Category: US politics

Europe and the US – A Natural Experiment in Economic Policy

Three years ago, as a new president took office in the depths of a staggering, world-wide recession, the US passed the American Reinvestment and Recovery Act (ARRA), better known as the “stimulus.” The idea was for the government to spend money on job-creating projects, even if that increased the federal government’s budget deficit. While many economists argued that the stimulus was a good idea but too small, those on the right called it the “porkulus,” and helped stir up the Tea Party protest movement against it.

In Europe, virtually every country took the opposite course. Instead of stimulating their economies with more spending, they turned to cuts to bring their budgets closer to being balanced.

Now, three years later, we can begin to see the results. The US economy has begun a modest recovery, with unemployment creeping down as sales begin to increase. In Europe, by contast, Greece is in a state of near collapse – and is having devastating budget cuts imposed on it – with serious worries about the fiscal stability of Spain, Italy, and France, and a real prospect that the entire Eurozone will collapse.

The US stimulated the economy by increasing its budget deficit, and is now experiencing a modest recovery. The nations of Europe sought to decrease their deficits by cutting spending, and is now threatened with economic collapse.

Which policy do you think was better?

Nuclear Weapons: Iran, North Korea, USA

Yesterday (February 25, 2012) the New York Times reported that US still agencies continue to believe that Iran is NOT trying to develop nuclear weapons. That was a shocker, given the current war fever being whipped up in the US and Israel.

However, there is a bigger question. Is the Nuclear Nonproliferation Treaty sustainable? This treaty basically says that there is a privileged group of nations that has nuclear weapons and will keep them, and the rest of the world which is prohibited from having them. Or, to put it more bluntly, there are a few countries which get to tell all the others what do do and when to do it.

For those of us who are Americans, it’s easy to miss the point here. Americans tend to think that we are benevolent and friendly, so we don’t see why anyone would mind if we dominate them. With a little effort, though, you can see it the way others do–which can be summed up as “The US is great until they want our resources.”

As a result, many countries have proceeded to develop their own nuclear weapons, ignoring the treaty (or refusing to sign it). These include, at a minimum, Israel, India, Pakistan, and North Korea. The list is likely to grow, whatever Iran might do.

Having fewer countries with nukes is better than having more; but it doesn’t work. The only real path to a safe future is the abolition of all nuclear weapons. The US, as the biggest nuclear power, has to take the lead on this. There is little sign that it will do so any time soon, but until it does nonproliferation will continue to fail.

The Problem with “Payroll Tax” Cuts

As Congress debates a third round of the so-called “payroll tax cut,” more members have at least begun to acknowledge that this tax is what pays for social security. In fact, it is much more commonly referred to as the “social security tax,” the label used on my pay stub, and probably on yours as well. The first two times, hardly anyone in Congress even mentioned that this had anything to do with social security.

The problem, of course, is that the social security trust fund is predicted to run out in 2043. With less money in, it will run out sooner – unless the money lost through the tax cut is replaced by money from somewhere else. This time, at least, the President’s proposal is to replace the funds with a new tax on those with annual incomes greater than $1,000,000.

At this point, extending the tax cut is probably a good idea, if it’s paid for. While I don’t think the original cut provided much of a stimulus, ending it would take money out of everyone’s pocket, and probably would hurt the economy. However, there are some problems, and we should all be aware of them.

Social security falls into the broad category of social welfare: government programs that help everyone maintain at least a minimum standard of living. However, there are two kinds of social welfare program, often classified as social insurance and social assistance.

Social insurance programs are paid for by individual contributions, usually in the form of a tax. People become eligible for the benefits by participating in the contributions. Social security and Medicare are social insurance programs, as is unemployment compensation (with the proviso that the tax in this case is paid by the employer, not the employee).

Social assistance programs are paid for by general revenues. People become eligible for the benefits because of economic need. Medicaid and Transitional Assistance for Needy Families (“welfare”) are social assistance programs.

So there are two important differences between social insurance and social assistance. The former is contributory and universal; the latter is noncontributory and means-tested. However, there is another important difference, generated by the first two: social insurance programs are popular, while social assistance programs are not.

