Capitalism and Regulation Are Not Mutually Exclusive

Deregulation became the mantra of free market capitalists who view all government intervention into the markets as a complete affront to our democratic principles, as though the two are somehow connected. It sounded sexy and even seemed to be working for a while until our speculative chickens came home to roost and laid rotten eggs in all of our coops.

John Boehner NY Economic Club
House Speaker John Boehner speaking in New York

Osama bin Laden’s body has barely come to rest on the ocean floor and the Republicans are back in attack mode against the Obama administration. Speaker of the House John Boehner is taking his spending-cut crusade on parade again in the run-up to the vote to raise the nation’s debt ceiling. In doing so the Ohio Republican is not only acquiescing to the clamorous Tea Party faction of the GOP but to the special interests that define their politics.

The debt ceiling debate is the ultimate diversion from the more genuine debate that should be taking place in Congress. This is not to say it is without merit. But like so many political disputes, our politicians are intent on examining the symptoms of a crisis instead of deconstructing the root causes. The fact is our enormous national debt is a result of fighting two costly, protracted wars abroad and bailing out hooligans on Wall Street who engineered the greatest heist in American history. The problem is the GOP wants to fix everything else they deem to be wrong with the system without addressing these two key components of our indebtedness. 

Boehner and company are continuing the charade begun when Ronald Reagan was king and Alan Greenspan was God. Deregulation became the mantra of free market capitalists who view all government intervention into the markets as a complete affront to our democratic principles, as though the two are somehow connected. It sounded sexy and even seemed to be working for a while until our speculative chickens came home to roost and laid rotten eggs in all of our coops.

In a speech earlier this week to the Economic Club of New York, Boehner returned to the key conservative talking points, excoriating Washington for pandering to banks that are too big to fail without addressing the deregulatory fever in the Beltway that created this situation. He criticizes instead the government’s bailout response, saying that our “debt mostly borrowed from foreign investors caused a further erosion in the economic confidence of America and increased uncertainty for millions of private sector job creators.” If you asked these so-called job creators why they aren’t adding more people to the payroll or taking on more capital projects, I highly doubt the resounding answer would be America’s debt. Under President Reagan our debt skyrocketed but these same job creators doubled-down and invested in America, making the logical question: Why not now? Boehner went on to claim that the “massive borrowing and spending by the Treasury Department crowded out private investment by American business of all sizes.” That’s funny. I could have sworn that by keeping interest rates at practically zero, business owners would have been encouraged to borrow and invest in their companies with alacrity. 

This is where the GOP message gets into funky territory. You would be hard-pressed to find an economist who would deny that pumping bailout funds through the financial sector prevented a total collapse of our economic system. Everyone won in the short run. But because Congress was too cowardly to fix the structural regulatory issues in the banking industry, the big winner overall was Wall Street. The bailout allowed the banks to partake in riskless arbitrage (borrowing money at no cost and investing it in guaranteed government bonds for example) and bypass the private sector and individuals in desperate need of lending support. It’s one of the primary reasons the Dow Jones Industrial Average continues to rise despite a still-flagging economy; the dollars are flowing at the top with very little pulsing through the rest of the economy. But the concept of arbitrage is largely lost on Americans and our politicians are reluctant to talk about it in a meaningful way, instead choosing to focus on the national debt.

What’s worse is that the banks have presumably used a good portion of this money to invest in opaque investments that have artificially created crises in the agriculture and energy sectors. I say “presumably” because no one can really be sure where some of this money is being invested because the regulatory environment is still so broken and corrupt that the funds are impossible to track directly. It’s the pricing and behavior of these markets that gives them away. Energy supply is at an all-time high, demand is still perilously low yet the markets are soaring because unknown companies are pouring billions of dollars through small commodities exchanges and wildly impacting the prices of these investments. This phenomenon translates directly into high gasoline prices and rising food costs, thereby suppressing the recovery and obliterating household savings. Here again Boehner changes the subject, suggesting that the Obama administration is somehow keeping “energy resources under lock and key.” Further, he accuses Democrats in Congress of “creating more uncertainty for those who create American jobs” by raising “the specter of higher taxes.” Another direct attempt to divert the conversation from reality. After all, didn’t we just extend the Bush-era tax cuts? And weren’t these the same tax cuts that were in place prior to and during the economic meltdown?

