Friday, April 29, 2011



From time to time I post snippets from my lectures to help students understand certain concepts. When I explain how "free markets" actually work I often start by telling students about my experience with my kids at Disneyland about six years ago. Below I discuss how free markets come to life, and use Aladdin as the reference point. Entrepreneurialism, as I point out, is but one aspect of our "free market" system.

About six years ago, after a long day of rides at Disneyland, we made our way to the Disney play about Aladdin. At the time my daughter was seven. My son was five. We were seated in the second set of seats, higher up than we originally wanted. But when the scene with magic carpet ride began I realized that we had the best seats in the house.

Aladdin and Jasmine floated above the stage on a "magic carpet" ride that was made more real by music and a magnificent lighting system that was meant to keep your eyes on the events unfolding before you. As I looked at my daughter I could see that she was both mesmerized and enchanted. For my daughter the carpet ride was real. There was magic in the world.

Now, you and I understand that while the carpet ride was real, the magic was not. A good deal of unseen preparation and background work is what allowed the magic to happen.

I use this story as a metaphor in class to help students understand the magic of the market, especially because of how it's explained to us by pundits and politicians. We're told that the magic of the market is real, and that it will soar to new heights on its own, but only if we allow market players to work their magic. Everything, as the story goes, will fall into place after that. A harmony of interests will prevail.

This approach to understanding markets, like with our Disney magic carpet ride, rests on you and I either ignoring the background work, overlooking the smoke & mirrors, or suspending our capacity to reason. If we do these things we can live in a world governed by Disney's magic. Unfortunately, most of us can't do this. We understand that we live in a world governed more by the dynamics of a Mad Max movie.

Let's be real. The harmony of interests that our free market marketeers believe happen on their own is not only simplistic, but injects a degree of probity and innocence on to market players and society that simply isn't there.

We all know that people don't do the right thing. To be sure, we would all like to believe that people will act civil if we put a pile of money in front of them, but history tells us otherwise. The capacity to do the right thing when no one is looking is often absent when the prospect of making a killing in the market is made available. People cheat one another. People get greedy and stupid. This is not some great insight on my part. Again, history shows this to be true.

That this even needs to be said bewilders me.

Still, this is why we create the cables of life that guide and nudge everyone in the right direction. We want everyone to get a shot at the promises liberty and freedom offer. Broadly speaking, we started with a revolution, suffered through a civil war, made women jump through hoops for their rights, and had a civil rights movement to help make the promises of America real. In the process we've learned that with hard work, and a little luck, many of today's market elites don't have to look like 19th century robber barons.

And this is no accident. More specifically, among the cables that we've created to help make the magic of the market work for everyone include security networks, public universities and public schools, public infrastructures, affirmative action (which started with the GI Bill), legal infrastructures to settle market disputes, public health standards, etc.

Whether it's vaccines that helped keep us safe as children - and help prevent pandemics that can ruin every one's day - or simple regulations that keep brothels and bars out of residential areas, we've worked to expand the background "cables" of our life (often unseen) to make sure everyone gets a shot at that magic carpet ride.

And while many free marketeers might want to pick nits over public programs, they need to take a look at their multi-billion dollar subsidies, million dollar write-offs, generous deductions, legal protections, favorable legislation, trillion dollar bailouts, and other "cable" strings that have kept their magic carpet ride afloat.

But many of our free marketers ignore these cables of life. They would rather that you live with a sense of wonderment over "their" accomplishments, and the majesty behind their market magic. 

They don't want you to notice their cables and other supports, so they tell you to ignore yours.

The interesting thing here is that while my daughter was enchanted by Aladdin's magic carpet ride, my then 5-year old son grabbed at my shirt, pointed upward, and said, "Look Dad, they have strings [cables] holding the carpet ... it's not real."

He was proud of what he had discovered. I was too. Still, thinking of the world my daughter was experiencing I told him to be quiet.

The point is, it's time for our free marketeers to take a look at the world as it is - strings and all - and not how they wish it to be. To the extent that the magic of the market exists, it's been made possible by our modern liberal state.