The popularity of social security and Medicare come from the feeling that we have earned them. By paying into them over the years, we create a sense that we are getting back something we paid for. This makes it very hard for anyone to suggest repealing them. “Welfare” and Medicaid are far less popular; in fact, TANF has been almost eliminated, and Medicaid is cut whenever there is a budget crisis.

The risk in changing the tax basis for social security is that it will come to be seen as a social assistance program, one that taxes the rich to pay the poor. Obama’s proposal does not get us there, but it is a small step in that direction. We should proceed with caution.

Forget the Supercommittee, Just Raise the Debt Ceiling!

The possible failure of the so-called Super Committee is being trumpeted as one more piece of evidence that Congress is unable to do its job. Twelve members of Congress – 6 from the Senate, 6 from the House, 6 Democrats, 6 Republicans – have so far been unable to come up with an agreement to cut the federal deficit by a specified (large) amount of money. They still have a couple of hours, but as of now it seems that they are going to report failure – triggering huge automatic cuts in both domestic and military spending.

Certainly, Congress is dysfunctional right now. But it is important that we remember that the “problem” assigned to the Super Committee is purely and completely fictitious; or rather, it is created by Congress.

Last summer, the total federal debt reached the statutory debt ceiling set by Congress in the past. In order to keep the US out of default, Congress needed to pass a law authorizing additional borrowing (NOT additional spending; this was simply authority to borrow money to pay the bills, including interest on past debt, that had already been incurred).

Normally, this is a simple housekeeping matter. Congress simply votes to raise the debt ceiling, and things go on as normal. In this case, however, the Republicans in Congress chose to risk destroying the credit of the USA in order to score political points; and the Democrats played along, pretending that the debt ceiling couldn’t be raised unless there was also a tax increase on the rich.

Don’t get me wrong, the rich should pay more taxes – but it is simply not true, as the Democrats in Congress have been saying, that we can’t pay for federal programs unless we raise taxes.
We can; we just need the authority for the government to borrow.

The country’s most pressing need is not to cut the deficit; it is to create jobs. It is worth borrowing money to do so – more jobs means more income, means more income tax, more revenue to the government, and the ability to pay down the debt in the future. So we need a higher debt limit in order to let the government create jobs.

The Super Committee was threatening to cut social security and medicare, so it’s good they failed. It’s especially good when we consider that they were completely unnecessary in the firt place.

Investment Banks Caused the Crisis – NOT Mortgage Borrowers

Barry Ritholtz of the Washington Post recently published this excellent column about the causes of the current economic crisis. It’s important, because one of the main talking points of the Tea Party delegation in Congress (and in the public) is that the crisis was caused by loose credit.

To give the full-blown loony conspiracy version: ACORN, inspired by the writings of Frances Fox Piven and Richard Cloward, set out to destroy capitalism by overloading the system. Specifically, they:

  • Lobbied to get the Community Reinvestment Act passed, and then to modify it to require banks to issue sub-prime mortgages without credit checks.
  • Organized people, many of them without means, to apply for mortgages they couldn’t afford.
  • Ran fraudulent voter registration drives to register illegal aliens and others to elect Barack Obama and keep the government handing out the money.

There are other parts to it, but you get the picture. And of course it is rare that anyone lays out the full story like this; instead, right-wing voices just mention all the parts and let people put them together for themselves; so anything they say about ACORN, for example, becomes confirming evidence.

The reality is very different. The Community Reinvestment Act requires banks to make loans in the areas they get deposits from; it does not require them to make bad loans! And almost everyone who got a mortgage was able to pay for it initially; the problem was that the mortgage companies, who were going to resell the mortgage anyway, concealed the fact that the rate was likely to go way up at some point in the future.

But there is another, more basic point: the crisis was not caused by people who defaulted on their mortgages. People default on mortgages all the time. High-risk mortgages earn higher interest, and when the markets are working right the high return will balance the risk of loss.

The problem was different. Mortgages known to be high-risk were combined into packages with others thought to be low-risk; then the ratings certified the packages as safe investments, and the packages were sold (or rather, derivatives based on their value were sold) to investors.

When the default rate went up, it suddenly became clear that these safe investments weren’t safe after all. Even more important, investors realized that no one knew what the packages were worth. Since no one knew what to buy or sell them for, the market just collapsed – and there was the crisis.

