SO, WHERE'S THE TEA PARTY ON THIS ONE?

Via Think Progress we learn that thirty big corporations in America actually spent more money lobbying Congress between 2008 and 2010 than they paid in taxes (hat tip to Tom for the link).

What has all that lobbying gotten corporate America over the long-term? In a few words corporate profits have soared (money once set aside for taxes suddenly becomes "revenue"). Just as importantly, corporations now pay a smaller share of taxes into our economy (as a percentage of GDP) than they did in the past. Check it out ...

All of this helps explain why middle America's income tax (what you earn) and payroll tax (social security, medicare, etc.) payments have remained relatively stable or grown (payroll). Middle America is told that they need to keep paying their share of the bills, while America's richest Americans have convinced most Americans that their tax load has to go down ... for the good of the nation. Trickle down, you know.

Long story short? Our debt problem is largely A REVENUE PROBLEM. And it's caused by a group of people who think shifting the responsibility of maintaining our great nation on to others (the middle class) is a good idea (and it is, for them).

Think about it. As I explained (or tried to explain) to Republican Mark Abernathy during one of our KGET 17 sparring matches, spending as a percentage of GDP has remained relatively stable over the years, and only started to surge under President Reagan's trickle down policies.

At the end of the day, by reducing their tax burden, while maintaining (or raising) the tax load on ordinary Americans, what we're seeing is one of the greatest wealth transfers in human history. Seriously.

Not only do the top 1% and those at the top of corporate America's food chain get to keep more, but someone's going to have to pay for the $14 trillion that's been added to our national debt since 1980 (when it was only $907 Billion). And you can bet your life that the top 1% don't think it should be them.

So, my question is, where's the Tea Party on this one?

- Mark

REAGAN WOULD SUPPORT DEMOCRATS TODAY

President Reagan called for closing "crazy" loopholes that let millionaires pay less taxes as a percentage of their income than bus drivers. Kind of sounds like Warren Buffet saying he shouldn't be paying less in taxes as a percentage of income than his secretary, doesn't it?

Let's make this real simple. President Reagan's policies wouldn't fit in with the right wing today if you judge him by today's right wing standards. In fact, by acknowleding that the rich should pay more in taxes than a bus driver Reagan was acknowledging both Adam Smith, and reality:

1. Adam Smith: The intellectual godfather of capitalism, believed that higher tolls on luxury carriages should be charged because the "indolence and vanity of the rich" should be made to pay for the public good.

2. Reality: Even if we taxed and confiscated everything the poorest 50% of Americans earn or own today (about 2.5% of our nation's wealth = $1.4 trillion), it still wouldn't pay for the first installment of the Wall Street bailout (above $4 trillion, to date), let alone for the amount that we've been told has been encumbered (between $9-14 trillion).

Long story short. President Reagan - like Warren Buffet - would support the Democratic Party position on closing loopholes on the top 1% today.



- Mark

PAX AMERICANA, THROUGH LATIN AMERICA'S EYES

It's incredible how our world changed in just one generation. It was 1980. I was in junior college when I started studying politics and international relations. The United States was engaged in a cold war, paying for the defense of the west, and staring down the Soviet Union as it was crumbling into history. The American Peace, or Pax Americana, was in full bloom.

South of the border, most of Latin America was dominated by corrupt regimes and crony capitalists. The region's growing debts insured that the United States would wag it's finger at our neighbors to the south, as if they were broken step-children. And why not? The U.S. had a debt to GDP ratio that was just above 30% (we owed about $979 billion then) while most of Latin America had debt to GDP ratios that hovered between 35-60%, which would be even higher when set against declining export earnings in the 1980s. Though debt ratios didn't approach 100% for most of the region in the 1980s, declining export earning contributed significantly to Latin America's Lost Decade.

And we continued to wag our finger through it all.

How things have changed in just one generation.

There's no longer a cold war, but the United States continues to spend lavishly on military budgets like drunken sailors. We are spending far more money on defense than the next 17 militaries, combined. Worse, we spend 6 times more than our presumptive enemies China, Korea and Iran put together (we might be spending more than $1 trillion a year on defense).

And for what? To defend ourselves from terrorists who killed fewer Americans in 2010 (15, most in Afghanistan) than dog bites (34) or lightening (29)?  Combined with the incredibly irresponsible trickle down borrow-and-spend policies initiated by President Reagan (then carried on by both Bushes), and it should come as no surprise that America now finds itself in a financial mess. We've been spending and cutting taxes recklessly, while subsidizing crony capitalists, and pursuing foreign demons that don't warrant the expenditures.

How big is the mess? The U.S. now finds itself with a debt to GDP ratio that hovers over 95%. This is far worse than any of the major economies in Latin America today. Bolivia, run by socialist president Evo Morales, recently posted a 3.7% budget surplus (in 2010) and felt comfortable enough to lecture the United States on it's finances.

And while capacity to pay is as important as ever (the U.S. still retains the capacity to pay), the recent stupidity we saw over the debt ceiling is not encouraging. The Tea Party's fake populism and manufactured rage are encouraging the Barbarians at the Gate to question the credibility of the United States.

Today, even though annual budget deficits in the United States have only averaged about 10% of GDP after the 2008 market collapse (not bad considering what happened) ...

... total debt to GDP ratios in the United States have risen so fast it's now approaching 100% of GDP. This is quite a swing from when it was just above 30% when President Reagan entered the White House. No wonder Ecuador's socialist president lectured the United States on it's finances. Simply put, he can.

Why is all of this important? Because apart from the faux populist outrage we're getting from the Tea Party cranks (where were these guys when Reagan tripled and Bush II doubled our national debt?), we now have to deal with a world that has less confidence in America.

