Return of the Bully Mentality

 The Mortgage Corner

The NYTimes Bret Stephens lamented the “bullying mentality” at the heart of the pro-Hamas movement in a recent Op-ed that lamented their attempts to shut down pro-Israeli speakers. Hamas is a movement that wants to completely eliminate the state of Israel.

Such protests have even permeated UC Berkeley, my alma mater. It’s shades of the 1960s and 70s anti-Vietnam protests, but instead of peace loving and ultra-liberal protestors, many of the protests seem to be supporting violence and Hamas terrorists.

Such a mentality, or bullying behavior to use its more common term, is once again affecting the budget battles we still have today, especially concerning aid to Israel and Ukraine, with some Republicans attempting to even block debate on a bill, after the Biden administration was able to pass many bipartisan bills that supported the post-pandemic recovery.

It mirrors bullying behavior I wrote about in a 2014 contributor column for Huffington Post during earlier budget battles, in which I quoted Paul Krugman:

"But nobody expects to see a lot of prominent Republicans declaring that rejecting Medicaid expansion is wrong, that caring for Americans in need is more important than scoring political points against the Obama administration. As I said, there's an extraordinary ugliness of spirit abroad in today's America, which health reform has brought out into the open."

The "ugliness" he speaks of is really a bully mentality. Bullies prey on those weaker than them, and so the most conservative Republicans have tried every trick in the book to oppose any programs that smack of aiding those most in need.

“Not all Republicans are bullies, and not all Democrats enlightened progressives,” I said then. “But the bully mentality of House Speaker John Boehner's "no compromise" tactics, or Senator Mitch McConnell's filibustering of even the most innocuous Obama administration appointments have been the reason recovery from the Great Recession hasn't been stronger.”

And it continues with the attempts to bully House Speaker Mike Johnson into not advancing a desperately needed aid package that MAGA Republicans oppose by threatening to unseat the House Speaker.

Who are the bullies? Republican House members from conservative Red states, in the main that oppose almost any form of government aid—even for border protection that passed with bipartisan support in the Senate.

They belong to the states most dependent on government support. Smart Asset conducted a research on the states most dependent on the Federal government, and found they were Republican governments, with Red states making up 8 out of top 10 dependent states.

GeorgetownPPR

The result of such bullying behavior is easy to see from this Georgetown public Policy Review graph. Beginning 20 years ago median household annual incomes between red and blue states began to diverge—rising per annum to $60,000 in 2018 in Republican-led states vs. some $72,000 in Democratic-led states.

The divergence between Red and Blue states began in 2000 when the Bush administration passed massive tax cuts that took away the 4 years of budget surpluses created by the Clinton administration and cut back many social programs; at the same time it began the wars on terror.

The Center on Budget and Policy Priorities (CBPP), a non-partisan think tank, said at the time, “Despite promises from proponents of the tax cuts, evidence suggests that they did not improve economic growth or pay for themselves, but instead ballooned deficits and debt and contributed to a rise in income inequality.”

It also led to the largest federal budget deficit; in fact, the first one $trillion federal deficit in US history. And “the Bush tax cuts (including those that policymakers made permanent) would add $5.6 trillion to deficits from 2001 to 2018,” said the CBPP.

It began an alarming trend, the “no compromise” behavior that the Biden administrations has attempted to alleviate with such as its New New, Deal Infrastructure and Inflation Reduction Acts that are bringing back good jobs to those Red states.

Such bullying behavior has intentionally impoverished many, and this might be the best of times to study and counteract its effects with a bipartisan spirit that younger generations are keen to support in many polls.

A recent PEW Research poll, for instance, tells us why Gen Z’ers in particular support compromise over no compromise: “…members of Gen Z are more likely than older generations to look to government to solve problems, rather than businesses and individuals. Fully seven-in-ten Gen Zers say the government should do more to solve problems, while 29% say government is doing too many things better left to businesses and individuals.”

Can today’s younger generations overcome such a bullying mentality that has also permeated university campuses and fulfill the promise of a greater bipartisanship they say their prefer?

Harlan Green © 2024

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

It's Time For 2018

Financial FAQs

We will need the 2018 elections now more than ever to vote out the greed and cowardice of those members of our national legislature who oppose all forms of gun control in the wake of the Las Vegas massacre of innocents.  It is those who have supported gun-rights groups that need to be replaced to protect Americans from such random acts of violence.

Gun-rights groups have allowed the killing of thousands of Americans in mass shootings over the past decade, including 521 mass shootings in just the last 477 days, according to New York Times columnist Frank Bruni.

That’s also because we have to vote out supporters of the largest terrorist organization in the U.S., the National Rifle Association, that opposes any controls on military-style weapons of mass destruction.

Yes, that’s right. Military weapons, such as the AK-47 developed by the Soviets because it was cheap to manufacture and easy to use, are responsible for more American deaths than ISIS; or any other terrorist organization that has killed maybe 15-20 Americans in all, yet we spend $billions trying to eliminate them, but nothing on eliminating American terrorism.

