The Bully Mentality—Part II

Financial FAQs

NOAA, the National Oceanic and Atmospheric Administration, just announced 2014 the warmest year in recorded history, and 14 of the last 15 years as the warmest in recorded history.

Yet Paul Krugman in his latest NYTimes Oped still seems mystified by conservatives’ opposition to Good Government—such as denying the results of NOAA, the government organization mandated to track global warming (or maybe he isn’t, really):

“And why this hatred of government in the public interest? he writes. Krugman cites political scientist Corey Robin’s explanation that conservatives in particular are “…reactionaries. That is, they’re defenders of traditional hierarchy--the kind of hierarchy that is threatened by any expansion of government, especially when that expansion makes lives of ordinary citizens better and more secure.”

That, of course is the definition of a conservative—preserving the status quo. I would posit there is another, deeper reason for the denial of scientific results—whether it’s climate-related, or the record income inequality that almost all economists agree is real.

It’s called the bully mentality that has been discussed in prior columns. Bullies are those who want to dominate others without regard to reason or even common sense. And they appear periodically when prevailing cultures or societies lack strong leadership—positive leadership, that is.

Wikipedia defines it as, “Bullying is the use of force, threat, or coercion to abuse, intimidate, or aggressively dominate others. The behavior is often repeated and habitual.”

For instance, school bullying is at an all-time high, and has been the reason for many of the school shootings by those who have felt bullied. The NRA is a classic institutional bully—demonizing opponents with falsehoods, such as its campaign of “guns don’t kill people, people kill people,” in wanting to remove all gun controls, even though assault rifles with expanded magazines have been used in all the mass shootings to slaughter dozens, even hundreds before they were stopped.

Political bullying is another example. Republican bullying, particularly the Tea Party types that called compromise a dirty word, began when a very inexperienced Barack Obama became President who had no apparent experience in dealing with bullies.

And that is the point. Bullies have a wholesale disregard for scientific truth, or any other, and only stop bullying when they are opposed. America’s bullies can only be stopped with equal and opposing force, and where are the leaders capable of that?

Senator Elizabeth Warren is popular because she has been willing and able to stand up to the financial bullies. She sees Wall Street and the financial industry as classic bullies that need to be opposed at every turn to reverse the record income inequality. Hence her opposition to the just-passed $1.1 trillion federal budget authorization that extended the deadline for Wall Street institutions to divest themselves of the riskiest derivatives.

"Pretty much the whole Republican Party—and, if we're going to be honest, too many Democrats—talked about the evils of 'big government' and called for deregulation," Warren said at the recent AFL-CIO National Summit on Raising Wages. "It sounded good, but it was really about tying the hands of regulators and turning loose big banks and giant international corporations to do whatever they wanted to do."

“These families are working harder than ever, but they can’t get ahead. Opportunity is slipping away. Many feel like the game is rigged against them—and they are right,” Warren said. “The game is rigged against them…. The world has changed beneath the feet of America’s working families.”

Maybe President Obama finally understands that it’s not in the nature of bullies to compromise as he proposes policies on immigration and reducing carbon emissions (such as rising CO2 levels that even the Pentagon has foretold could result in future wars) that require executive action only, which will benefit all Americans. It doesn’t look like the new Republican Congress wants to compromise, which means they don’t want government to work at all if it will benefit Main Street, rather than Wall Street.

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Paying Sustainable Economic Growth Forward

Popular Economics Weekly

The Fed has said it wouldn’t begin to boost interest rates until sustainable economic growth was achieved. However, no one has actually defined what that means. Fed Chairman Bernanke defines it as when full employment is achieved, or the unemployment rate drops to around 6 percent. Others have said it is when Gross Domestic Product growth is back to the historical 3 percent plus rate from its 2 percent average of late.