The world sees a country that seems more concerned with empty tax cuts, crony capitalism for Wall Street, and endless foreign wars than it is with fiscal responsibility and global leadership. They see a nation run by Wall Street kleptocrats, who are guided by ideologues pushing a failed ideology. Worse, many have a sense that they are seeing an empire in decline.

This helps explain why leftist-socialist presidential candidates have had found success in Argentina, Brazil, Chile, Bolivia and Venezuela. While there's much to admire in this country, it's no longer easy for  Latin Americans to point to the United States' economic model as the path to follow. How can it be when fraud and incompetence on Wall Street are rewarded with bailouts and bonuses?

Yet, the United States continues to prod and push Latin America on issues ranging from drugs to immigration when, as any Latin American will tell you, it's U.S. policies and habits that encourage both. The Bush administration even tried a cold war tactic when they participated in (led?) an attempt to remove Venezuela's Hugo Chavez from power in 2002, even though he had been popularly and legitimately elected president. While it wasn't picked up by America's media, political insiders understood that the U.S. had a hand in the attempt to oust Chavez from power by bankrolling Venezuelan groups opposed to Hugo Chavez.

Then there's the hypocrisy of our response to the 2008 market crash.

History tells us that if any of our neighbors to the south had experienced the same market meltdown that we did in 2008 that our response would have been much different. Apart from demanding strict austerity measures we would have pressured Latin American officials to make big changes in the way government bureaucrats and their crony capitalists did business. Our response to our own meltdown, however, was to spend lavishly and to cover up for Wall Street with taxpayer backed bailout funds.

How we reacted to our market meltdown in 2008 is one of the reasons why I wrote, tongue-in-cheek, that it's a good thing we don't have a U.S. Embassy in the United States.

In the past - using the U.S. Embassy as a base to direct events - the U.S. initiated coups and forced unwanted leaders from power for lesser offenses throughout the world. With this in mind, in 2009, after being asked about the evolving economic mess in the United States, Chile's then President (2006-2010) Michelle Bachelet joked:

The reason why in the United States there has never been a coup d'etat is because, in the United States, there is no United States embassy.

President Bachelet may have been joking (she issued an apology later), but the point was made. After 30 years of pursuing budget busting tax cuts and unrestrained neoliberal policies in the United States, we are now experiencing what Latin America did when it embraced free market policies under corrupt regimes in the 1980s: economic instability and financial collapse.

What's worse, in many ways we've done nothing to rectify the issues that have altered our economic landscape in just one generation. This is unfortunate because, while our media ignores how it's all tied in to the American Peace, Latin America is picking up on the new realities of Pax Americana in the 21st century.

I'll be touching on this, and other issues, in my Politics of Latin America class this winter. Stay tuned for updates.

- Mark

WHAT WOULD REAGAN DO?

Some may find this hard to believe, but I voted for Ronald Reagan in 1980. While it was a gut-wrenching, last minute, decision there are many reasons that I voted for Reagan instead of Jimmy Carter (yes, youth played a role). Hindsight, and the results of his disastrous trickle down policies, tell me that I should have voted for Carter.

Still, one of the things I found attractive about Reagan was that he came across as witty (instead of arrogant) and had made his own way in life (unlike you know who). Another thing I saw was that Ronald Reagan had learned lessons from a life that included living with an alcoholic father during the Great Depression, which made flexibility and adaptability critical to his survival. This carried over into his political world.

Unfortunately, in spite of claiming that they are part of the Reagan legacy, adaptability and flexibility are not the qualities we're seeing from our Tea Party hijacked Republican Party (a party Reagan likely would neither fit into, nor recognize). This is especially the case when it came to the budget process. Check out this classic Reagan quote on the budget now making the rounds:

"Congress consistently brings the government to the edge of default before facing its responsibility. This brinkmanship threatens the holders of government bonds and those who rely on Social Security and veterans benefits. Interest rates would skyrocket, instability would occur in financial markets, and the federal deficit would soar. The United States has a special responsibility to itself and the world to meet its obligations. It means we have a well-earned reputation for reliability and credibility – two things that set us apart from much of the world."

 You can also listen to it here ...

The point is, Ronald Reagan loved this country, which made him adaptable, not a radical.

Indeed, former Senator Alan Simpsom (R-WY) likes to remind people that Reagan raised taxes 11 times in order to get his budgets in order (he raised taxes as governor of California too). To be sure, Reagan nearly tripled the federal budget deficit, but he understood that there was a certain responsibility to governing. This is one of the reasons he was able to sleep at night after he gave amnesty to 3 million undocumented immigrants and their families, while presiding over a federal government that increased in size under his watch.

If the GOP listened to their inner Reagan, instead of to their Tea Party hoodlums, they would understand why it's necessary to raise revenues. Especially after they increased government spending to cover wars, depression economics, corporate bailouts, and assorted programs that Congress signed off on.

 
The GOP needs to channel their inner Reagan, and ask, "What would Reagan do"?
 
- Mark

PRESIDENT OBAMA ... THE NEW REAGAN?

I like how Republicans point to President Obama's falling job approval ratings as evidence that the country is turning against him. What they need to do is take a look at President Reagan's numbers at a similar point in his presidency, and then compare him with President Obama.

The reality is that when America "turned" on Ronald Reagan the Republicans had no problem with it. In fact they believed Reagan needed to stay the course and deserved a second term ... even if that meant giving President Reagan more time to effectively triple our national debt.