To be sure, people work hard. Entrepreneurialism is alive and well. But people have worked hard throughout history (real entrepreneurs don't wait for a 5% drop in the capital gains tax). What's made the difference are the type of states we've fought to create around the world since the American Revolution.

The modern state creates the conditions under which the great wealth of our time has been created.

If my then 5-year old son can notice the cables in a Disney theater, it's about time that our pampered free marketeers acknowledge the strings that have made the magic of their market world come to life.

- Mark

Thursday, April 28, 2011


Right around the time Paul Ryan (R-WI) and the GOP came out with their Medicare-destroying, tax-cut-kick-backs-for-the-rich, budget proposal the Wall Street Journal presented us with this: "Time for a Budget Game-Changer." In the article economists Gary Becker and John Taylor join forces with former Secretary of State George Shultz to call for a strategy of economic growth, full employment, and deficit reduction — all without inflation.

So far so good.

To get there the GOP's Three Amigos praise - and then claim - that the House Republican budget plan is a good one. But only if they can assure Wall Street and businesses that current tax levels will not be raised.

OK, now I smell a rat. A trickle-down rat, that is.

To make their point - and using an argument straight out of an introductory economics textbook - they point out that when private investment is high, unemployment is low.

This is when the medieval alchemy begins.

To make their point Becker and friends trot out figures from 2006, which was right before the bubble economy started to collapse. Then they compare 2006 with numbers from 2010, when the federal government was still working to prevent a Second Great Depression by bailing out Wall Street and the banks with taxpayer dollars.

Then, with textbook-like precision, they wrote what effectively sounded like "Blah, blah, blah ..." What they actually wrote was:

In 2006, investment — business fixed investment plus residential investment — as a share of GDP was high, at 17 percent, and unemployment was low, at 5 percent. By 2010 private investment as a share of GDP was down to 12 percent, and unemployment was up to more than 9 percent. In the year 2000, investment as a share of GDP was 17 percent while unemployment averaged around 4 percent. This is a regular pattern.
See what I mean by "Blah, blah, blah ..."?

Moving away from the textbook jargon, what Becker and friends said was: "Private Investment, Good = More Jobs."

What they completely ignored is how those Bush year jobs were created. During the period they cover virtually all of the "private" investment and job creation they refer to rested on artificially low interest rates (which gave us the bubble), borrowed money (thank you home equity loans), empty tax cuts (which benefited the rich, and fed the bubble) and reckless deregulation (which gave us credit default swaps and junk mortgages, which also fed the bubble).

I wouldn't allow my freshman students get away with what Becker and friends wrote if they also ignored the underlying - and extremely relevant - data. Indeed, if they're letting their students get away with this stuff it's no wonder Paul Ryan thinks he has a good budget. People like Becker and friends are essentially signing off on analytic crap.

Citing results, to promote an economic program, without checking the underlying data almost makes you wonder what these guys are smoking ...

In fact, a simple search of what helped one sector of our economy "grow" during the Bush "wonder years" would have yielded the following.

President Reagan's budget director, David Stockman, recently pointed out that economic growth during the Bush years was pretty much an illusion. It was built on a bubble of debt. Focusing only on one sector of the economy, he points out that total household debt in 1975 – which includes mortgages, credit cards, and auto loans – stood at about $730 billion, or 45% of what our economy produced that year (our GDP). At the end of the bubble peak in 2007, total household debt had reached $13.8 trillion and was 96% of GDP.

Translation. Up until the market collapse in 2008 Americans were living the good life on borrowed money. Becker and friends ignore this, as if we have the time to play their trickle-down, let's-wipe-out-Medicare games (again).

At the end of the day, the private investment numbers Becker, Taylor and Schultz cite were spiked by deregulation, reckless debt, empty tax cuts, and a bubble economy. Yet, they still praise and use their cherry picked years - without explaining the underlying causes - as if the Bush "wonder years" should be emulated.

Apparently Becker and friends think ignoring the facts is a good economic model because they not only praise the results of 2006, but they applaud Paul Ryan's budget plan - in spite of the fact that it lays the groundwork for doing it all over again.

