Tea Partisanship

Entitlement programs don’t imply that people have some childish sense of entitlement as some Republicans would have us all believe; the programs are precisely referred to as such because we are entitled to receive them.

Boehner and ObamaPart IV of The Season of Our Disconnect

Perhaps the best, most succinct commentary I heard regarding the acrimonious debt ceiling debate was during a BBC broadcast this past week. When asked what the sentiment was in Europe regarding the countdown to American debt default that Congress narrowly avoided on Aug. 2, the reporter said there was a sense of bewilderment that the United States would voluntarily default on its obligations when so many countries were struggling against doing so involuntarily. Not only did this highlight how silly the entire debacle really was but there’s something about hearing it delivered in a British accent that makes it sound all the more ridiculous.

The Republican Party, of which I have been affiliated with since coming of voting age, has never behaved so badly. This is a party that touts itself as pro-business and anti-tax, with every member running amok trying to out-Ronald Reagan one another. Yet anyone who runs a business will tell you that cutting costs can only achieve so much and that, at some point, revenue has to increase proportionate to the growth of expenses. Theoretically that means these pro-business Republicans should recognize the need to increase revenue, i.e., taxes, and any increase in revenue should be ascribed to expenditures with no direct, offsetting revenue line.

Since the greatest single unfunded liability in America is defense and military spending, which accounts for 25 percent of the budget, this area seems like the most logical place to cut expenses. Instead, the Republican Party has waged an all-out assault on entitlement programs such as Social Security and Medicare, which Americans have fully supported for decades. They demonize these programs, sullying them as “entitlements,” and deriding them as welfare-like benefits for ungrateful, undeserving idlers living off the government teat.

Entitlement programs don’t imply that people have some childish sense of entitlement as some Republicans would have us all believe; the programs are precisely referred to as such because we are entitled to receive them. Why? Because we have already paid for them. Check out your pay stub – it’s called FICA. Republicans are trying to terrify Americans with the misleading threats of disappearing future Social Security payments and dwindling Medicare coverage because they’re trying to obfuscate the fact that the wars in Iraq and Afghanistan will have cost the nation nearly $3 trillion between the direct cost of the engagements and subsequent social costs such as veteran care. There’s no pre-tax line item or fee for “Wars We Didn’t Ask For” on your paycheck. We have been giving the government the funding necessary to keep these programs alive for generations and they keep blowing money on conflicts we never wanted. Giving the American government Social Security and Medicare funding is like lending cash to your meth-addict uncle who promises he’s on the wagon and just needs a few bucks to get back on his feet. He’ll disappoint you every time.

And then there’s Reagan. True-blue Republicans who like to evoke imagery of the Gipper could use a refresher course and a reminder that when President Reagan cut taxes in the beginning of his administration, the jobless rate jumped above 10 percent (higher than under Obama) and the federal deficit grew to a then-unprecedented level. Desperate to get things under control he raised taxes seven times during his administration and increased federal spending so much that he left office with a tremendous deficit despite myriad tax hikes. Moreover, total tax revenue as a percentage of GDP was more under Reagan after his initial tax cuts than they are today and we just fought two, decade-long wars. Middle-class Republicans should also recall how Reagan nearly doubled the Social Security withdrawal (your money for “safe keeping” remember) but capped it at a certain income level. Or as Matt Taibbi writes in his recent book Griftopia: “That means that a married couple earning $100,000 total will pay roughly the same amount of Social Security taxes that Lloyd Blankfein or Bill Gates will.” This was nothing short of a heist on the middle-class in America, the memory of which is something today’s Republican leaders have entirely backwards.

Throughout the tenure of the Obama administration, Republicans, who are working to please Tea Party activists−the lowest common ideological denominator in the GOP−have continued to distort Reagan’s legacy and persist in blowing up America’s revenue line while adding unfunded liabilities on the expense line. Now they’re smashing our piggy banks to pay for their transgressions while continuing to extend the most favorable corporate tax environment in the history of the country.

Dig this. According to the Congressional Budget Office, corporate income tax accounts for only 1.3 percent of GDP (compared to individual income taxes, which are 6.2 percent of GDP). The last time it was this low was in 1983 when corporate tax was only 1.1 percent of GDP and the federal deficit was so big Reagan increased taxes every year thereafter. According to the Brookings Institute, the last time corporate income tax receipts were so low was in 1940. In the 1950’s, the golden era that Republicans really love to imagine reliving, the average was 4.76 percent of GDP. That’s quadruple what it is today. Shrinking corporate tax receipts is just one of a host of lopsided tax issues that favor corporations and wealthy Americans and force the government to borrow eye-popping sums of money.

The Democratic Party under the feckless and waffling leadership of Barack Obama has likewise capitulated to the right wing lunatic fringe. Because Democrats aren’t putting up a fight and caving to every unreasonable demand made by House Speaker John Boehner and Senate Minority Leader Mitch McConnell, the Tea Party’s whipping boys, a corrosive new partisanship has emerged in America. Ignorant, ill-informed zealots running a government against the people have officially hijacked Abraham Lincoln’s government of the people, by the people and for the people.

 

Our Prime Yearning Years

The only true and good thing about Ayn Rand and objectivism (a fancy word for “that which screws the masses”) is that they’re both dead. Rand may have been a wonderful writer but objectivism is the Scientology of economic theory.

Part II of The Season of Our Disconnect (PART I)

Alan Greenspan
"Deregulation is fundamen... what's that dear? Oh yes, I would like some more pudding."

The haul from Hempstead Harbor was so big the first week it had reopened after being closed for more than 40 years of remediation that the axle on my friend Jimmy’s truck was bending slightly at the end of each day. He said the mood of the other diggers on the water was ebullient. Their boats were tightly locked together, with guys shouting to one another in celebration; it was a strange scene for men who typically toil in solitude to put food on their table by harvesting the ocean floor for food to put on our tables.

I caught up with Jimmy at the end of the first week, and he said, although he was physically exhausted, he wouldn’t trade the week for anything. According to him, the only disappointment was the complaints registered by local residents on the hill overlooking the water who were unhappy to discover their formerly too-toxic-to-fish harbor suddenly filled with small commercial vessels.

It seems the boats’ presence was less of an environmental and commercial triumph and more of a case of urban blight. Jimmy shrugged it off but his words stuck with me. He characterized the irate citizens’ reaction as both funny and sad, saying, “It’s amazing how people with millions of dollars are complaining about watching me scrape hundreds of dollars from the ocean floor.” Though nothing came of their complaints, it is another example highlighting our Season of Disconnect when class warfare seems to be erupting in every corner of our nation.

While politicians argue about the debt ceiling and preserving tax cuts, the big, slogging, hairy middle-class squeeze continues. Across the country people are either accepting the “new normal” or, worse, turning their pitchforks and torches on one another instead of storming the castle. Somehow we’ve lost sight of what brought us here and who is to blame for all of this—and there are some very real people and institutions to condemn.

Those who dare to protect “entitlements” are vilified by the free market despots in this nation who have taken hold of the seminal piece of misinformation that has infiltrated every meaningful discussion regarding the economy: that government is somehow corrupting the markets by attempting to inject any level of consumer protection into the financial system. Rays of common sense such as Vermont Sen. Bernie Sanders’ impassioned plea to restore sanity to the markets and protect America’s working class shone brightly for a moment only to be snuffed by the likes of Michele Bachmann and her quixotic presidential campaign kickoff.

This is a woman who mistakenly believed discussions about pegging global markets to Chinese currency instead of the dollar meant that the Treasury was actually contemplating using Yuan as America’s official money. Beyond the usual mash-up of libertarian, conservative, objectivism ideals that comprise the Tea Party, Bachmann (of course) believes that climate change is a hoax, that anyone who supports healthcare is unpatriotic, and that the best way to protect Americans and the U.S. economy is to dismantle the agencies designed to protect Americans and the U.S. economy.

It’s this last point that is so troubling because it’s what people like Bachmann are gaining traction with. Even the former Fed Chairman Alan Greenspan, the most famous and powerful disciple of free market guru Ayn Rand, testified before Congress that his extreme laissez faire policy and “markets-will-cure-all” attitude were devastatingly wrong because they fail to recognize the most natural  fundamental force that comprises the capitalist economy: Greed. Don’t get me wrong. Greed is indeed an important component of capitalism as it is simply another name for competition. But it cannot go unchecked, as it will feed on itself and everything around it when unfettered by logical behavioral constraints.

To put it bluntly, Alan Greenspan was wrong and admitted as much. So were Treasury Secretary Robert Rubin, Senate Banking Committee Chairman Phil Gramm, Securities and Exchange Commission Chairman Arthur Levitt and Treasury Secretary and White House economic advisor Larry Summers. So too were the men they served who facilitated their beliefs. Presidents Reagan, H.W. Bush, Clinton, W. Bush and now, Barack Obama, all of whom surrounded themselves with these free market hucksters and relied on the dearth of financial wherewithal in Congress while counting on the masses’ inability to understand the destructive potential of unregulated markets.

 

The only thing that is honest and true about Ayn Rand and her theory of objectivism is that they’re both dead. Ayn Rand was a wonderful writer. But in terms of her being considered a prophet of sorts, Rand’s theory of objectivism (a fancy word for “that which screws the masses”) is the Scientology of economic theory. And yet, one of history’s silliest figures is now gathering momentum with copies of Atlas Shrugged flying off Amazon’s virtual shelves and middle America wondering aloud, “Who is John Galt?!”

Forget John Galt. We need to start asking the question, “Who are we?” America is stuck in the largest identity crisis we have faced since the Civil War. The unmitigated and unwarranted assault on the middle class, the working poor and, yes, the poverty-stricken in this nation, must end. We begin by restoring authority to the regulatory agencies in our nation instead of simply requiring more bureaucratic paperwork for businesses already playing by the rules. Business owners know the difference between prudent regulation and the appearance of it.

On a level playing field it’s possible to get ahead while looking down on everyone else. It might even change the perspective of a person jaded enough to be offended by the view of men scraping shellfish from the ocean, no matter how far up the hill they live.

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.