Still, now that the public is giving President Obama the same approval numbers that they gave President Reagan at a similar point in his presidency, Republicans want everyone to believe that President Obama is losing America. I know it's beltway politics, but it shows that they want President Obama to fail, and will do anything to discredit him. Even if it means ignoring the political realities surrounding their hero, President Reagan.

- Mark

EVEN REAGAN WASN'T REAGANESQUE

A great example of how out of control the far right has gone is this piece from Newsweek (hat tip to Candi). From "purity tests" to demands that political candidates comply with eight of the Republican party's 10 "Reaganite" principles, the modern GOP has demonstrated that they are highly intolerant of indepedent or creative thinking. This is an incredible demand given that their last guy almost wrecked the country trying to follow their Reagan principles.

Explaining "why every recent GOP president wasn't conservative enough for today's party" Andrew Romano walks us through some of the policies of the five most recent Republican Presidents. His conclusion? The current GOP and their Tea Party bachannalia have gone off the deep end (actually, that's my conclusion).

Below I've posted what Romano wrote about President Reagan who, by the way, scores only 4 out 10 on the Reagan scale.

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Fiscal Policy
The RNC based its purity test on Ronald Reagan's "principles"—chief among them a belief in "smaller government, smaller national debt, lower deficits, and lower taxes." But although the Gipper slashed taxes dramatically during his first year in office, the rest of his fiscal record directly violated the very rules the RNC created in his honor. During the Reagan years, federal employment grew by more than 60,000 (in contrast, government payrolls shrunk by 373,000 during Bill Clinton's presidency). The gap between the amount of money the federal government took in and the amount it spent nearly tripled. The national debt soared from $700 billion to $3 trillion, and the U.S. transformed from the world's largest international creditor to its largest debtor. After 1981, Reagan raised taxes nearly every year: 1982, 1983, 1984, and 1986. The 1983 payroll tax hike even helped fund Medicare and Social Security—or, in terms today's Tea Partiers might recognize, "government-run health care" and "socialism."

Domestic Policy
Were it enacted, the RNC's Ronald Reagan purity test would've also put Reagan in the crosshairs for a number of his signature domestic policies. "Oppose Obama-style government run health care"? As governor of California, Reagan nurtured and eventually expanded Medi-Cal, the nation's largest Medicaid program. Support "market-based energy reforms"? In California, Reagan established the Air Resources Board to intervene in the market and fight smog; as president, he signed more wilderness-protections laws than any president before or since. "Oppose amnesty for illegal immigrants"? In 1986, Reagan passed the Immigration Reform and Control Act, which eventually granted amnesty to 2.7 million illegal immigrants, and he continued to speak out for immigration rights after leaving office. Support "the right to keep and bear arms by opposing government restrictions on gun ownership"? Actually, Reagan was a staunch backer of the Brady Bill, urging Congress in 1991 to "enact it without further delay." To win the RNC's blessing, according to the purity test, a candidate would've had to support eight of 10 so-called Reaganite principles. But Reagan himself wouldn't have come close.

Foreign Policy
Foreign policy is where Reagan seems safest, at least at first glance. But despite his Cold Warrior bona fides, the Gipper still would've had a tough time pleasing today's conservatives. For starters, he refused to send more troops to the region when Hizbullah murdered 243 U.S. servicemen in Beirut in 1983, choosing instead to immediately withdraw the Marines remaining in Lebanon. Now, that would be a violation of the RNC resolution requiring candidates to back "military-recommended troop surges" in the Middle East. And in 1981, Reagan condemned Israel's preventive strike on an Iraqi nuclear reactor, which doesn't jibe with the RNC's demand to "[support] effective action to eliminate th[e] nuclear weapons threat" in North Korea and Iran. Sure, Reagan may have ended the Cold War and all. But would it have been enough to win the Iowa caucuses?

Social Views
Reagan was born in 1911, and his social views were largely in line with midcentury norms. But compared to other conservatives—especially the evangelicals who helped elect him and still dominate the GOP base—his record on social issues while in office was remarkably undogmatic, especially for his time. In 1967, he signed a law in California that legalized millions of abortions. In 1978, he opposed California's Proposition 6 ballot initiative, which would've barred gay men and women from working in public schools, and risked what his advisers predicted would be political suicide in taking to the airwaves to denounce it. Later, Reagan would become the first president to host an openly gay couple overnight at the White House. In 1981, he defied Jerry Falwell and other evangelical leaders by nominating Sandra Day O'Connor to the Supreme Court. A moderate, she would go on, along with one of Reagan's other nominees, Anthony Kennedy, to vote to uphold Roe v. Wade. As Peter Beinart has put it, "Turns out this Reagan guy wasn't really that Reaganite after all."

- Mark

REAGAN vs. "REAGAN CONSERVATIVE" HANNITY

Over the years I've stated on air, and in other forums, that Ronald Reagan might not make it in today's Republican Party. Say what you might about President Reagan, but there was a degree of civility and compromise that made him a practical man, especially compared to many of those who claim to be the standard bearers of conservatism today.

In this piece, Media Matters does a great job of outlining the differences between modern conservatives - like Sean Hannity - and President Reagan in the areas of terrorism (follow the law), nuclear arms control (eliminate nukes), budget deficits (they climbed), taxes (yeah, he raised them, on the middle-class), immigration (amnesty), and judicial activism (he appointed ideologues).

To be sure, Ronald Reagan initiated deregulation policies and a clumsy trickle-down philosophy that contributed to wrecking our nation's economy and budgets, while the impact of his militarism and human rights' efforts in places like Latin America are nothing to brag about. But there were many areas that he believed he could work with Democrats.