Well, Ritholtz explains it much better than I, so go back to the top of this post, click on the link, and read his article. I just want to conclude by looking at the implications.

  • If the problem was caused by poor people getting mortgages, then the lesson is that we all have to learn not to live beyond our means. Austerity!
  • But if the problem was caused by the banking system (and it was!), the lesson is different: we have to get the banks under control! Unfortunately, governments around the world are moving in the opposite direction, using the IMF to force us all under the thumbs of the bankers.

Keystone XL Pipeline: Does Postponement Mean Victory?

Yesterday(November 10, 2011)  the White House announced that the proposal to build the Keystone XL Pipeline, meant to bring oil from the tar sands of northern Alberta to refineries on the coast of Texas, would be sent back to the State Department for further review. This decision is being hailed as a victory by Tar Sands Action, the coalition organized to stop the pipeline. But is it? I’m not so sure.

Environmentalists opposed the pipeline because:

  1. The $7 billion project would lock us into continued dependence on fossil fuels for its lifetime.
  2. Extraction of oil from the tar sands, by hydrofracking and similarly destructive techniques, destroys the area where they are – see these photos – and threaten the Peace-Athabasca Delta, nesting ground for millions of waterfowl, which is immediately downstream.
  3. The proposed pipeline route through Nebraska threatened to contaminate both the Sand Hills region and the underlying Ogalalla Aquifer, principal water source for much of the Great Plains.
  4. The review process in the State Department was corrupt. The Cardno consulting firm, which the State Department had hired to review the proposal, lists the firm that would build the pipeline, TransCanada, as one of its major customers.

Tar Sands Action has conducted an exemplary campaign against the proposal, including massive civil disobedience in front of the White House last summer and the November 6 action when 12,000 people surrounded the White House three-deep, as shown in this CBS video (which drastically lowballs the number of demonstrators, though). One theme of the campaign has been that the protesters worked hard for Barack Obama in 2008, and would like to do so again, but won’t be able to unless he shows that he is on the side of the environment by stopping the pipeline project.

Then came yesterday’s announcement. Specifically, it was said that the proposal would be reviewed to see if a better route could be found; in other words, the administration would still like to proceed with the pipeline, but understand that it would pose a high level of environmental risk to Nebraska. (The Republican governor of Nebraska has been opposing it for that reason.) Coincidentally, the decision to conduct the review means that no decision on the pipeline will be made until early 2013, well after the presidential election.

This seems to me like a transparent ploy to dodge the issue, hoping that the environmental activists will get back in line behind the Obama campaign. An appropriate reaction might be to keep up the protest – to say “we’re beginning to win, let’s demand a total victory: a veto of the pipeline!” But that’s not what’s happening.

Instead, protest leaders like Naomi Klein (in this talk broadcast on Democracy Now) and Bill McKibben (in the statement linked from the first paragraph above)  have declared victory, arguing that delay will kill the pipeline.

I hope they are right. I have great respect for each of them; each has made tremendous contributions to the struggle against the pipeline and the broader struggle against corporate greed and climate change. But this time I think they’ve got it wrong. Once the pressure of the election is off, Obama – or worse yet, his Republican successor – is going to go ahead with the pipeline. Tar Sands Action has 2,500 people pledged to civil disobedience if that happens; but how much more effective it would be if they acted now, before the election, rather than in 2013.

In Greece, in Italy, in the United States, Another World Is Possible

The news from Europe is horrible. First Greece, and now Italy are being told that they have to give up any semblance of democracy and put bankers directly in charge of their government. At one point it looked as if Greece was actually going to get a banker, Lucas Papademos, as its new prime minister. That isn’t happening (at least as I write this), probably because the symbolism was too eerie – but it might as well happen, because the banks are running the show.

Why? The answer we are getting from the mainstream politicians, the mainstream media, and the bankers themselves is that There Is No Alternative (a phrase Margaret Thatcher used so much that people started calling it TINA). Greece has to keep using the euro, the banks that own Greek bonds have to be paid (even the plan to pay them only 50% requires their voluntary cooperation), the Greek state has to be gutted, and the Greek people have to suffer huge losses of jobs, income, pensions, and health care.

Why? Different answers are given. Some are just mindless: “That’s just the way it is,” or “That’s how capitalism works.” The slightly more substantive answer is usually something about investor confidence. If investors think their money is at risk, the argument goes, then they won’t invest, and where would we be?