This year Forbes added 214 new billionaires to its list of the world’s richest people. That’s up from 97 new billionaires last year. In perusing the list of the richest Americans, it’s interesting to note where the wealth of those whom Boehner touts as “job creators” is derived. Hedge funds, investing, oil, pipelines, retail, chemicals and pharmaceuticals are the industries that dominate the roster. Most of these companies employ relatively few people compared to the billionaire industrialists of old. No infrastructure companies, few manufacturing companies, and a handful of high-tech companies appear on this list. And of the ones that do appear, most of them manufacture overseas. I guess in Boehner’s world a job created in Bangalore is equal to one created in Scranton. What many of these industries do have in common is that they represent the vast majority of campaign contributors to people like John Boehner.

So it begs the question: Who is Boehner trying to protect? In his New York address he repeatedly refers to the “arrogance of Washington” even though that’s where he’s been working since 1990. Arrogance is not trying to pay for past transgressions by taxing those who devastated the economy. Arrogance is cutting the government’s primary funding source via an extension of the Bush-era tax cuts and attacking entitlement programs instead of the regulatory issues that brought down America’s entire economic system.

Where the White House fails is by indulging in debates over the debt ceiling and releasing oil reserves while bickering over entitlements. Our economy cannot, will not, improve until our elected officials have the courage to restore sanity to the marketplace by re-implementing the regulations that properly governed debt, equity and commodities trading for decades.

In recent testimony to the Congressional Oversight Panel on the impact of the TARP, Columbia University professor and former Clinton advisor and chief economist of the World Bank Joseph Stiglitz argued that “we have not repaired our banking system, and indeed, with the enhanced moral hazard and concentration in the financial sector, the economy remains very much at risk.”

Joseph Stiglitz

These arguments are nothing new to the Nobel Prize-winning economist, who in 2008 warned of the enduring negative consequences of deregulation. At a hearing held back then by the House Committee on Financial Services, Stiglitz invoked Adam Smith, saying that “even he recognized that unregulated markets will try to restrict competition, and without strong competition markets will not be efficient.” One of Stiglitz’s solutions to this is to restore transparency to investments and the markets themselves by restricting “banks’ dealing with criminals, unregulated and non-transparent hedge funds, and off-shore banks that do not conform to regulatory and accounting standard of our highly regulation financial entities.” For emphasis, he notes that “we have shown that we can do this when we want, when terrorism is the issue.”

He’s right in every aspect. This is economic terrorism that Americans are unwittingly enabling by allowing politicians in Washington to skirt the issue of financial reform and to skip tighter regulations in favor of continuing tax breaks, cutting spending on infrastructure and demonizing programs that provide security for the sick, the aged and the unemployed.

Yet no matter how often people of Stiglitz’s ilk provide testimony, no one on these committees either understands or cares what is being offered. I suppose that just because we call them “hearings” doesn’t mean anyone is necessarily listening.

Republicans Force Tax Breaks (Down Our Throats). Merry X-Mas America.

In this photo rendered from video via C-SPAN, shows the final vote tally on the bill to avoid income tax increases on Jan. 1. Acting with uncommon speed, Congress moved toward final passage Thursday night Dec. 16, 2010 of sweeping, bipartisan legislation to avoid a Jan. 1 spike in income taxes for millions and renew jobless benefits for victims of the worst recession in 80 years. (AP Photo/C-Span)

When the Republicans took control of Congress during President Bill Clinton’s first term, it took a while before the “Gingrich Republicans” imploded. Newt Gingrich rose to prominence as Speaker of the House by helping to craft and deliver the Republicans’ “Contract with America,” a document outlining their legislative initiatives. One of the young Turks in Gingrich’s inner circle was John Boehner, the man who is about to take over the position once occupied by his former mentor.