I'm not sure whether we can attribute Reagan's approach to having to work with a Democratic Congress, or because Reagan was a pragmatist who wanted to get things done. It was probably driven by a little of both. Still, in my view, his ability to work with others came from having to make his way in life before entering politics (unlike you know who), having a genuine wit (instead of being smirky & arrogant) culled from a life that was touched by economic Depression and an alcoholic father, and having an air about him that made the Bush family feel like "the help." All of this contributed to a political sense that allowed him to take practical approaches and compromise in many policy areas.

Those who support the Republican Party, and their on-going "just say no" strategy, like Sean Hannity, could learn much from looking at President Reagan's record. Reagan vs. "Reagan Conservative" Sean Hannity is a good place to start.

- Mark

THE END OF TRICKLE DOWN ECONOMICS (finally)?

Have you ever wondered why Wall Street's financial institutions have been making record profits, but none of it has "trickled down" to Main Street? Wonder no more. It has a lot to do with what Wall Street claims to have "earned" over the past 40 years (empty profits), and what it actually does (extract wealth).

As a reminder, it was Ronald Reagan who ushered in the era of "trickle down" or "supply-side" economics. The central argument is that if we put more money into the hands of those who already have money they will increase their investments. This, in turn, will lead to more industry jobs. With more jobs more people will have money to consume (I know, I know ... "Whatever happened to demand driving supply?" ... it's their playbook, so play along here).

The follow-up budget deficits that were supposed to materialize from massive tax cuts would then - according to the trickle down theory - be offset by new consumer spending. This would generate new tax revenue. And just like that, everyone lives happily ever after. See the genius in the theory?

To make the theory work Republicans called for tax cuts for the rich and deregulation for "the market" (to help inspire the rich invest their money).

We've enacted these trickle down & deregulation policies for the better part of 30 years. What do we have to show for it? Lower taxes on the rich, and a slew of favorable legislation for people who have become increasingly reckless. The result has been a continuous transfer of money to America's wealthiest class so that income growth, which was relatively equal between 1943 and 1979 (light blue columns in chart), has become disproportionately skewed to America's already wealthy, as we saw between 1973 and 2005 (darker "greyish" column).

Here's another chart demonstrating the same negative effect of deregulation and tax cuts for the rich on middle America.

If you're having trouble digesting all of this, let's make this simpler. Since what we now call supply-side, or trickle down, economic policies were introduced (keep in mind that pursuing tax cuts for the rich started long before Reagan), those at the top of America's income escalator are living something like this ...

With wages, and purchasing power, effectively stagnating because of these policies (and rising prices) what all of this suggests is that a large proportion of the economy’s growth, and it's productivity gains, over the past 30 years are not being enjoyed by workers and consumers. The real gains have been going to America's CEOs and other economic elite ...

Because America's middle class is not seeing relatively lower prices or higher wages, the share of America's income and overall wealth has been growing faster for America's already wealthy than it has for the rest of us.

Things don't get much better if we just look at America's top 1% of income earners (those making about $376,000 or more per year). Comparatively speaking, they are raking in about 60% of all income. Compared to other industrialized nations, this puts America at the top of the heap in terms of growing income inequality.

Why is this increased concentration of wealth occuring, in spite of almost thirty years of supply-side, trickle down economic policies? If you listen to conservatives this is happening because those in the bottom 90% (those making about $103,000 or less per year) aren't working hard enough, or because they're simply losers.

Demonstrating their complete ignorance of the impact that favorable legislation, legal protections, subsidies, tax breaks, write-offs, inheritance, etc. have on wealth, those on the far right will even say it's survival of the fittest at work ... only the those at the top deserve what they get because they're smarter and more talented. It has nothing to do with favorable legislation, or other factors.

Those of us who walk upright disagree.

For example, the National Bureau of Economic Research's Robert Gordon and Ian Drew-Becker point to a decline in unionization, increased trade, increased immigration, a decline in real minimum wages, and the impact falling income tax rates (for the rich) have had on growing income gaps. In fact, tax cuts have had a demonstrably positive effect on the income and wealth of America's top 1% of income earners (again, about $376,000 and above).

With America's middle class making comparatively less - which has made it difficult for Main Street, especially with rising consumer prices (play with the graph, it's fun) - and with taxes going down on America's wealthiest groups, it should come as no surprise that our federal debt skyrocketed from about $975 billion in 1980, when Ronald Reagan entered office, to around $12.5 trillion today.

Worse, the deregulation policies that Wall Street asked for throughout the 1980s and 1990s contributed to the greatest market collapse since the Great Depression and, by far, the greatest bailout of market stupidity in human history. 

Seriously. Building up and leveraging debt contracts, and then gambling on whether they would pay out was not a bright idea. Yet, Wall Street did it because they could. Deregulation and favorable legislation let them do it. And this is the point I'm getting at.

Since we embarked on policies that gave tax breaks to America's richest groups, rather than getting the promised "trickle down" effect of more jobs and reduced budget deficits we have seen wage and wealth gaps increase, while Wall Street has done what it's wanted to do. Our national debt has soared too.

Money claims on income "earned" from shady, unregulated insurance bets (Credit Default Swaps on Collateralized Debt Obligations, among others), have shot through the roof for Wall Street's biggest players (represented by M-3). What you and I have to work with (checking and savings accounts, represented by M-1) has not kept pace.