Well, probably we (or Greece, or Italy) would be better off. After all, it was the investors who got us into this mess. If Greece took control of its own currency (which would mean going back to the drachma), they could direct public resources into work that meets real human needs. Or if the government wouldn’t do that, the people could (that’s what happened in Argentina during their last crisis: investors shut down factories and pulled out of the country, whereupon groups of workers seized control of the factories and repoened them). People making decisions to meet human needs, rather than to profit investors – that’s what democracy looks like!

Does this sound utopian? Sure! It is utopian. It’s an attempt to visualize another world, to show that there is an alternative, another world is possible! That is the message of the demonstrations in Athens, Cairo, Madrid, New York, Oakland, and everywhere else. We can’t accept the claim that their is only one way to do things. Another world is possible, another world is absolutely necessary, and it is up to us to figure out how to get there.

I’ll try to suggest some details, including historical examples, in future posts. This is just to get the ideas flowing.

Greek Crisis Shows the Power of Protest

Critics of the Occupy Wall Street/Occupy Everywhere movement argue that the movement needs to have a positive program to succeed. The events going on in Greece right now suggest that they are wrong.

The Greek protest movement has been (and is) much larger and more militant than anything in the US. However, it is similar to Occupy Wall Street in one important way: it is a protest against the domination of politics by the 1%, not a call to implement a particular program. The protesters reject austerity — deep cuts in social services and jobs — as a solution to the financial crisis caused by the banks. They do not, as far as I can see, prescribe a different solution; rather, they demand that politicians find one.

These protests have already forced an important concession from the banks: they have agreed to take a big loss, 50%, on their loans to the Greek government (or rather, they have been told that they have to do so by the German and French governments). However, this settlement, announced late last week, still demanded that Greece impose the “austerity” program.

Prime Minister Papandreou, seeing the depth and strength of public opposition to austerity, suddenly announced that he would call a referendum on the plan, which had already passed parliament. This was a second victory for the protest – actual democracy! Letting the people really decide if the cuts were the best solution. How radical!

Too radical for the EU, it turns out,and maybe too radical for Papandreou’s cabinet. As I write this, it looks like he may be forced out. One rumor is that elections will be called – another victory for protest and democracy. However, there is also talk of turning the government over to a banker, Lucas Papademos, which would certainly be a victory for the 1%.

What we have to bear in mind here is that austerity is not the only solution (if it is a solution at all). The crisis is largely caused by Greece’s being on the euro, so that it cannot control its own currency (see my earlier post, “Why Greece Is in Trouble”). I’ll leave the details to the economists, but Greece could go back to the drachma, devalue, and tell the banks who are holding it to ransom to either accept payment in devalued drachmas or else face default.

That may or may not be the best solution (and many variants are possible) – and the decision belongs to the people of Greece, not to me (and certainly not to Angela Merkel). That decision could be made either by Papandreou’s proposed referendum or by a snap election. My point is simply that there are solutions that let the Greek people take back their democratic sovereignty.

The Occupy movement can learn a lot from this. The important thing to do right now is not to focus on a particular solution to the jobs crisis. Nor is it to rally behind a set of candidates. The important thing is to demand that the politicians stop serving the banks and start serving the people.

The Crisis of the American Party System and Occupy Wall Street

The American Party system is in crisis. People are disillusioned with the system because it is not doing what it is supposed to do: provide people with a way to translate their preferences into policy.

The reason is simple: both parties are heavily influenced by the 1% – the super-rich corporate executives and bankers who are increasing their share of  our national wealth and income. There are very clear differences between the parties, but neither party represents what a majority of the public wants: a higher share of taxes paid by the rich, government action to create jobs, an end to “free trade” agreements that undercut labor rihts and environmental protection, and more support for the middle class.

The Republican Party is generally against all of the above. That would not be a problem if the other major party, the Democrats, was for them. We would have elections, the voters would vote their preferences, and the policies favored by the majority would be implemented. As things stand, though, the Republicans are against these policies while the Democrats are divided. The result is that if the Democrats win an election, the Republicans still win in policy-making.

