The American People

I'm so damn sick of this.  Disclosure:  This is a rant.

Can we please stop talking about The American People?  It's such bullpuckey.  There is no American People, there are 280 million completely different people, who poll differently every month on a variety of issues, and in polls that are poorly or leadingly worded to begin with.  And that doesn't even begin to address the sample.

No one.  Not me.  Not you.  Not Sean Hannity, not Bill Maher, not Chris Mathews, not Tucker Carlson, not Keith Olbermann, not Rush Limbaugh, not Rachel Maddow, not Sarah Palin.  Not the President, not the former president, or any former president.

Anytime someone uses this term your ears should perk up and your bullshit bell should start ringing.  It's a rhetorical trick and it's completely meaningless.

Tax Cuts: Apologists in Full Swing

So the first day was anger, and then we skipped two stages of grief and went right to acceptance?  The real tragedy here is that there was never any evidence on the other side of the debate.  The two main arguments for keeping the tax cuts were that they would hurt employment, and that it would decrease overall investment.

The first point was picked apart by Andrew Leonard at Salon yesterday, "that, at best, extending all the tax cuts would lower the U.S. unemployment rate by an additional 0.1 percent by the end of 2012" Add to that the fact that American's tax burden is the lowest its been in 60 years.  American's corporate tax burden is the lowest it's been in 60 years by A LOT.  See the gap between the middle blue hue and the darkest blue, see how it gradually disappears?

The second point is defrayed by the simple fact that corporations are getting the highest profits ever recorded (link to Department of Commerce press release), and are getting the largest pay checks ever reported, and it doesn't matter if 10% of the country is unemployed, because they're obviously the ones who deserve to be, because corporate income taxes are just 11% of 2010's Federal budget receipts, whereas individual and social insurance count for another 82%.  And with all of that money, the Fed still has to grease the wheels with quantitative easing because corporations are hoarding they dolla bills instead of spending them!

And now they're framing this as a New Stimulus bill (link to David Leonhardt's Op-Ed in the NYTimes.)  Right, good frame Democrats, it's not like the Stimulus plan is the most hated American program in the past decade when only 29% of the people think it accomplished anything.  How?  Well, because of the unemployment benefits for starters.  How else?  Because of the 2% cut in the payroll tax.  My prof spoke about this last night, and was completely mystified, couldn't think of any stimulative effect this was going to have.  And in fact, since the payroll tax pays into Social Security is more likely to reduce American's retirement funds than anything else.  My favorite line:  "In exchange, Republicans agreed to extend unemployment benefits, cut payroll taxes and business taxes, and extend a grab bag of tax credits for college tuition and other items." Oh, I'm sure Obama had to suck a couple to get the Republicans to agree to a cut in business taxes.  Puhleeease!

One last point.  I've soliloquised before on why I think tax cuts are the worst kind of stimulus.  I won't belabor the point.  Standard economic theory has proven that the multiplier is much higher for direct government spending than it is for tax cuts.  While stimulus was always a terrible a word, weak, pitiful, indirect, and bureaucratic, this only qualifies as a stimulus in the most threadbare sense of the term.

For the record, I'm told my vernacular is somewhat offensive here.  I have the highest esteem for the President, and there's no shame in "sucking a couple" of lollipops.

Also, I'd like to add a correction to yesterday's post.  I indicated that the expiry of the tax cuts would have an immediate effect come April.  I asked my tax professor about this.  He said that the effects would occur immediately, bringing higher government revenues to bear immediately.  Remember that pay-as-you-go means just that.  Tax Day is just when you find out what, how much, if anything, you may have overpaid.  Also, even if taxes were to go up, if the Republican Congress were to revisit the issue and get a bill passed, it could take effect more or less immediately, and at least all of us would be able to file an amended return.  No harm, no foul.

The Symbolic Victory

Short post today:  So Mr. Obama caved again on the Bush tax-cuts.  I'm not surprised.  My main comment came from two quotes in the New York Times, from the President.

“I know there’s some people in my own party and in the other party who would rather prolong this battle, even if we can’t reach a compromise,” Mr. Obama said in announcing the bipartisan agreement on tax cuts and unemployment benefits. “But I’m not willing to let working families across this country become collateral damage for political warfare here in Washington.”

and

“Sympathetic as I am to those who prefer a fight over compromise, as much as the political wisdom may dictate fighting over solving problems, it would be the wrong thing to do,” he said. “The American people didn’t send us here to wage symbolic battles or win symbolic victories.”

How, Mr. President, are the taxcuts symbolic?  This will have immediate effects in your income, your tax revenue, and you'll feel it in five months.  That's just about the opposite from symbolic, that's real and immediate, and a major problem.  Don't try to bamboozle me with your fancy, empty, words.

What would the world have been like if Obama had just let this one through?  Simple, if debate had continued, the tax cuts would be finished.  Oh sure, the Republican congress would force him to reinstate the cuts, but they would be for 2012, not 2011.  And unemployment benefits, again the president has ceded the ground to the Republicans.  He had a great playing card to use against them, now the 99ers won'y have any electoral will or capacity to for 18 months.  True, that makes it a campaign issue, but surviving for half a year without benefits is much easier than surviving two whole years without benefits.  That's some political football right there.  And the Republicans would never have let it gone on for that long anyway.