(Note: M-3 data was suspended as a "cost saving" measure by the Bush administration in 2006. I discuss the real reasons in my book)
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U.S. Money Supply (selected years)
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Year       M-1                M-2                 M-3 
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1964          $160 billion              $425 billion               $442 billion
1972          $249 billion              $802 billion               $886 billion
1974          $274 billion              $902 billion               $1.070 trillion
1975          $287 billion              $1.017 trillion            $1.170 trillion
1984          $551 billion              $2.312 trillion            $2.991 trillion
1994          $1,150 trillion           $3.498 trillion           $4.370 trillion
2002          $1,219 trillion           $5.801 trillion           $8.568 trillion
2003          $1.306 trillion           $6.062 trillion           $8.872 trillion
2004          $1.376 trillion           $6.422 trillion            $9.433 trillion
2005          $1.375 trillion           $6.692 trillion           $10.154 trillion
2006          $1.367 trillion           $7.036 trillion           $10.299 trillion
2007          $1.367 trillion           $7.447 trillion                  N/A
2008          $1.600 trillion           $8.108 trillion                  N/A
2009          $1.546 trillion           $8.110 trillion                  N/A
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What does this mean for you and me? Very simple. The earnings and income gains of Wall Street and America's biggest market players was based on a number of factors that were not tied to the invisible hand of the market. From favorable legislation, tax breaks, tax write-offs, deregulation, globalization, attacks on unions, immigration, declines in minimum wages, etc. the "earnings" and recent wealth increases that have accrued to America's wealthiest over the past 30 years has come off the backs of America's middle class.

Don't believe me? Check out personal debt loads in America. In fact, take a look at what has happened to personal obligations and government debt loads over the past 30 years.

Because the focus over the past 30 years has been to extract wealth, rather than build it up through innovative investments that would create jobs (as the trickle down model was sold), it should really come as no surprise that what happened in 2008 occurred. The goal of Ronald Reagan was simply to get more money into the hands of the rich, and to keep it away from America's middle class. Favorable legislation, subsidies, corporate write-offs, tax breaks, and other favors for America's upper crust were  the tactics used to achieve the goal.

Put another way, trickle down and supply-side economics was always a farce. Or as George H.W. Bush once noted, it was little more than Voodo economics from the very beginning.

So can we finally dispense with the trickle down notion that tax cuts for the rich (on their own) is a viable economic plan?

- Mark

PAUL VOLCKER'S THE MAN (and Reagan Blew It)

In 1987 the Federal Reserve Board voted 3-2 to allow commercial banks to underwrite (invest in or accept some of the risk for) a limited amount of financial instruments like municipal bonds and mortgage backed securities. Underwriting bonds and securities had been a problem before the Great Depression because banks took depositor money and jumped into bigger and riskier investment schemes. As is the case today, bankers got greedy and stupid. Funny how some things never change.

Anyways, when bond markets and security investments tanked in 1929 banks who had taken bigger and bigger risks collapsed and took their depositor's money with them. There was no Federal Deposit Insurance Corporation (FDIC) back then so ordinary depositors lost their money to the stupid deals bankers made. You know the rest of the story.

Fast forward back to the Federal Reserve's 3-2 decision in 1987 ... By allowing our FDIC-insured banks to take on the risk of underwriting securities the Federal Reserve opened the door that would eventually enable our FDIC-insured commercial banks to get involved in the financial crap (CDOs, MBS, CDS, etc.) that brought down our economy last year. This is important to know because one of two board members who voted "no" on the 3-2 Fed decision was then Chair of the Federal Reserve, Paul Volcker.

I provide this background because Paul Volcker once again is doing us all a favor, which will probably go unnoticed (again). Via nakedcapitalism.com we learn that while in Sussex, England Mr. Volcker gave a speech and told some of the world’s most senior financiers that their industry’s “single most important” contribution in the last 25 years has been automatic telling machines, which he said had at least proved “useful”. Imagine, telling a group of financial executives with big wallets - and even bigger egos - that their greatest gift to humanity over the past generation was ATMs. Beautiful. But he didn't end there.

Mr. Volcker then went on to tell the group - after being asked about the importance of securities - that the commercial banks could innovate all they want "but do it within a structure that doesn’t put the whole economy at risk." The real surprise here is that many in the crowd were "stunned" by his common sense approach to banking.

Mr. Volcker finished by saying the industry needed to "wake up" and that investment banks and hedge funds should be the only financial groups taking on high risk investments. He added that our governments should also be telling them "If you fail, fail. I’m not going to help you. Your stock is gone, creditors are at risk, but no one else is affected."  That this even needed to be said - and that anyone would be offended or "stunned" by the suggestion - says much about where we're at today.

And, for those of you keeping score at home, Ronald Reagan effectively fired Paul Volcker and replaced him with Alan Greenspan. You do the math.

- Mark

POLITICAL PARTIES IN AMERICA

My Introduction to American Politics class is having a mid-term tomorrow night. I told them that I would post a brief overview of my lecture on political parties here on my blog. What I present below is also from an earlier, more contentious, post.

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The history of the two major political parties in America is not well known and often misunderstood. Up front we need to understand that political parties are nothing more than a coalition of interests. On their own these interests are often categorized simply as interest groups (among other names). As interests and groups change so do coalitions and alliances. This is an all too brief history of political parties in America.

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IN THE BEGINNING … POST REVOLUTIONARY PERIOD
A brief introduction to the history of the republican and democratic parties requires that we understand two basic points about each party. First, what we see as the Democratic Party was founded largely by anti-federalist, state’s rights supporters, and led initially by Thomas Jefferson. Since most of America was dominated by small farmers it should come as no surprise that the Anti-Federalists were early supporters of small farmers, local political issues, and states’ rights. This was the forerunner of the Democratic-Republican Party, which would become simply the Democratic Party.

The modern Republican Party, on the other hand, is a product of industrial Northern interests who were partial to the Federalists. This group was originally led by Alexander Hamilton. They focused on the need for a strong federal government to help deal with emerging industrial and growing business interests (like the value of money, tariffs, etc.).