Boehner has been getting a good deal of face time and ink lately. Although he has been around the national political scene for two decades, the country is now getting to know the man with the tan and the new plan for America. Borrowing a page from the Gingrich playbook and delivering the Republicans’ “Pledge to America,” Boehner has put himself on the front lines of the war against President Barack Obama alongside Senate Minority Leader Mitch McConnell, the man who stated that his No. 1 objective is to ensure that Obama is a one-term president.

Both men are unapologetic when it comes to defending big business, tax cuts for the wealthiest Americans and political campaign donations. McConnell’s all-night filibuster against the McCain-Feingold bill for campaign finance reform and the infamous incident when Boehner handed out contributions from tobacco companies to his colleagues on the House floor speak volumes about what makes them tick.

And that’s cool. It illustrates who they are and what their intentions are: power and control. But lately the platitudes they’re offering through McConnell’s measured speeches about wanting Obama to change and Boehner’s public blubbering on 60 Minutes sound disingenuous, particularly in light of Republicans strong-arming Congress to push through the Tax Relief Unemployment Extension Bill, extending what are known colloquially as the “Bush Era Tax Cuts.”

Douglas Adams, author of The Hitchhiker’s Guide to the Galaxy, famously wrote, “If it looks like a duck, and quacks like a duck, we have at least to consider the possibility that we have a small aquatic bird of the family Anatidae on our hands.” Perhaps an appropriate update might be: “If it looks like a duck, quacks like a duck, and shits all over your living room carpet while flapping about and knocking over your valuables, we have to consider the possibility it’s actually an elephant in duck’s clothing.” And this is no lame duck we’re talking about here. In fact, this duck is vibrant enough to hobble America with its arrogance.

The bill has Americans quibbling over the fine points, namely the extension of tax breaks to the wealthiest Americans. While this might be deplorable, it’s hardly the most outrageous thing happening at the moment. The bill is essentially a third-round stimulus package that pumps nearly $1 trillion back into the economy over the next two years, requiring the federal government to dig deeper into debt while we attempt to pull out of the Great Recession. It’s a gamble that may actually boost President Obama’s approval ratings in the coming months if consumers begin to feel that things are turning around. Or not.

Either way, the real crime here is the way in which Democrats and Republicans alike have negotiated this bill and the $8 billion of proposed earmarks that come along with it.  What’s remarkable about this number is that it exceeds the entire amount requested in the Zadroga bill to compensate 9/11 responders who are dealing with illnesses related to cleaning up the toxic aftermath of the World Trade Center collapse. (Watch Jon Stewart’s reaction piece to Republican hypocrisy related to 9/11 – you’ll laugh through your tears.)

The wave of anger that swept away so many incumbents and installed an entirely new cadre of jackals in November was powerful and effective. But anger burns faster than Boehner’s two-pack-a-day habit.

President Obama may be taking hits for being cool and aloof, but by the time the next election cycle comes around he may look like the only sane one in the room. As president, maybe he should be calm, cool and collected. What has me flummoxed is how the tri-state congressmen and senators aren’t publicly losing their minds every day like Rep. Anthony Weiner did with Rep. Peter King – and that was an argument over procedure by two guys who favor the Zadroga bill.While Republicans in Congress have been busy masquerading as thinking, feeling human beings, the Democrats are busy feasting on their favorite meal: themselves. Any hope that they would muster some palpable outrage to aid the Zadroga bill quietly drowned in the tidal wave of tax cut rhetoric. Not even Sen. Charles Schumer, one of the most powerful Senators in modern times, could marshal enough votes to bring the bill forward, let alone raise his voice. As he took the Senate floor to urge his colleagues to “step up to the plate” and pass the 9/11 Health Care bill, he calmly yielded the floor four minutes later. At least Boehner cries when he thinks about billionaires having to pay 3 percent more on their taxes.