But those metrics aren’t really definitions of sustainable growth, since they don’t take into account that portion of GDP invested in future growth. For no growth is sustainable unless investments are made in future, longer term growth, rather than held in corporate coffers or excess bank reserves. Senator Elizabeth Warren’s “paying forward” campaign speech is a good place to start in search of a truer definition of sustainable growth.

At a campaign stop in Massachusetts while running for Ted Kennedy’s Senate seat, she famously said, "You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did."

That is as good a definition of sustainable economic growth as we can find. For instance, future growth isn’t possible without adequate infrastructure. Yet how much of current economic activity is funneled to roads these days with the American Society of Civil Engineers saying there is some $2.2 trillion in deferred infrastructure maintenance? Or, how much is being spent on education?

A recent OECD study of education worldwide cited the U.S. as the biggest spender in elementary education, but with meager results. And for post-high school programs, the United States is far outspent in public dollars. U.S. taxpayers picked up 36 cents of every dollar spent on college and vocational training programs. Families and private sources picked up the balance. Whereas in other OECD nations, it was roughly reversed: The public picked up 68 cents of every dollar in advanced training and private sources picked up the other 32 cents.

"When people talk about other countries out-educating the United States, it needs to be remembered that those other nations are out-investing us in education as well," said Randi Weingarten, president of the American Federation of Teachers, a labor union.

But there is one measure of sustainability that almost no one talks about, and that is boosting sustainable consumer spending. We know consumer spending makes up some 70 percent of U.S. economic activity, yet current economic policies depress household incomes by putting most of the tax burden on wage and salary earners via payroll taxes. Whereas income taxes have been steadily reduced over the past 30 years, so that billionaires such as Mitt Romney and Warren Buffet pay effective tax percentages in the teens.

Rutgers economic historian James Livingston has put it best in various Op-eds and articles.

“Growth has happened precisely because net private investment has been declining since 1919 and because consumer expenditures have, meanwhile, been increasing. In theory, the Great Depression was a financial meltdown first caused, and then cured, by central bankers. In fact, the underlying cause of this disaster wasn’t a short-term credit contraction engineered by bankers. The underlying cause of the Great Depression was a fundamental shift of income shares away from wages and consumption to corporate profits, which produced a tidal wave of surplus capital that couldn’t be profitably invested in goods production -- and wasn’t invested in goods production.”

“Now look,” said Senator Warren, “you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along."

There will always be a debate about how to share the wealth pie, but there should be no debate about investing in the future of America, which means our youth, but also a healthy environment and yes; a well-functioning health care system.

Harlan Green © 2013

Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen

It’s Not About Obamacare!

Financial FAQs

We know the federal government’s shutdown isn’t really about Obamacare. We know this because Tea Party Republicans have been trying to shut down government since the 2010 election, as MSNBC’s Rachel Maddow and others have pointed out. The uncertainties around such a major new social program as Obamacare has become the issue they are using to shut it down.

It’s even in their campaign promises. "We're very excited," Rep. Michele Bachmann (R-Minnesota), one of their leaders, told the Washington Post after the shutdown. "It's exactly what we wanted, and we got it."

"President Obama can't wait to get Americans addicted to the crack cocaine of dependency on more government health care," she said. "All they want to do is buy love from people by giving them massive government subsidies."

Who are the Tea Partiers? The New York Times stated in a 2010 poll that the 18 percent of Americans who identify themselves as Tea Party supporters tend to be Republican, white, male, married and older than 45.

So why shut down all of the federal government then? Many of its constituents live in those Red States with lower incomes that depend so much on government programs like social security, Medicare, and now the Affordable Care Act for insurance coverage. In fact, the 26 states who have rejected the Medicaid expansion for poorest Americans have about half of the population, but 60 percent of the uninsured, says the New York Times. These are the so-called ‘have-not’, mostly Republican-led states in the Midwest and south.

Wikipedia states the Tea Party is not a political party, but a movement named after the Boston Tea Party. “It is an American decentralized political movement that is primarily known for advocating a reduction in the U.S. national debt and federal budget deficit by reducing U.S. government spending and taxes.”