So the crisis of the party system is its stasis. To resolve the crisis, this stasis must be broken. From 1992 through 2000, the main attempt to break it was through electoral activity: the independent campaign of Ross Perot in 1992, the Reform Party (again with Perot) in 1996, the Green Party campaign of Ralph Nader in 2000, along with a significant number of state and local independent and minor-party victories.

This electoral insurgency has been dwindling since the election of George W. Bush. Bush was such a polarizing figure that there was no room for a third alternative. Progressives would rally around whoever the Democrats nominated, because a Republican victory looked so much worse to them. This left us with a paradoxical situation: elections offered a clear choice between the parties, but neither choice was what a majority of the public wanted.

Occupy Wall Streeet is a new approach. It is not electoral. It is not trying to re-elect Obama or to defeat Obama. It is not a Democratic majority in Congress, nor is it seeking to replace conservative Democrats with more progressive ones.

Occupy Wall Street is not saying anything about elections. It is simply demanding action. It is demanding that public officials take their responsibility to the public seriously, by finding ways to meet people’s needs. Of course, that will have to involve more taxes on hugely profitable corporations, a fairer distribution of wealth and income, stricter regulation of banks, and much more.

Fort years ago the movement against the Vietnam War probably contributed to the election of Richard Nixon. It also ended the war. Maybe that was more important.

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Background reading:

George Katsiaficas, The Imagination of the New Left: A Global Analysis of 1968

Alexander Bloom and Wini Breines, ed., “Takin it to the Streets:” A Sixties Reader 

Kate Pickett and Richard Wilkinson, The Spirit Level: Why Greater Equality Makes Societies Stronger

Robert H. Frank, Falling Behind: How Rising Inequality Harms the Middle Class

Politicians Should Stop the Moral Posturing about PACs

I’m still working on my definitive analysis of the origins of Occupy Wall Street – but meanwhile, I just have to say something about political action committees (PACs), the bêtes noires of American politics.

Alan Khazei just announced that he is ending his candidacy for the Democratic Party nomination to run against Scott Brown for the US Senate. Press reports on his announcement tended to say that he had tried to show a good moral example by refusing to take contributions from PACs; in an earlier campaign debate, he had challenged his main opponent, Elizabeth Warren, to do the same (she declined).

I have just one thing to say about refusing PAC contribution. It’s totally phony!

To see why I think that, let’s consider what a PAC is. The first PACs were actually organized by labor unions. (I bet a lot of you didn’t know that!) Unions were prohibited from making campaign contributions with  funds from member dues, on the grounds that a given member might not support the candidate getting the contributions. On the other hand, it was vitally important for unions to get pro-labor candidates elected; so they invented a new form of organiztion, the AFL’s Committee on Political Education (COPE), and the CIO’s Political Action Committee (CIO-PAC). Members made voluntary contributions — small ones, since we are talking about working people here — to these committees, and the committees were then able to make larger contributions to candidates. The labor movement thereby became an important force for progressive politics.

Prior to the Citizens United decision, corporations were also prohibited from making campaign contributions – so they, too, began to use the PAC form. Most PACs are now based on corporations, but there are many labor PACs, environmental PACs, pro-choice PACs, and many other PACs devoted to progressive causes.

PACs are highly regulated – they have to keep track of all donors, and can give a maximum of $5,000 to a candidate in any one election. When you look at the many ways money enters politics, PACs are actually one of the cleanest.

Some of the less clean ways of contributing:

  • Bundling. A fundraiser collects a lot of individual checks, each payable to a candidate’s campaign committee, and hands them over to the campaign in a bundle. Each individual has stayed within the legal limits, but the bundler has effectively contributed $100,000  or so.
  • Direct expenditure. Instead of contributing money, a contributor pays for ads directly – supposedly without consulting the candidate, but that part of it is very had to enforce.
  • Advocacy spending. Instead of buying ads telling someone to “vote for” or “vote against” a given candidate, the ad attacks a candidate’s issue position, and concludes “call Congressperson X and tell (him or her) what you think of this support for a disgusting policy!”

In comparison to those practices, PACs are clean and well-regulated. The should not be the form, it should be the substance: is a candidate supported by investment banks, or by working people? To simply refuse contributions from PACs, but not refuse individual contributions from bankers, is pure hypocrisy.

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p.s. If this has whetted your interest in campaign finance, here are a couple of useful books: