Great piece here, about how corporate profits are at all-time highs, while fewer people are working, and wages are historically low.  It makes me wonder why corporate American hates Obama so much- things have never been better for them.

Moral Hazard and Paul Krugman

Anyone who reads or knows me understands that I'm a Paul Krugman acolyte.  I don't get into hero-worship for anyone, mind you, but if I did, Krugman would be at the top of my list.   His blog is really convincing, and frankly I've never seen anything on the right that compares in terms of laying out an economics worldview, backed up with graphs and figures, but also well-written and with some fun snark.

So anyway, here he is on PBS talking about how Depressions or financial crises happen- he says that right after huge crises, things are crisis-free for a long time because people remember how bad it got, but that over time the memory fades and the reckless habits return.

Krugman's video is followed by a rebuttal by Russ Roberts.  Key quote:

But regulation is only one measure of government intervention. The last three decades saw government intervene relentlessly in financial markets to bail out creditors of large financial institutions making it easier to borrow money and finance imprudent risk-taking with other people's money.

He goes on to talk about the Moral Hazard problem, blaming our problems on past government actions in the 1980s and 1990s, bailing out large institutions that were deemed "too big to fail".  This created an implicit guarantee of government backing for reckless investing, encouraging inordinate risk-taking culminating in the real estate bubble and bust.

It's a fair point.  But I wonder what Roberts suggests at this moment in time to clean up this problem. To me, the trouble today is that these banks really are too big to fail, and if we let the financial industry go down next time this happens the result will be catastrophic for the US and world economies. Having seen the results, how can anyone seriously think that we should have let AIG and CitiBank go bankrupt after the Lehman fiasco? I'm all for protecting against the next crisis, but in this case the short-term pain would come close to killing the patient.

Keep in mind that it's really hard to make these incentives work. Remember that even though Lehman was permitted to fail, the traders who brought it down got really rich and already had their money. These guys are all mercenaries anyway, and I don't hear any talk of clawing back money or putting anyone in jail, so why would they care that they destroyed the company? Moral Hazard can be implemented pretty easily for the company, but not for the individual employees, and that's what matters.

That's why I'd rather see regulation of some kind to try to forestall the next crisis. Maybe it's limits on what the banks can do. Maybe it's a maximum size for banks, kind of like anti-trust laws. Maybe return to Glass-Steagall. I don't know, but it can't be status quo and wait for the disaster.

So I find it kind of mind-boggling that the policy of the Republican party is to repeal the Dodd-Frank financial reforms and replace them with..... nothing.  I guess in that sense Krugman is wrong about the memories of Depressions- Republican memories of financial disasters apparently only last about 6 months, or until the next election.

False Equivalence Beat-Down

This, from Ezra Klein, hits my false equivalence point in a different way:

As Democrats learned during the DREAM Act’s first decade in existence, proposing policies that Republicans have previously proposed doesn’t work. Since 2009, Democrats have sought to find middle ground with a health-care plan based around an individual mandate (which Republican Sen. John Chafee first introduced into the Senate in the 1990s), a cap-and-trade plan to reduce carbon emissions (which Republican Senator John McCain introduced into the Senate in 2003), and tax-cut based stimulus plans (which President George W. Bush signed in 2008). No go.

Backing policies that Republicans currently support hasn’t proven much more effective. When Obama put his weight behind legislation to create a bipartisan deficit-reduction commission, a number of the Republicans who supported that bill, including Senate minority leader Mitch McConnell, flipped to oppose it.

The piece goes on to cite chapter and verse on how the Republicans respond to each attempt to reach out to their positions by fleeing further to the Right and then complaining about Obama's inability to produce compromise.

 To recap: When Democrats endorse ideas Republican pioneered, that doesn’t lead to bipartisanship. When they endorse ideas Republicans currently support, that doesn’t lead to bipartisanship. And when they act on their own, that’s too partisan.

So what, exactly, are they supposed to do?

Exactly.  Honest political reporting would point out that Republicans have an explicit political strategy to deny Obama any significant legislation.  If Obama supports something, they will oppose it no matter what their previous positions.  It's scorched-Earth opposition, and it's never been seen on this level in the US.  It's legal, and one can even make an argument that it's ethical (if you believe that an Obama presidency is so dangerous that it must be opposed even when doing reasonable things).  But can't we at least call a spade a spade?

'Round and 'Round.....