This is the Adam Smith philosophy from his The Wealth of Nations, written in 1776, of all years. And that has been the credo of conservatives since then. The problem is that most of the national debt and budget deficit was caused by Republican administrations who espoused Adam Smith's philosophy of lower taxes without cutting government spending.

The resultant record income inequality that helped to cause the Great Recession has left the rich and powerful free to accumulate as much wealth as they can, but not pay for the services that enabled them to do so, as was so clearly said by Senator Elizabeth Warren in a famous campaign talk.

"You built a factory out there? Good for you," she says. "But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did."

"…you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along."

So it is really about a much earlier economic system I’ve called medieval economics in past columns, which had a very different social contract. It was the philosophy that protected the privileged who were thought to be divinely protected in Adam Smith’s day. The less privileged were to be protected by an “invisible hand” of enlightened self-interest. That is, it should be in the interest of the powerful to take good care of their constituents. But that hasn't happened with the Tea Partiers, at least, who don't want to finance programs that aid the under privileged.

This is also the core Tea Party philosophy that believes the U.S.Constitution protects those privileges. Indeed, during its formation, this country was governed by the privileged who wrote the Constitution—those albeit enlightened white males who owned land. And that is the medieval system the Tea Party wants to restore, whether they realize it or not.

Harlan Green © 2013

Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen

Elizabeth Warren’s Teach-in

Popular Economics Weekly

What better way to understand Elizabeth Warren’s bid for Massachusetts Senator to replace Scott Brown that conduct a Teach-in, much as the OccupyWallStreeters are doing. She stands for what we all need, after all, more knowledge on how to combat the huge levels of social and economic inequality that have arisen over the past 30 years from a corporate and Wall Street culture that glorified profits over social responsibility, or even honesty.

Professor Warren’s specialty at Harvard is contract and bankruptcy law, after all, so she has seen firsthand the damage that fine print in mortgage contracts and wholesale deregulation of financial oversight can do. A New York Times profile spelled out some of her agenda. “Ms. Warren talks about the nation’s growing income inequality in a way that channels the force of the Occupy Wall Street movement but makes it palatable and understandable to a far wider swath of voters,” said the Times. “She is provocative and assertive in her critique of corporate power and the well-paid lobbyists who protect it in Washington, and eloquent in her defense of an eroding middle class.”

But it’s more than that. She is a teacher, and so teaching the public why the middle and lower classes have lost so much of their wealth is a priority. In fact, their loss of wealth is why economic growth has been slowing historically. Part of it has to do with the massive deregulation of industries begun by President Reagan in his war against government; waged on the promise it would raise everyone’s prosperity level. But the result instead was it took away the income and wealth of ‘everyone’ and gave it to the wealthiest on the thinnest of rationalizations—that they were the real job creators, not the consumers who bought their products.

Does that mean we are helpless victims who have to be protected by Big Government, unable to take care of ourselves? No, in “All Your Worth: The Ultimate Lifetime Money Plan” written with daughter Amelia Tyagi, she spells out her beliefs on individual responsibility. “You can't count on good old-fashioned hard work the way your parents did. Go to school, get a good job, do your work, don't go crazy with spending, and everything will work out, right? Not anymore. That advice may have worked in your parents' day, but today you have to be smart with your money. Not just a little smart, but super smart. You have to learn the new rules -- the rules nobody told you and nobody talks about. And you have to learn them fast.”

And that in fact is what her teach-ins are about—learning the new rules, as well as working to change them to be more consumer friendly. What are they? Firstly, a major rule change was abolishing usury laws that have enabled national banks to charge as much as 30 percent on credit card debt. In another bestseller with her daughter, “The Two-Income Trap”, they spell out why the middle class has lost ground. Deregulation has allowed banks to write their own rules, with no concern for their own customers’ welfare.