In the first phase of party growth you generally had the Jeffersonians (anti-Federalist, small farmer supporters) and the Hamiltonians (Federalists, business supporters). Because the South was dominated by slave trading farmers, and the north was the home of emerging industrialists, we begin to see the basic contours of our current Democratic-Republican-party split: Democrats supporting local interests and small players, Republicans supporting money and business interests.

EARLY HISTORY … PARTY CONSOLIDATION
Led by Thomas Jefferson, the Anti-Federalists (soon to be Democratic-Republicans and, later, simply “Democrats”) focused on small farmers who did not want the federal government intervening in their affairs or undermining their sovereignty. This helps us understand why the south, filled with slave-holders, would embrace states rights and gravitate to “Jefferson’s Party.” Later, southerner and war hero Andrew Jackson united southern farmers and urban workers under a party that focused on a populist message, emerging machine politics, and city patronage (which grew significantly as immigrants streamed into the east coast’s cities). His personal style attracted newcomers, while westerners and the “New Frontier” advocates (Manifest Destiny, and all that) gravitated to Jackson, which allowed the party to consolidate a number of disparate interests into a strong Democratic party.

On the Federalists side things weren’t going as well. In fact, Jackson was so popular that opposition to Jackson was the real driving force behind the emergence of the Whig Party (the immediate predecessor to the Republican Party). The Whig Party broke down and reemerged as the Republican Party, putting together enough supporters from industrialists, Whig hold-overs, and Northern Democrats opposed to slavery. This coalition – and not simply the Republican party – got Abraham Lincoln elected in 1860.

And here lies a key point. First, Lincoln’s majority was really a coalition of anti-slavery Whigs, emerging business interests, and anti-slavery Democrats. Second, it was at this point that the Democratic Party began to split along two lines. Those who supported slavery (the south) and those who opposed it (the north), choosing instead to focus on machine politics, patronage, populist policies, the working class, etc.

POST-CIVIL WAR PERIOD
The Republican Party begins its history after the Civil War as a supporter of the business class (the northern industrial elites) and, when it suited them, opposition to emerging Jim Crow laws in the Democratic, slave-holding south. I say this because people often forget – or never learn – it was the Republican Party that agreed in 1876 to sign away the protective Reconstruction Troops placed throughout the south in the post-Civil War era. They did this so that they could get southern Democrats to concede the contested 1876 presidential election and get the incompetent Rutherford B. Hayes in office.

With the removal of federal troops from the post-civil war south the region was free to create its own social system. Jim Crow was on his way, as the Black Codes became a part of the southern law and culture (e.g. it was illegal for black men to be unemployed in some states, black men could not look at white women, etc.). It was at this time that the Civil Rights legislation of the 1870s (yes, there was a Civil Rights revolution then) was either ignored or broken down by the push for state’s rights in the south. Once established, Jim Crow pushed to every part of the country, and the southern caste system was generally accepted by the early 1900s (Democrat Woodrow Wilson was especially no help).

Southern Democrats continued to remain an integral part of the larger Democratic Party not because the party embraced their view on race (as did the Republicans), but because the party sided with southern farmers on the issue of tariffs and prices. Tariffs were key because northern industrialists needed them to keep out competition, which Republicans supported. But tariffs also hurt southern interests as importers of southern farm goods also kept tariffs artificially high, thus blocking out or reducing the profits of farmers.

It is at this time that the Republican Party becomes entrenched as the party of Big Business. Placing high tariffs on imports, the United States had the highest overall tariffs in the industrial world from the mid-1800s through World War I. At the same time, Republicans create a larger economic and political environment that was so industry friendly that regulations and codes were willfully ignored, while labor rights were ignored or put up for sale.

FDR AND THE MODERN DEMOCRATIC PARTY
Corruption became rampant throughout the political system, as state legislatures were regularly bought and sold (some of the stories of former California Governor Leland Stanford are quite interesting). This is one of the reasons a populist backlash emerged, which allowed progressives like Hiram Johnson in California, and Teddy Roosevelt nationally, to become popular, at least for a time (corruption was so rampant it was at this time that California got its referendum, recall, and initiative process). This Progressive Era subsided, but returned with a vengeance after the market collapse of 1929. It is at this time coalitions within parties begin to switch, or become uncomfortable where they are.

But before this happens a political tidal wave ushered in an anti-business environment, which led to the regulatory capitalism of the post-war era. Republican industrialists retrenched, while FDR wove together a coalition of organized labor, southern farmers, Big City machines (who weren’t wiped out by the progressive movement in the early 1900s), and northern liberals. By the 1960s, however, southern farmers were not happy with the emerging civil rights legislation and other “liberal” ideas associated with “northern elites.” Simply put, they threatened the cultural status quo of the south.

NIXON, REAGAN, AND THE MODERN G.O.P.
After Barry Goldwater was crushed in the 1964 presidential elections Richard Nixon, coming off his own defeat in 1960 (where, yes, JFK won with corrupt political bosses), he saw a political opening in the south. Disgruntled southerners opposed federal legislation, and argued for state’s rights, because they were opposed to emerging civil rights legislation (and other liberal ideas like women’s rights, labor rights, etc.) that would undo almost a century of Jim Crow.

Embarking on what would become known as his “southern strategy” Nixon deliberately played to the cultural fears of the south; e.g.. the "dangers" brought by civil rights and liberal thinkers which threatened to undermine a culture and a lifestyle. This attracted southern democrats to the Republican Party which, by this time, was also known as the Grand Old Party, or G.O.P. Southern Democrats who supported the Republican Party at this time became known as “dixiecrats,” were pandered to by Ronald Reagan in 1980, and eventually became – along with big business and, later, the religious right (another story for another day) – the base of the modern Republican Party.