Mid Term Thoughts, Tax cuts and Quantitative Easing

Sorry for the absence.  My new job is a major stress, and grad school is kicking my ass.

Ok.  Disappointment.  Given that the Republicans will not add ANYTHING to the debate for the next two years owing to a strategic necessity to get a Republican into office in 2012, I despair.  Not for partisan reasons, but that means that the suffering of the middle class and the poor will continue for at least another six years, if not worsen.  Already displays of racism, and calls for insurrection, and secession abound, what else is in store?

Tax Cuts.  We've discussed this a great deal in my tax class, and even though my tax professor has argued against letting them expire, the only argument he can offer in support is that "you don't raise taxes in a bad economy."  Which is exactly the opposite of the truth.  Taxes are predominantly raised during bad economic times.  Why else?  Government revenues are up when people are employed and making money.  And government automatic stabilizers need funds during the down times.  That said, I think the best graphic I've seen yet on this was in the Rachel Maddow show (god bless her).  Deficit concerns aide, do 98% of Americans really want to underwrite that massive bloat, for rich arseholes who did more to contribute to the recession than any other demographic?

Quantitative Easing.  I love this term.  I want to write a song about it.  Or a poem.  We keep a bottle of Quantitative Easing under the nightstand.  There's a lot of on air blather about this out there, but there a couple of things you should know.  The main concerns are inflation, capital flight, and deficits.  The fears of inflation are irrelevant right now, inflation is at all time lows.  One of the commentators linked to above insists that the Fed can directly increase inflation by creating money in bonds.  This is the Fed's job, they do it everyday, and the fed uses the same metrics to calculate inflation regardless of how they choose to do it.  If inflation gets too high, the Fed can simply retire the debt.  This is ordinary monetary policy, what's unordinary is the fantastic amount of money they're planning on creating.  Capital flight fears are more interesting.  They suggest that the new money coming into the system won't be used in this country at all, it will be used in growth markets like China and India, where GDP is going up 10% a year.  This seems a more reasonable critique to me, but to be fair, investment in developing markets helps us too.  As the standard of living rises in the developing world, labor prices increase.  There are huge rumblings of this occurring in China and India already. Which means the gross export inequities between East and West will eventually have to end.

Anyway, I have one simple argument for Quantitative Easing.  The Fed doesn't need Congress to do it, and the economy needs something, now.  And given the disastrous midterms, Obi One Bernanke, you're our only hope.

Fyi:  You need to watch this video:

November 2nd Midterm Elections

On the eve of the November midterms I feel inclined to make a few comments and predictions. First of all, as a movement, I believe that the Tea Party will be merely a blip on the American radar. History will call it for what it was, a fringe movement supported by hypocrites and co-opted almost immediately by cynical Republican operatives. The same ones who cynically co-opted the Christian Coalition, the Moral Majority, Goldwaterism, and the John Birch society, funded by people whose views are rooted first and foremost in aristocratic elitism and monetary interest in only their own wealth.

Let’s get that straight. Not in the wealth of others, or in the strength of the economy as a whole—just. for. themselves. Why? Because they are only interested in perpetuating their own power, and who can blame them? Recessions are gold to the railroad tycoons. Their assets may lose value, but they’re not interested in money, so much as they’re interested in wealth. And wealth is as much or more, about power and privilege, than dolla dolla bills yo. And when everyone else’s assets crumple to zero, they’ll still be standing with absolutely no competition. They can refinance their corporations, shelter their revenues from taxes, and buy out the crumbling competition with little risk to themselves. They are the owners of the commodities, and hey, people gotta eat.

The only ones who can stand up to power like that is the government. Which has always been the reason to support a strong federal government. By using the lever of government spending, the federal government can upset the power of the oligarchs and reshuffle the economic spectrum. The rich will stay rich, and the poor will stay poor, but their will be new rich, younger rich, that are nearer to their middle class roots. New rich with new ideas.

This is what happened in America. It’s why America was dubbed a “post-racial” society after Obama’s election. The wealth of the industrial north was built on the backs of newer tycoons, people whose livelihoods weren’t dependent on slave labor, and the inherent racism necessary for slave labor to exist. And now, with gay marriage just on the horizon, the investment bankers, and “New Yawk” lawyers, might still call each other “gay,” and deride all those “trannies” who come out for Pride day, but they’re young, and not actually opposed to gay rights. They’re insecure and immature, but not inherently racist or homophobic. How could they be, they were born in an age where young pioneers were setting up gay rights clubs in their own high schools across the nation.

But to the Old Guard, this is anathema. Economic reshuffling brings change, and threatens to make them irrelevant—less powerful, not less wealthy. So new blood at the top is dangerous.