By ignoring how we got into this mess, Paul Ryan's Medicare-busting, trickle-down, tax-cuts for-the-rich, let's-do-it-all-over-again, budget proposal - like Becker and Friends WSJ piece - rests on faulty data, and is analytically bankrupt. We can't do it again.

More importantly, if we look at the numbers, it simply won't work.

- Mark

Wednesday, April 27, 2011


OK, against my better judgment, I'm going to weigh in on the birther carnival. Here's why the stupidity won't end.

We want to keep in mind that the GOP's Tin Foil crowd allowed themselves to believe that George W. Bush served out his tour in the Air National Guard and that he was a successful businessman.

In fact, Bush effectively went AWOL, and was bailed out numerous times by Daddy's rich friends. But many on the far right convinced themselves that this wasn't the case, or didn't matter.

Simply put, the far right is full of delusional conspiracy theorists (why else would Glenn Beck be so popular?) who will probably focus on contrived secret Muslim theories, and/or ask whether the birth certificate is authentic. A chorus of "why so late?" is in our immediate future.

These are some pretty crazy and angry people.

- Mark

Tuesday, April 26, 2011


While I don't often do this, I posted "Ten Myths About Our Budget Mess (and Why the GOP Isn't Serious About Solving It)" onto my Facebook account. I have a high school friend who took exception to the claim that President Clinton produced budget surpluses. He even argued that budget surpluses never existed.

But they did, as these Congressional Budget Office charts make abundantly clear ...

So, how exactly did my friend come to believe that budget surpluses under President Clinton weren't real? Two reasons.

First, he watches Fox News. I can't do anything here.

Second, if we dig a little deeper, we find that my friend - like many of our Fox viewing friends - ignored the difference between national debt and annual receipts (or revenues). Confusing debt with revenue should not occur. Here's what happened.

First, (apart from watching Fox News) my friend posted these debt numbers which show that our total debt load never went down from year to year under President Clinton ...

Ending National Debt Deficit

FY1993 09/30/1993 $4.411488 trillion
FY1994 09/30/1994 $4.692749 trillion ... $281.26 billion
FY1995 09/29/1995 $4.973982 trillion ... $281.23 billion
FY1996 09/30/1996 $5.224810 trillion ... $250.83 billion
FY1997 09/30/1997 $5.413146 trillion ... $188.34 billion
FY1998 09/30/1998 $5.526193 trillion ... $113.05 billion
FY1999 09/30/1999 $5.656270 trillion ... $130.08 billion
FY2000 09/29/2000 $5.674178 trillion ... $17.91 billion
FY2001 09/28/2001 $5.807463 trillion ... $133.29 billion

What my friend is focusing on here is our TOTAL DEBT LOAD (which you can access here).

Then he directs our attention to a second set of numbers, which show how much our national debt climbed annually - even during the Clinton surplus years. The numbers presented make it look like we didn't put a dent into the total budget deficit. Ergo, for our conservative friends, there was never a surplus.

And the (fake) Fox News crowd goes wild.

Next, my friend ignores that there is a difference between total debt and actual annual revenue.

What does this mean, you ask?

Think about it this way. If you have a home mortgage, credit card debt, and other expenses that keep piling up this is your total debt load (our national debt). If you don't pay the principal down, or if you don't earn enough during the year to pay the total interest on your debt load, your TOTAL DEBT (or, our national debt) will not come down. It will increase.

However - and this is the key point - this doesn't mean that you didn't earn more money during the year. It just means that your total debt load climbed.

Allow me to elaborate ...

In your household you can earn more money by taking a second job, getting a raise, or being rewarded a bonus. If your raise, or your new job, or your bonus don't earn you enough to pay down your debt loads and/or doesn't earn you enough to cover the interest payments your TOTAL DEBT LOAD will still climb ... even if your annual income also grows.
So, for example, you could get a raise or a second job, and watch your yearly income increase. But if you're buried under a ton of debt to begin with you're not going to be able to pay down the principal or the interest on your debt (it's actually a little more complex than this, but ...).
My friend ignores these dynamics, as do the people at Fox News.

If you ignore the distinction between annual revenue (tax receipts) and total obligations (national debt) you will not be able to acknowledge that revenue increases one year doesn't necessarily mean your total debt will go down. Revenue surpluses will not put a dent into your debt load if you're buried up to your eyeballs in debt (or spend more, as Bush did).

This is what happened to the Clinton surpluses. They got sucked up by the Reagan-Bush I tidal wave of debt, and completely disappeared under Bush II's financial tsunami of unfunded tax cuts, unfunded Medicare D, unfunded war policies, and market collapse.

If you run your household budget you probably understand this debt-revenue contrast.

At the end of the day Democrats have demonstrated over and over again that tax-and-spend is more responsible than borrow-and-spend. Put more bluntly, Democrats have proven over time that they are better stewards of our money than the GOP.

And, yes, Clinton's surpluses were real.

- Mark

Monday, April 25, 2011


In his nightly Rewrite MSNBC's Lawrence O'Donnell takes Rush Limbaugh to task for his "wild display of biblical ignorance." He does so because of how Rush mocks and then lies about what Jesus would ask of those who are more fortunate than the rest of us ...

- Mark


This is your brain on Fox (and on Limbaugh, and on Beck, and ...)

- Mark

Friday, April 22, 2011


If you haven't watched any of The Trump interviews check out this Michael Isikoff interview, which Isikoff goes over with Cenk Uygur in this clip.

Whether it's Trump's brain power, his birther stupidity, not knowing what classifies as a university, failing to acknowledge failure, or the fact that Trump was born into wealth and still managed to run his company into 3 bankruptcy filings, I think it's time someone bought Mr. Trump a nice cup of special blend coffee ...

Seriously, when did the race for the American presidency begin to include mistaking obnoxious stupidity and media presence for gravitas? Think about it, Trump's recipe for bringing down oil prices includes using his "brain power" to go after OPEC. 

That's not just brain power. In Trump's mind, I'm sure, it's out-of-the-box "super policy" thinking that, no doubt, can only be explained by his "super genius"  ...

I'll leave it at that, for now.

- Mark


As part of Rep. Paul Ryan's (R-WI) take-from-the-poor, but-let's-subsidize-the-rich budget proposal we see that he and the GOP are taking an axe to entitlement programs like Medicare (turns it into an underfunded voucher program) and Social Security (reduces benefits). It also cuts taxes on the rich, again.
Funny thing, though. It turns out that our anti-state, let's cut entitlements because "the-private-sector-works-best" champion Paul Ryan also received social security benefits when he was young. Worse, Rep. Ryan then used his saved up social security money to attend a public university (What? He wasn't good enough to get into a private univeristy?).

I'm not sure, but I'm guessing that Paul Ryan also traveled to campus on public roads which were protected, managed, and maintained by, you know, public employees. 
However, before anyone casts judgment ...
... we should all remember that this is the way Jesus wants things to be. Seriously. But we're not just talking about the old biblical Jesus, who didn't understand how to deal with the poor and infirm. We're talking about the new and improved Republican Jesus.

Republican Jesus says that the GOP is obligated by God to make things tougher on the elderly and the poor by transferring more wealth to the rich.
The rich, after all, must have more money to exchange in the temples of Wall Street.

And besides, we should all keep in mind that the GOP's policies serve us all since Republicans can always be expected to walk the walk when it comes to chivalry, respecting the bible, and family values ... oh, wait, what about ... and then ... 
Oh, look, a shiny spoon. 
- Mark

Wednesday, April 20, 2011


Be sure to use this with your conservative "get-government-off-my-back" friends ...

In class I've been led into discussions on tax exemptions, tax deductions and other financial gifts for the wealthy, which are all made possible because of favorable legislation and taxpayer funded subsidies. In fact, there's more than $1.3 trillion in exemptions and deductions that you and I pay for, which primarily benefit America's wealthiest class.

No, that's not a typo. $1.3 trillion is equivalent to our national deficit this year. And this figure doesn't include our most recent trillion dollar bailout.

Worse, much of what we transfer to America's wealthiest class has little to do with creating jobs, and much more to do with extracting wealth and getting you and me to subsidize "the market." Here's a small clip that explains how it happens (incredible, only 9,805 people have watched since it came out 3 years ago).

You can get David Cay Johnston's book, Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill), here.

- Mark


Via the Huffington Post ... If you're a senior, and the Republican budget proposal is passed - with undersized insurance industry vouchers as the replacement plan - you need to think, "How will you pay for Medicare"

The Medicare payment shortfall will be real with the Republican voucher program.

- Mark


Does the financial system pose an even greater risk to taxpayers today than before the crisis? According to analysts at Standard & Poor's the answer is "yes." Specifically, because of accounting tricks, increased derivative exposure, and faulty reforms, the market watchers at S&P "believe the risks from the U.S. financial sector are higher than we considered them to be before 2008."

Put another way, the banksters are stilling looting the joint.

To be sure, the S&P is the same group that saw nothing, and did little to reign in the banksters speculative euphoria on Wall Street before 2008. Still, the good folks at the S&P believe that the next rescue "could be about a trillion dollars costlier" because the level of global interconnectedness now tie firms "to one another in ways experts do not completely understand."

Still not sure what this means? Let's use a metaphor.

What the S&P is saying, in layman terms, is that if you thought Charlie Sheen was a mess during his last meltdown, imagine him on an untreated syphilis-induced drinking binge, with no goddesses. Yup, they think it's going to be that bad.

Here's why ...

THE BANKS BOOKS: Like Spain many of our banks are still in trouble because they are under-capitalized, while our banking system remains dogged by delinquent bubble-era loans.

INCREASED DERIVATIVE EXPOSURE: The rise of globalization and the continued growth of derivatives -- financial instruments that are supposed to spread risk -- have seen their notional value grow to between $450 trillion and almost $700 trillion ($191 trillion for the commercial banks alone), and led to greater exposure between countries, industries, and companies. 

FAILED REFORMS: Global financial market remains fragile due to weak policies, lax regulation, poor accountability and systems that are not designed to capture global risk management.

Think about it. Banks have still not accounted for losses on poorly-performing assets they're hiding on their books, while many of the world's economies aren't as strong as they were just a few years ago. All of this means that when another market collapse happens (and it will) lawmakers will be hard-pressed to convince taxpayers to backstop another bailout.

Because the banksters are doing the same thing they did before the collapse, according to the S&P, we're in trouble.

- Mark

Tuesday, April 19, 2011


Last week in "Ten Myths About Our Budget Mess" I discussed in Myth #2 how America's wealthiest (and upper middle class) benefit from more than a trillion dollars in tax exemptions and tax deductions. These refunds are really taxpayer funded gifts that help subsidize corporate America's profits. I didn't provide any details other than to note that we could go a long way in solving our budget problem if we went after some of these deductions.

Below, courtesy of the Huffington Post we have a pretty good break down of the ten most expensive exemptions and deductions that transfer wealth from you and me, and end up costing us at least a trillion in revenue per year - and even more in the future (click to expand).

As I pointed out in my earlier post, if the GOP were really serious about our budget deficits they would be looking at reducing or eliminating some of these exemptions and deductions. But they're not serious. So don't expect them to consider any of these deductions and refunds.

- Mark

Monday, April 18, 2011


From Digg, George Carlin on The God excuse: "The last refuge of a man with no answers and no argument ... 'It came from God.' " It begins at 5:00 minutes into this "You have no rights" clip (fair warning, it's Carlin so don't be offended if you click).

- Mark

Friday, April 15, 2011


Finally, a high ranking official at the Federal Reserve calling it like it is ...

Because of the 2008 bank bailouts, and other implicit guarantees, Kansas City Federal Reserve President Thomas Hoenig is arguing that the largest U.S. banks are really little more than government-guaranteed enterprises, just like mortgage finance companies Fannie Mae and Freddie Mac.

"That's what they are," Hoenig said at the National Association of Attorneys General 2011 conference.

As such, Hoenig believes that these banks should be restricted to commercial banking activities, and that's it. He argues that the banks should return to the activities that they performed before reckless deregulation allowed commercial banks to engage in investment banking and other speculative activities.

This isn't the first time Hoenig has spoken out about our nation's banking system. In February (2011) Hoenig said that Wall Street's financial giants continue to pose major risks to the U.S. economy, and must be broken up to avoid another meltdown.

Because of their implicit "too-big-to-fail" guarantees Hoenig argues that our bailed out banks should be treated as "a public utility" instead of like the pampered and taxpayer guaranteed institutions that they've become.

I couldn't have said it better.

- Mark  

Thursday, April 14, 2011


What do you know? I'm a market guru. If I put my tinfoil, Fox News analyst, hat on here's how I know ...

Ultraconservative market newsletter "" had this to say about market "guru" Robert Prechter.
... Prechter sees a plunge ahead for stock prices. The reason is because investors have turned way too bullish [confident] ...
According to Newsmax, then Prechter lists the tell-tale signals that tell him trouble's around the corner:
• Individual investors are the most bullish in six years ...
• Newsletter advisers are the most bullish in seven years ...
• Futures traders are the most bullish in four years ...
• Mutual fund managers are the most bullish ever ...
• Hedge fund manager are the most bullish ever ...
• Economists are unanimously bullish ...
• Top global strategists on three national panels expressed bullishness.
In other words, according to Prechter we have a bunch of market players who, once again, are confident about the prospects of the market (keep in mind these guys get paid commissions and bonuses only if they make their clients so confident that they invest their money with them). And, with their confident "nothing's-in-it-for-me" objective analysis, they've convinced their clients too.

So, collectively, according the Prechter, market players and their clients are swallowed up in yet another market herd stampede.

But, with Americans jittery about their individual prospects, and with the economy on shaky grounds, why all the confidence? What, in God's name, could have triggered this "bullish" herd mentality from today's market players (who, again, get paid big bucks only if they get people to believe markets are growing)? Is it tied to improving market fundamentals? Is a new tech driven boom on the horizon? Could the world be poised for the next super market innovation?

Interestingly, None of the Above.

What's driving this current bubble cycle - according to Byron Wien, vice chairman of Blackstone Advisory Services - is the Federal Reserve's trillion dollar money dump over the past two and a half years. But what's really made the market players bubbly is how this money has been "recycled into stocks" and onto Wall Street's books.

That's right. Because the federal government has been dumping money into the economy for years now - euphemistically called Quantitative Easing (QE I & II) - market players have regained their confidence. And why not? They're making record profits, again. Their mojo is back. In fact, the money dump has worked so well (for America's moneyed elite) that the GOP is even looking for "novel" ways to continue the money dump, but hoping nobody notice what they really want to do

At the end of the day, the goal of dumping taxpayer backed money into the economy is to prop up Wall Street. Market gurus like Robert Prechter and Bryon Wien know this. They also know that if the money dump stops we're all in trouble. Market guru Prechter even predicts the stock market could drop 40% (if we don't get another big money dump - or QE III - I have no problem with this number).

The interesting thing is that I've been saying all of this for years. I guess that makes me a market guru too ;-).

- Mark

Wednesday, April 13, 2011


President Obama's speech on the budget today is the kind of speech I could see myself writing. It provides an intellectual framework for our budget future that's realistic and affirming.

Here's the link for the written speech, with some of the money quotes copied below.

On the role of government ...

* We believe, in the words of our first Republican President, Abraham Lincoln, that through government, we should do together what we cannot do as well for ourselves.

* Part of this American belief that we’re all connected also expresses itself in a conviction that each one of us deserves some basic measure of security and dignity.  We recognize that no matter how responsibly we live our lives, hard times or bad luck, a crippling illness or a layoff may strike any one of us.  “There but for the grace of God go I,” we say to ourselves.  And so we contribute to programs like Medicare and Social Security, which guarantee us health care and a measure of basic income after a lifetime of hard work; unemployment insurance, which protects us against unexpected job loss; and Medicaid, which provides care for millions of seniors in nursing homes, poor children, those with disabilities.  We’re a better country because of these commitments.  I’ll go further.  We would not be a great country without those commitments.

On the Republican budget proposal ...

* [The Republican plan] says even though Americans can’t afford to invest in education at current levels, or clean energy, even though we can’t afford to maintain our commitment on Medicare and Medicaid, we can somehow afford more than $1 trillion in new tax breaks for the wealthy. 

* [The Republicans] want to give people like me a $200,000 tax cut that’s paid for by asking 33 seniors each to pay $6,000 more in health costs.  That’s not right.  And it’s not going to happen as long as I’m President.
* I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking benefit to pay for rising costs.  I will not tell families with children who have disabilities that they have to fend for themselves. 

* ... we cannot afford $1 trillion worth of tax cuts for every millionaire and billionaire in our society.  We can’t afford it.  And I refuse to renew them again.

On how to fix our budget mess ... 

* ... the tax code is also loaded up with spending on things like itemized deductions.  And while I agree with the goals of many of these deductions, from home ownership to charitable giving, we can’t ignore the fact that they provide millionaires an average tax break of $75,000 but do nothing for the typical middle-class family that doesn’t itemize.  So my budget calls for limiting itemized deductions for the wealthiest 2 percent of Americans -- a reform that would reduce the deficit by $320 billion over 10 years.

Whether President Obama is able to get what he outlines here is another matter. Still, he did lay down some markers that will be hard for him to ignore on the campaign trail. This is refreshing.

- Mark

P.S. I also like how President Obama finally found the nerve to lay the blame for our budget mess today where it really lies - with the Bush administration, and the Reagan-inspired tax cuts for the rich policies.

Tuesday, April 12, 2011

TEN MYTHS ABOUT OUR BUDGET MESS (and Why The GOP Isn't Serious About Solving It)

Imagine what would have happened if after Pearl Harbor the president had declared war on Japan, and then invaded Korea. Most Americans would have thought FDR was crazy. Taking your eye off the ball to pursue monsters that exist only in your world doesn't win you many fans.

But this is precisely what the GOP is doing with our current budget mess. They are taking their eye off the ball, as they pursue monsters in a world that only they believe is real. Below I consider their Monster Myths, and the very real Budget Realities that should be shaping our current budget debate.

We hear it all the time. President Obama is to blame for jacking up our budget. Nothing could be further from the truth.

BUDGET REALITY: Consider this. If it weren't for the Bush era policies - tax cuts for the rich, unfunded wars, deregulation induced market collapse, trillions in bailout costs, etc. - our budget deficits would be right about $100 billion - or less - instead of around $1.3 trillion.

Or we can look at numbers this way ...

Either way you cut it, President Obama isn't to blame for this budget mess.

We've been told this for the better part of 30 years: "We need to cut taxes on the richest Americans so they can invest." The added benefit of increased investments will "trickle down" to the rest of America in the form of economic growth, and more tax revenue.

REALITY: After 30 years of tax cuts for the rich we now have a national debt that's gone from just under $1 trillion in 1980 to $14.3 trillion today. The Republican response after more than 30 years of having their grand theory blow up in their face? They're proposing yet more tax cuts for the rich.

We're told every day about rising Medicare and Social Security costs. Ergo, the argument goes, we need to cut benefits for these programs.

REALITY: After decades of providing favorable legislation for a select few Americans we've created at least $1 trillion in write-offs and charge-offs for corporations and other individuals. The really good part is that you and I pay for it. For example, if you like going to lunch with your business friend, who picks up the tab, guess what? You and I actually help pay for it. It's called a business expense, which the business community gets to deduct from what they pay in taxes. Congress has created so many of these deductions that you and I get to pick up more than $1 trillion in business and other expenses.

The Republican want to ignore that we could go a long way in solving our budget deficits if we went after some of the more than $1 trillion in write-offs and deductions we have in our tax code. Why? Because these deductions help their campaign donors.

One of the things we're told is that spending money on the state is a waste. The state can do nothing right. As such, we need to cut back on wasteful federal and state budgets because they drain revenue.

REALITY: Today there is more than $330 billion in uncollected federal taxes. Yet, the Republicans want to cut the budget of the IRS by $600 million (with even more cuts later). What the GOP doesn't understand is that for every dollar the Internal Revenue Service spends on audits, liens and seizing property from tax cheats they bring in more than $10. This is a 10:1 rate of return. So, to simplify, if we allow the IRS to spend ...

... we get $10 in revenue in return ...

While no one likes paying taxes, this sounds like a pretty good investment to me.

Again, we're told that state spending is a waste. The state can do nothing right. As such, we need to cut back on wasteful federal and state budgets because they drain revenue.

REALITY: According to the Congressional Budget Office (CBO), for every dollar the federal government spends on public work projects, or transfers to ordinary Americans (in the form of unemployment benefits) it generates between $1 and $2.50 in economic activity. This is what it looks like every time we spend money on regular Americans ...

will get us about ...

Like Myth #3 above, for the better part of 30 years we've been told that if we cut taxes on the rich they will invest and generate more economic activity because the rich know what to do with their money. Ergo, we need to provide the rich with more tax cuts.

REALITY: Of all the lies about tax cuts creating more wealth for everyone this one has to be perhaps the biggest lie of all. In fact, according to the Congressional Budget Office, for every dollar in tax cuts we give to America's richest class we only get 50 cents (and perhaps as little at 10 cents) in return. Or ...

in tax cuts for the rich will get us (maybe) ...

A couple of weeks back we heard on "60 Minutes" (from corporate America) that corporate tax rates in America were among the highest in the world.

REALITY: Apart from the fact that corporations should stop whining since they are able to draw from U.S. government funded universities, infrastructures, research centers, its military, legal networks, policing bodies, etc. the reality is corporate tax rates in America are at record LOW levels.

In fact, when we look at what corporations (and what their millionaire CEOs) are paying as a share of tax revenue today versus what they (and you and me) paid years ago, the "high corporate tax rate" meme is, quite frankly, a hoax.

Incredibly, the high tax rate meme gets worse once you understand the difference between the "marginal" tax rate and the "effective" tax rate, which you can learn about here.

We know that Social Security has produced surpluses, and that the federal government owes the system at least $4 trillion from what it has borrowed from the program. The Republican response? Lie, and say our retirement system is broke, and then make misleading proposals to cut or privatize Social Security.

REALITY: As I've been pointing out year after year, social security is not in trouble. In fact, it's one of the few "profitable" government programs we have. Every president knows this because they've been borrowing hundreds of billions from the program for years. We now owe Social Security trillions in back pay. Oh, and federal pensions aren't really underfunded either. We're just getting ripped off by the private sector, in more ways than one.

Remember Sarah Palin on the 2008 presidential campaign trail, telling us how we needed to do what they do in Alaska? Indeed, how many times did you hear Sarah Palin say how much she appreciated being in the American south because the people there reminded her of the rugged individualists in her home state? There's a reason why this was the case. They're a bunch of Red State Welfare Queens too.

REALITY: While Sarah Palin and other Red State politicians likes to wax nostalgic about the rugged individualists they represent, for every dollar most Red Staters pay into our nation's treasury they take out more than they put in. So, for example, for every dollar Alaskans pay into our nation's treasury box they take out $1.84. However, for every dollar California puts in we get 78 cents in return. 

We've all watched as Fox News, Rush Limbaugh, and virtually every Tea Bag groupie has piled on, telling the world that "the State is the problem."

REALITY: OK, time to have a little fun. I posted on this a few years back (and in the fall). Unless you're a conservative, this helps illustrate how intellectually bankrupt the "hate-the-state" mentality really is.

Moral of the story? The Republican party and their Tea Party brethren are not serious about the budget. They never have been. Why else would they have introduced misleading stories and a budget with no numbers? They would rather peddle myths about trickle down economics, and blame President Obama for our budget mess, than deal with our budget realities. It's all about creating a political narrative.

Put more simply, the GOP has no problem with the state appearing bankrupt, or allowing it to go broke, because it makes their "private sector" ideas look better. It's part of their 30 year race to the bottom strategy.

Unfortunately, in spite of overwhelming evidence that debunks their smoke & mirror lies, their strategy appears to be working.

- Mark