- Mark

KRUGMAN: "ALL THE PRESIDENT'S ZOMBIES"

In today's op-ed column Paul Krugman makes an observation that should be at the heart of our public debates today. Specifically, Krugman looks at the silliness behind the "private sector good-government bad" mentality, and muses over why this mindset continues to persist.

Washington, it seems, is still ruled by Reaganism — by an ideology that says government intervention is always bad, and leaving the private sector to its own devices is always good.

Call me naïve, but I actually hoped that the failure of Reaganism in practice would kill it. It turns out, however, to be a zombie doctrine: even though it should be dead, it keeps on coming.

I agree with this. If you want to understand why Reaganomics was not as successful as the zombie pundits and politicians clearly think it is, here's one of my previous posts on the topic.

- Mark

TRICKLE DOWN REDUX?

A while back I wrote that the economy wouldn't recover very quickly because the American consumer is simply "tapped out." The point I made is that Americans simply are carrying too much debt, while wages for the average family have virtually stagnated over the past 10 years.

With unemployment hovering around 9.5% and an economy on tax-payer funded (i.e. borrowed) life support, the recovery that we're seeing may be little more than debt-funded Potemkin Village. Making matters worse is that the trillions of borrowed dollars rolling their way through the economy is being gobbled up and hoarded by the financial institutions that got us into this mess. In a few words, we're living on borrowed time, hoping and praying that the financial elites who got us into this mess will be able fix things on their own - if we simply give them more money.

Where have I heard this before .... Oh, yeah, it was 1980.

If you recall, back then Ronald Reagan told us that if we just put enough money into the hands of those with wealth that eventually they would do the right thing - because market players are rational - and the economy would soar. His plan? Give more tax cuts to the rich, and get government out of their way.


Our federal deficit almost tripled under Ronald Reagan, while his deregulation policies are primarily to blame for the deregulatory-induced mess we are now confronting. So much for market players acting rationally. If only someone would write a book about the myth of free markets ... Oh, yeah, I already did ;-)

Anyways ...

In this article that discusses the potential for economic recovery ("The Rise and Fall of Artificial Wealth"), authors Michael D. Intriligator and R. Kyle Martin make it clear that not only are consumers tapped out, but that it will be a long time before a real recovery is on the horizon. Using an array of graphs and sound analysis, Intriligator and Martin tell us that President Obama - following in the Bush-Paulson footsteps - is simply putting money in the wrong hands. Here's what they have to say:

The problem with President Obama's approach to date is that he has been trying to fix the economic problems with a top-down approach. Obama has essentially continued the Bush - Paulson TARP approach, bailing out huge banks, insurance companies, brokerage houses and some major corporations. This approach is similar to President Reagan's "trickle down" economics that didn't work then and that is not working today.

If you want to understand why Reaganomics, or "trickle down," didn't work you can read my previous posts (like this one). If you want to see what trillions in taxpayer-funded bailouts is bringing us, check out these bank failure numbers. The point is - as Intriligator and Martin point out - we need to get more money into the hands of those who will spend it.

You may not agree with how Intriligator and Martin want to go about doing this (the focus is on homeowners and investors) but you have to consider their primary point: We're in the eye of the storm, and the only ones who have been given sound vessels to weather the storm are those who pushed the rest of us into the water.

- Mark

REAGAN DID IT?

I like it when this happens ...

Paul Krugman's most recent piece in the NY Times made my day. It comes as close to a synopsis of the two biggest points that I made in Chapters 10 & 11 of my book as any I've seen. In a few words, Krugman argues that deregulation and massive deficit spending - which took off under Ronald Reagan - are the keys for understanding how the mess we're in now got started. He even uses the examples I used in the book to make his points (the 1982 Garn-St. Germain bill and debt as a percentage of GDP).

Of course you can read my book for an extended version of what Krugman points out.

- Mark

ON STAGNANT WAGES & BUSHVILLES

This week Congress will take up discussion of legislation that will make it easier for workers to unionize. In a few words, the legislation would allow workers to simply sign a card demanding a union. Employers don't like it.

Employers would prefer to have mandated elections because they give employers time to bring in anti-union teams, fire organizers, and generally intimidate the workforce. Passing this legislation would be a first step in helping to address the imablances that have grown between management and labor over the past 29 years; imbalances which have produced stagnant wages for America's middle class, bloated CEO wages, and now - with the economy collapsing - growing tent cities that resemble the Hoovervilles that dotted the American landscape almost 80 years ago.



How badly needed is this legislation? Pay gaps between labor and management have grown so out of hand that wage gaps are as bad as they were when Herbert Hoover left office. Today, as more and more observers are pointing out, labor is now confronting the worst economic situation since the Great Depression.

What follows below is an edited excerpt from Chapter 10 of my forthcoming book, The Myth of the Free Market: The Role of the State in a Capitalist Economy. It explains, in part, how labor has seen its economic position deteriorate over the past 29 years to the point that more and more families are now 1 or 2 paychecks away from being out on the street. FYI, I have 5 charts and graphs in my book - scheduled for release this week - that provide figures for what's presented in this section. If I can get them on a pdf file I will post them later ...

STAGNANT WAGES AND DEBT
Among the forces that fed the market exuberance of the late 1990s and the early 2000s were cheap credit and debt. By feeding consumption, credit and debt fit the goals of both major political parties in America, but for different reasons. Democrats saw the democratization of credit; Republicans saw increased profits. Few thought it was necessary to take a look at collapsed savings rates and soaring debt levels in America . . . rarely was this question asked: What are the factors that cause many ordinary Americans to borrow beyond their means and that lead many into bankruptcy?