For instance, the 2005 bankruptcy laws have means testing—only those with below median incomes for their states can file for Chapter 7 Bankruptcy, which abolishes all unsecured debt. So struggling households saddled with catastrophic health care costs (because health care costs aren’t controlled), have to sell everything they own to even file for bankruptcy.

“That puts women trying to collect domestic support obligations and credit card companies in direct competition for the ex-husband's resources,” said Ms. Tyagi in a 2004 Mother Jones interview. “Credit card companies can hire lawyers and develop extensive debt collect departments, something that is really tough for women. When the credit industry controls the bankruptcy rules, women lose.”

That is the real reason the standard of living of all but the top 1 percent has fallen. And it hurts all of us. Richard Wilkinson has spelled it out in a recent TEDS conference, and his book with Kate Pickett, “The Spirit Level”. Countries and states with the highest income inequality have the highest crime rates, illness outcomes, and most environmental degradation—you name it—as well as least social mobility that would allow greater opportunities to improve themselves.

Graph: TED Conference

Why such a shift from equal opportunity back to an era of Social Darwinism in just 30 years that was capitalism in its earliest form? It is in part due to the huge amount of wealth we have amassed. Former Fed Chairman Alan Greenspan has said: “It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed had grown so enormously.”

Wealth generates its own temptations, in other words, and so removing the barriers to its acquisition can overwhelm even common sense when dealing with severe financial crises.

Harlan Green © 2011

Who is Elizabeth Warren?

Financial FAQs

Now that Elizabeth Warren, Harvard Law Professor (Contracts) and creator of the barely born Bureau of Consumer Financial Protection, is running for Ted Kennedy’s former Senate seat, she should receive the attention she deserves. Professor Warren is perhaps the most eloquent spokesperson for rebalancing 30 years of policies that tilted income and wealth from the middle class to the investor class (i.e, to producers/investors, rather than consumers) of our economy.

A recent New York Times’ editorial said it best: “Ms. Warren talks about the nation’s growing income inequality in a way that channels the force of the Occupy Wall Street movement but makes it palatable and understandable to a far wider swath of voters. She is provocative and assertive in her critique of corporate power and the well-paid lobbyists who protect it in Washington, and eloquent in her defense of an eroding middle class.”

But really, even the New York Times misses the point. Not only has income inequality destabilized our financial system, but the economy as a whole. Don’t take my word for it. Clinton Labor Secretary Robert Reich, and many others have pointed out the results of too much inequality that puts us near the bottom of developed countries. We are 97^th of the 136 countries ranked—next to Cameroon and a handful of other African countries, according to the CIA Factbook.

The more frequent financial destabilizations of late are but a symptom, while the redistribution of wealth itself is the core illness that has in fact directly lowered economic growth by reducing overall aggregate demand—which is the willingness of consumers, investors and government to spend or invest.

In other words, the supply-side theories implemented by Milton Friedman, Ronald Reagan, et. al., have taken away the wealth of those who create most demand—middle class wage and salary earners. Their incomes have become stagnant, and may result in a permanent underclass, if Elizabeth Warren doesn’t have her way.

The remedies are available. Bring back a more progressive tax structure that existed even as recently as the Clinton era. And re-regulate the banking and shadow banking systems as mandated by Dodd-Frank—specifically implement the so-called Volcker Rule that won’t allow banks to trade for their own profit—as well as other measures that reduce the size of the too-big-to-fail financial sector. The bloated financial sector was the real cause of the Great Recession, and reducing it will return resources and capital taken away from the productive sectors of our economy.

Professor Warren fought this battle when creating the Consumer Financial Protection Bureau, which is within the U.S. Treasury. Her message was simple in creating the Bureau: the consumer “market” for financial products does not operate like a proper market because leading firms (bigger banks and also nonbanks, like some payday lenders) have figured out how to make a great deal of money by confusing their customers.

“If someone attempted to sell boxed cereal in the same fashion that many financial products are now sold, that person would be drummed out of the cereal business.  The norms of that sector (and many other nonfinancial sectors in the United States) would not stand for this degree of deception and malpractice”, said one critic of the successful Republican campaign against her nomination as first Bureau Director.

Transparency is an issue with all financial markets, not just mortgage and payday loans, of course. The multi-trillion dollar derivatives’ business is controlled by a self-appointed consortium of the major banks. And they have resisted providing a record of their transactions to a central clearing house, a provision of the Dodd-Frank bill that is still being developed.

So let us listen to Elizabeth Warren for Massachusetts Senator in her campaign to reoccupy Ted Kennedy’s Senate seat. The principles she espouses to restore the middle class will actually restore economic growth for all of us, if carried out.

Harlan Green © 2011

We Need a Real Consumer Protection Agency

Financial FAQs

Why is there such an ongoing debate on whether to nominate Harvard Professor Elizabeth Warren as head of the new Consumer Financial Protection Agency that is mandated under the Dodd-Frank banking act? To put it bluntly, there are no regulations with teeth at present that protect consumers from many of the practices of the major financial institutions who control most consumers’ deposits and investments.

The Federal Reserve is attempting to force banks to clean up their foreclosure practices with a recent consent decree signed by 10 of the largest banking institutions. But that doesn’t protect consumers from the abusive practices that spawned all those liar loans and almost caused another Great Depression.

Professor Warren has been making headway with community banks on the necessity to oversee the largest financial institutions. In fact, she told a group of community bankers in San Antonio, Texas that they weren't the bureau's main target. Instead, the biggest part of its budget will be used to police 80,000 nonbank firms that are involved in payday loans, student lending, debt collecting and the mortgage business, but that now largely escape regulation. She also said the agency would be more focused on supervision and enforcement than on writing new rules.

The community banks "are worried, and I don't blame them for being worried," Ms. Warren says, in a recent interview. "So I try to talk to them about the regulatory philosophy of the agency, whether we're an agency that's going to come in and try to say rule, rule, rule or an agency that says let's focus on what we're trying to accomplish by using more of a principles-based approach. We're trying to make these markets transparent, which makes it easier for community banks to compete both with large financial institutions and with their nonbank competitors."

Her message is simple: the consumer “market” for financial products does not operate like a proper market because leading firms (bigger banks and also nonbanks, like some payday lenders) have figured out how to make a great deal of money by confusing their customers.

Of course, there are many honest players – mostly in credit unions and smaller banks.  But when the playing field has been unfairly tilted towards cheating, honest bank executives struggle to stay in business (or to keep their jobs).

“If someone attempted to sell boxed cereal in the same fashion that many financial products are now sold, that person would be drummed out of the cereal business.  The norms of that sector (and many other nonfinancial sectors in the United States) would not stand for this degree of deception and malpractice”, said one critic of the Republican campaign against her nomination.

Transparency is an issue with all financial markets, not just mortgages, of course. The multi-trillion dollar derivatives’ business is controlled by a self-appointed consortium of the major banks. And they are resisting providing a record of their transactions to a central clearing house, a provision of the Dodd-Frank bill that is still being developed.

Why? For the same reason that mortgage lenders could hide the true costs of mortgages until the latest reforms enacted by the Federal Reserve that regulate the disclosure of loan fees and costs.

And, as two Nobelists, economists George Akerlof and Joseph Stiglitz have researched, markets driven by nontransparent or ‘asymmetrical’ information—where insiders have access to information about the investments that general market participants do not—destroys those markets. It in fact drives out the honest investors, causing a general loss of confidence on all financial markets.

So we can see Professor Warren is on a virtuous crusade. She wants to save the financial institutions from themselves—and their own propensities to promulgate the ‘buyer beware’ policies so prevalent on Wall Street that almost caused their own downfall.

Harlan Green © 2011