Here's today's edition of Tied Up in Knots regarding the politics of the US economy:

• On one hand, as someone rooting for Democrats to win in the Fall, I like to point out that the economy in the US is doing better than in Europe as a whole. In general we've come out of the financial crisis better off than many other Western countries, and I think that's because we did a little more stimulus than they did, and haven't cut back to an austerity focus like many countries in Europe.
• On the other hand, the fact is that the stimulus is long over now and government spending is not filling the demand needed, causing the recovery to stall.
• On the other other hand, liberals want to do more stimulus now, but of course the GOP Congress won't allow that.
• On yet another hand, all signs say that President Obama doesn't really want a stimulus that would be big enough to really matter- but of course the Congress won't allow it anyway.
• No doubt the recovery is stalling, and conservatives want to use this as proof that stimulus doesn't work, and the trouble is that stimulus really didn't do the trick fully- but that doesn't solve the question because while conservatives insist we did too much stimulus which has stalled growth, liberals retort that the problem was that we didn't do enough stimulus.
• Now pro-austerity forces are making the mirror argument to the one above: austerity has failed in Ireland and Spain and Greece because they didn't do enough of it. They may have slowed government growth, but they needed to throw it into reverse and gun the engine.

So I'm left arguing that Obama's stimulus policies have saved us from a worse fate (Europe's), while also arguing that we're not doing enough and haven't done enough to really break us out of this mess, which I blame on the Republicans.

On the other hand....

False Equivalence from Alan Simpson

Alan Simpson, not my
favorite ex-Senator

False equivalence is one of those things driving me and other liberals crazy lately.  It's when a pundit or politician tries to demonstrate his or her balance and reasonableness by criticizing the excesses of both sides in a debate about policy.

There have been times, like before the Republican party went completely insane, when such a view could be justified.  Now it's hard to do so.

Here's a case in point from Alan Simpson:

This article shows Alan Simpson again trashing both sides:

Simpson ladles out his disdain in equal portions for his own Republican Party as well as for the Democrats. The message is that they are in denial: “If someone says, we can get you out of this box without touching precious Medicare, precious Medicaid, precious Social Security, or precious defense, someone ought to just say, ‘You’re a fake. You’re a phony.’”

...“You can go back to your base on the left and say, ‘I was working my butt off to get a plan and someone mentioned entitlement reform and I walked out of that room,’” says Simpson. “The right guys will say, ‘I was working day and night, I couldn’t sleep, and someone mentioned a tax increase and I walked out of that room.’”

I want to throw up.  Because nobody on the left refuses to touch entitlements.  Obama has floated many plans to cut Social Security benefits, and of course ObamaCare notoriously gains savings by cutting costs in Medicare.  The second half, however, pretty accurately describes virtually every Republican politician these days- tax increases are completely off the table. 

Now Alan Simpson is a conservative Republican himself, so it must be hard to admit that his guys are the ones making it impossible to make a deal- but if he had some intellectual honesty he would add his voice to those on the right (like Jeb Bush recently) who criticize Republican intransigence.

I guess what's required for the conversation to really start on the budget is for the Bush Tax Cuts to expire at the end of 2012.  Then we'll be working from a higher tax base rate, and Republicans won't have to vote for a tax hike since it will kick in automatically.  My big fear is that Democrats will wuss out once again and give away the store in a quest to compromise with those for whom "compromise" actually means "vote for exactly what I want".

The Federal Government is Just Not Spending More Money

OK, a quick chart here that really struck me:



So why is predominant narrative that President Obama is a huge spender?  I just wish the media could accurately report what is going on so Americans can understand it: the deficit is large because taxes have been cut and because there was an economic shock to the economy.  Spending was briefly raised (stimulus) and is now growing at its slowest rate ever.  Remember that there is population growth and moderate inflation, so a 1.4% increase is essentially flat spending.

Wisconsin Disaster

Scott Walker managed to hang on in Wisconsin and win a reasonably convincing recall election.

We all have our narratives.    This guy thinks it's about the failure of anger.  Some say it's about the Tea Party or about the huge money disparity (Republicans outspent Democrats 10:1).  Here's mine:

Corporate America has managed to nearly destroy private sector unions, leaving the public sector as just about the only place where unions are still strong. With the destruction of private sector unions has come worse benefits (less vacation, less health insurance through work, no more pensions) for most workers. Those workers are understandably mad about this. They look at government bureaucrats, teachers, and firemen who still have that stuff they used to have, and they're jealous. So they want to take it away from the lucky government workers who still get the benefits they no longer receive.

I'm angry about that too. But to me the problem is that the rest of the workers don't get the security they used to get, thanks to the destruction of unions. I'd like to see workers fight for each other to get back to that; but instead we have non-unionized factory workers voting to screw unionized government workers so that their bosses can get bigger bonuses and tax cuts. So Conservatives win this round, and maybe they'll keep winning- unfortunately it's workers who are continuing to lose.