We know from Chapter 2 that divorce, job loss, and catastrophic illness cause 90 percent of all bankruptcy filings in America. But we need to shift the issue from uninvited life events to specific, policy-driven areas if we want to understand why Americans have been nudged to take on more and more debt over time. This means looking at wages in America.

In a 2007 speech, Federal Reserve Chairman Ben Bernanke considered incomes and focused on the growing gap between America’s middle class and the financial elite. Bernanke reported that, in spite of rising labor productivity and technological advances—which usually find their way into growing wages—income gaps had increased significantly in America since 1979 . . . perhaps his most significant observation was what he had to say about the impact that organized labor has on wages. According to Bernanke, unions not only reduce wage inequality, but at least 10 to 20 percent of wage inequality in America can be attributed to the decline of unions.

This is important, because organized labor was put on the defensive after Ronald Reagan entered the White House by an alliance of convenience between corporate America and political conservatives. According to Businessweek, things worked out so well for industry that as “[c]orporate America has perfected its ability to fend off labor groups” labor union membership dropped from 20.1 percent of the labor force in 1983 to 12 percent by 2006 . . . Economist, and Nobel laureate, Paul Krugman explains what happened:

It’s often assumed that the U.S. labor movement died a natural death, that it was made obsolete by globalization and technological change. But what really happened is that beginning in the 1970s, corporate America, which had previously had a largely cooperative relationship with unions, in effect declared war on organized labor . . . hardball tactics have been enabled by a political environment that has been deeply hostile to organized labor, both because politicians favored employers’ interests and because conservatives sought to weaken the Democratic Party. “We’re going to crush labor as a political entity,” Grover Norquist, the anti-tax activist, once declared.

The relationship between corporate America and the Republican Party has reaped financial benefits for America’s business elites and political payoffs for Republican political candidates. But it has been financially devastating for America’s working class.


Since the late 1970s, inflation, declining or stagnant wages, weakened unions, lax immigration policies, deregulation, and the challenges of having jobs shipped overseas have left ordinary Americans with an increasingly tough financial line to hoe. The arrangement, however, seems to have worked out well for America’s CEOs, who have seen their salaries rise in relation to the average worker: from a ratio of about 40:1 in 1980 to 262:1 in 2005 (other reports put the figure around 431:1).

Given that the federal government has been increasingly reluctant to intervene on behalf of labor over the past thirty-five years, ordinary working Americans have had to cope with rising costs and stagnating wages in a number of ways.

* Two-Income Households, 1970s: With the women’s movement came the rise of two-income households. Two working parents increased household income significantly.

* Credit and Charge It, 1980s: Americans began racking up serious personal debt in the 1980s when, as former Federal Reserve Chairman Alan Greenspan put it, “innovation and deregulation” worked to “expand credit availability to virtually all income classes.” At the end of 2008 total credit card debt stood at $969.9 billion (Graph 10.1).

* Decline of Leisure, 1990s: Although divorce and personal debt put a dent in disposable income, Americans began working more hours to make ends meet, even surpassing the Japanese in 1995.

* Household ATMS, 2000: To keep the American Dream alive, many Americans went on a borrowing binge, this time using their homes as ATMs.

With more and more households using their homes as ATMs, we can understand why home-owner equity in America was less in 2007 (at the height of the housing boom) than it had been seven years earlier. At the end of 2008 it was poised to drop below 50 percent for the first time since the government had started keeping track of this data.


The end result of stagnant wages, an increasingly hostile environment for labor, and easy credit was a savings rate that effectively stood at zero at the end of 2008. Not surprisingly, when the refinancing boom stalled because of plummeting housing prices and dried up credit markets, more and more Americans found other ways to cope with life’s expenditures—they began using “hardship withdrawals” to tap into retirement funds . . .

- Mark

WAGES IN AMERICA SINCE REAGAN ...

According to Bloomberg.com the average income of America's richest 400 households doubled to $263.3 million during the first 6 years of the Bush administration.

Now, I could start with a long presentation on what has happened over the past 8 years under George W. Bush, and even go all the way back to President Reagan to illustrate what has happened since the republican-led "tax-cuts-for-the-rich-let's-make-war-on-labor" policies, but the numbers don't quite paint the right picture.

But graphs do.

Below are three graphs I draw from my forthcoming book, The Myth of the Free Market: The Role of the State in a Capitalist Economy. First up are the wage gains between the richest and poorest Americans between 1947 and 1979. While there are small differences, on average everyone saw their wages go up at relatively equal rates.

There is not much dispute as to why wage gains were relatively equal across all income levels between 1947 and 1949: FDR's New Deal combined with Truman's Square Deal, and the fact that Eisenhower didn't meddle with their economic handiwork, helped keep all segments of America happy.

Things would change, however, when Ronald Reagan came to office. Here are how wage gains were distributed between 1979 and 2004 . . .

As you can see, the wage gains by the richest Americans skyrocketed after Ronald Reagan entered the White House, while America's middle class and its working poor saw their wage gains effectively collapse. You can imagine what happened when George W. Bush came to office.

Things got so bad that the computer I was using to create these graphs couldn't do percentages. It's probably just as well. The numbers are simply ridiculous . . .

What you're seeing here are income gains of $1.9 million under President Bush for America's richest, while the bottom 90% effectively saw their income gains stop and even go backwards (especially for America's working poor).

I'll be discussing this on tomorrow's program.

- Mark