But before I go any further, this is not the year for Democrats and liberals everywhere to be complacent. Despite our unhappiness with the present climate, the capitulation by our own President on human rights issues like Guantanamo, or the List Project to Resettle Iraqi Allies, the lack of precise financial reform, or the public option for healthcare—it is important to realize that the right, Tea Party or Republican, is so thoroughly and completely an intellectually bankrupt movement that to allow them even one step further into the body politic is to risk everything. And in less than two years, the Democrats have achieved more than eight years of true blue Republican rule. So, go to the polls tomorrow, and vote Left.

In Memoriam: the 109th Congress

Thou waitest for the spark from heaven: and we,

Light half-believers of our casual creeds,
Who never deeply felt, nor clearly willed . . .
Who hesitate and falter life away,
And lose tomorrow the ground won today –
Ah! Do not we, wanderer! Await it too?



--Mathew Arnold

Judging the Stimulus

This post, as so many of mine are, was spawned by listening to the planet money podcast on a similar topic. There were a few things they didn’t cover, or didn’t cover sufficiently, which I’d like to address.

A third of the stimulus was tax cuts.

I’ve written about tax cuts before. Let me say again, the stimulative factor of tax cuts is pretty low, and only really effects certain demographics. They’re political fodder, because people like the way tax cuts sound, but not the way bailouts sound. Mind you, if the individual was bailed out, they might be singing a different tune. But anybody who draws a wage in this country, who is above the poverty level, pays taxes in the pay-as-you-go system. Meaning that, you and your employer, pay your taxes through a withholding each pay period. When you get excited about tax cuts, you think, oh goodie, I’ll have more of my pay check. But that isn’t necessarily so. If they change the tax rate, it would definitely recalculate, but changing the tax rates is even harder to do politically than getting bailout money—and for very good reasons. Otherwise, so long as your withholdings remain the same, the same amount gets withdrawn out of your pay check. No more money in your account, that is, until you get your refund. Or unless you got one of those measly stimulus checks.

So in other words, for most of the populace, a third of the bailout money, was doled out in tax cuts that will get spent in one month the following year. Same with your stimulus checks. Spent the day after they were received. Yeah, that will influence demand for the year.

And that’s if you spent it, if you’re like most people, you’re just barely getting by, and you’ve got bills piling up frenetically. So your stimulus checks don’t stimulate demand at all, instead they go into the accounts receivables of your phone company, mortgage, lease, college loan, or what have you. Which is money, get this, that they’ve likely already booked as income! So no new demand there!

A third was doled out in the form of transfer payments:

Transfer payments is a fancy economic term, all it means basically, is money you’re entitled to without working for it. Social Security, Unemployment, you get the picture. This money is definitely more effective as a stimulus. Even the Miltonians agree these can be pretty effective. They’re called automatic stabilizers, payments that get made through current welfare systems that help even out the blips. It’s getting paid out more often, at different times. That props up demand, which is great, but not good. The Miltonians of the world hate this, because they argue that it’s “fake” demand. And its hard to resist this argument. The only argument against it, is that its kicking the can down the road until the good ship Economy rights itself (Keynsian) or spreading the pain of recession indefinitely (Miltonian/Hayekian). Personally, I favor the Keynsian approach here. The good ship Economy is such a complicated thing, that kicking the can down the road indefinitely is entirely possible, and the next good wave that hits, will take care of any debts accrued during the can-kicking phase. Problem is, how long till the next innovation? And won’t that just be a bubble economy too?

The last third went into what I call Restructuring Stimulus. This to me is the most effective stimulus there is. Unfortunately, it’s the hardest to quantify. One way to look at it is in terms of jobs saved. How many construction companies hired workers for these projects? How much were they paid? That typically is how these sorts of stimulus get quantified. I think that’s a load of bull pucky. Why? A stimulus is supposed to stimulate demand, and as Mark Zandy said, by that measure the stimulus was a complete success. Demand perked up, and GDP began to rise again (which by the way is the definition of a recession anyway, the percent by which the GDP is rising). But that doesn’t fix anything, because it still rides on the concept of the market being an all seeing entity, that will right itself given time. The purpose of Restructuring stimulus isn’t to prop demand, it’s to streamline the costs of production. This was the real success of the pre-war build up. The way American factories built up to meet the demands of the government for arms, was a story of effective production. The story of how Harry Hopkins got millions of Americans work, how the TVA gave electricity to much of the south for the first time, these are stories of how the costs of production were effectively lowered. And that is what real stimulus ought to do—lower the costs of production. How do you that? Road building, train building, that’s all part of it. Getting laborers to where the market needs them cheaply and effectively. That’s why infrastructure spending is so important, particularly as a gateway to capital. It’s actually cheaper for American companies like Dell, to ship their computer parts six thousand miles, crossing the Atlantic multiple times, to bring their products to market, because the costs of shipping them in any one country is far too prohibitive. That’s great for globalization, but terrible for the environment, and terrible for our economy.

So yes, like the great unwashed, I don’t think the stimulus was particularly effective, only a third of it got spent the way I think it ought to have been. But, another third of that was very effective at keeping people out of the streets.  And, America without the stimulus? Full scale race riots, rampant power outages, civic services plummeting, healthcare costs exorbitant crippling families for generations, dogs and cats, living together, mass pandemonium.