

I'm glad there's some regulation there, though- I know that my I-Phone is unlikely to cause me cancer or leak battery acid on my ear because there are government safety standards they have to meet. And if some new start-up creates a superior product, I can safely purchase it because I know it won't leak battery acid either. Basic government regulation gives new start-ups a chance to break in, since I wouldn't dare risk buying such a thing if I didn't have some guarantee against catastrophe.

You see the analogy to other industries as an argument for less regulation in Finance. But my point isn't that capitalism doesn't work- I'm a capitalist too! My point is rather that pure capitalism doesn't seem to work in some industries. Do you want to stop government food safety inspections? I don't have time to educate myself about every industry so I don't get screwed by some fly-by-night company.

Finance is a great example of this. The FDIC means I don't have to worry about my bank deposits being safe. It also limits bank profits, since my bank is paying in to the FDIC. I think that's well worth the tradeoff.

You ask a very appropriate question: what regulation would have stopped the 2008 disaster? I'm sorry to say that I don't know- I'm not in Finance, and certainly don't understand the intricacies enough to be able to say. I would guess you could fashion the answer for my side better than I could (ask me about social work! I can argue both sides there!). I would certainly hope that Dodd-Frank is promulgating reforms that would have stopped the meltdown of '08. If that's not the case, then the law doesn't go far enough. Yes, yes, of course we're fixing the last crisis, not the next one, but at least we should stop the last one from recurring. Laws put in place during the 1930s were pretty successful in staving off a similar crisis up until now.

Again, I think you're hopelessly naive about the moral hazard issue. Yes, you're quite right that because of bailouts we have an industry that socializes risk and privatizes gains, and you're right that in theory we just need to let them know there's no such thing as "too big to fail" and they'll reevaluate their risk models. But in the real world it's not going to happen- Paulson tried it when he let Lehman fail, and look what happened- huge panic, the whole industry (including banks that hadn't over-invested in mortgages) was about to go belly up, and the government stepped in to bail the rest of them out- and that was the most conservative administration of our lifetime that did it. Do you really think President Romney is going to let the financial industry crash if there's a crisis in 2014? I don't. There's just no way politicians are going to allow a Depression on their watch- politicians know what happened to the Republican party in 1932- they didn't control the presidency for 20 years and lost the House for 62 years! Bailouts are happening, and it doesn't matter what you or anyone says in advance.

 

 And from him:

Do you seriously think that the reason your phone does not leak battery acid on you is due to government regulation? So if the regulation that governed this (who know what that is) was removed, this would immediately become a concern?

Which regulation is causing the car companies to develop technologies like blind spot detection and driver awareness detection?

I'd have to look for it, but I saw a study that shows that growth, progress and technology is responsible for almost all improvement in cleanness and safety - not regulation.

Why are you assuming that allowing banks to fail would be a disaster? Do you know that well over 100 banks have failed in the past few years? BTW, the orderly management of a bank failure is a good example of the right use of government. It's just the well-connected investment banks that are "too big to fail". I think the issue of the financial institutions having a massive impact on the rest of the economy is a real problem - my solution is not to increase the regulation on these institutions - they'll always find a way around it. I would limit the ownership structures instead. These problems never happened when the institutions like Lehman and Goldman were partnerships. And if you look at firms that have stayed partnerships, they have not suffered from this excessive risk taking. That's because a significant piece of each partner's wealth is tied into a firm when there is a partnership. The problems that we're facing started then the firms started to go public.

 

 And since it's my blog, I get the last word:

As to your solution for the TBTF banks, that sounds fine to me at first blush- forcing big banks to become partnerships sure sounds like regulation though, doesn't it? It's simple regulation of course, but I'm quite open to that. Don't you think the financial industry would fight your solution hard too?

I assume that allowing TBTF banks to fail would be a disaster because when it happened in 1929-1932 it was a disaster. And now they're even bigger. And because every economist and pundit in 2008 said it would be a disaster, leading to a second Great Depression, if we didn't bail out the Financial Industry. Hey, maybe you're right and they're all wrong. I wonder what you think would have happened? You've always implied that it would have been really bad, but that it was necessary to eliminate future Moral Hazard.

As I said, consumer electronics are well-served by the free market and require very minimal regulation. And of course without regulation, safety problems would come up a little more often- then the only outlet to deal with them would be lawsuits. Are you in favor of keeping it easy to file lawsuits when corporations put out products that turn out to be dangerous? I don't think that's good enough, by the way, but many conservatives want to make it harder to file suits, AND want to lower regulation. That leaves lots of incentive to cut corners in many product areas. Remember the Chinese baby formula scandal a few years ago? That couldn't happen here very easily right now.

Of course lots of safety innovation makes money too, so car and other companies do it. You're making a straw man argument here- I don't dispute that lots of great things come from capitalist innovation. But government regulation forced seat belts to be mandatory, and improved the environment by mandating catalytic converters (conservatives are still against pollution right? Even if Global Warming is a hoax, your side still believes smog is real, right?). That wouldn't have happened from the free market alone.

 

 Congratulations if you made it all the way to the bottom of my correspondence!