Instead those monies are donated to the candidates that support American anti-gun control organizations, such as the NRA. Ted Cruz and Marco Rubio were the top recipients of monies from organizations that oppose any form of gun control in 2016, reports Marketwatch — no surprise, since they both ran for president.

Cruz raked in $360,727 to lead the way, according to OpenSecrets.org. Just two years earlier, Cruz had collected $18,300 when he was the junior senator from Texas and lacked any significant influence in the Senate.

Third on the list of recipients of their largesse is House Speaker Paul Ryan, who said of the Las Vegas massacre, “this is not who we are”. Do we really believe him when he was the recipient of $171,977 from such organizations?

Who are we when President Trump, our elected President said, “You came through big for me, so I will come through big for you,” at the NRA’s latest convention?

Graph: Marketwatch.com

That is in fact “who we are” at the moment, but not who we can become if we will take on such American terrorist organizations as the NRA that are responsible for the indiscriminate killing of so many women and children.

The big lie broadcast by gun-rights groups is that banning military-style weapons is banning the Second Amendment right to bear arms. No, that right is protected by the Second Amendment, but not the right to bear arms that slaughter so many innocents.

Harlan Green © 2017

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

Trump Voters and The Drug Epidemic

Popular Economics Weekly

Why should so many rust-belt citizens vote for President-Elect Donald Trump, who is patently against the interest of working class voters? I am speaking of his promise to revoke Obamacare, which will make the 20-30 million dependent on it poorer and sicker. And his selection of Oklahoma Attorney General Pruitt to run the EPA, who we know wants to roll back environmental regulations, making everyone warmer, or House Speaker Ryan, who really wants to abolish Medicare as we know it and turn it into a voucher plan.

A recent Penn State study tells us why so many of the poorest and displaced white, blue collar workers voted for him. It was the desperation of depressed families and communities rampant with drug and alcohol abuse, in part from the loss of jobs and the identities that went with holding a decent paying job, who would trust a strong white male with authoritative tendencies who made enough pie-in-the-sky promises more than a female President.

One can say that such desperation leads to an irrational kind of anger, against anything that looks like the old order. Yet it was the old, white male order that created both the Great Recession—because GW Bush’s trickle-down economics cut regulations as well as taxes of the wealthiest, frittering away the budget surpluses of President Clinton’s last 4 years in office—and obstructed a robust recovery by opposing almost any stimulus spending, even shutting down the government in 2011.

The Penn State study showed how hopeless was the situation to the inhabitants now isolated from the modern multi-ethnic, multi-racial, multi-national economy. Most of those industrial, high-paying blue collar jobs are gone, replaced by high tech machines and little effort was made to replace them or rebuild those communities.

Graph: Econoday

The factory sector has been contracting since October 2014, but has recently shown signs of strength. Factory orders surged 2.7 percent in October. Both commercial and defense, were major positives, but the strength was well distributed with the monthly gain excluding all aircraft at a very strong 0.7 percent.

Donald Trump got significantly more votes in areas with high rates of drug addiction, alcohol abuse and suicide, according to the study done by Shannon Monnat, a Penn State researcher who specializes in rural issues.

"I think Trump's anti-free trade message resonated in these places and his rhetoric was very simple -- Make America great again," Monnat said. "And you have to understand that in some of these places that have experienced widespread decline in manufacturing and extraction and the types of jobs that pay livable wages, people there really feel like America is not so great anymore. I think the message that he was the change candidate really resonated with people in these places."

According to Swayne's article, the mortality rate from drugs, alcohol and suicide is 36 deaths per 100,000 people in the least economically distressed parts of the country. The rate is 49 deaths per 100,000 in the most economically distressed areas.

There is now some hope for the rust belt if Trump can carry through on his infrastructure rebuilding promise. After two years in contraction, factory orders year-on-year rates are again positive, at 1.3 percent, and for shipments, at 0.4 percent. October details included a useful 0.4 percent rise in shipments and a 0.7 percent jump in unfilled orders that ended a long run of contraction for this reading.

We hope the factory sector and manufacturing in general can recover in those areas most affected by high addiction rates.  The CDC reported in a 2007 report that more people now die from heroin overdose that gun homicides in those same rust-belt areas. And opioid deaths continued to surge in 2015, surpassing 30,000 for the first time in recent history, according to CDC data released Thursday. That marks an increase of nearly 5,000 deaths from 2014. Deaths involving powerful synthetic opiates, like fentanyl, rose by nearly 75 percent from 2014 to 2015.

Harlan Green © 2016

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

The Bully Mentality

Popular Economics Weekly

Why does the USA have such a problem with bullies? Whether in the schools, in politics, or on Internet social media? The result has been teenage suicides, horrendous school shootings by students who felt bullied or belittled, and now a whole political party that opposes anything that smacks of aiding the poorest, seniors, and less educated.

Paul Ryan’s latest budget proposal, is one such example of Republican bullying tactics. It is a repeat of past years’ proposal that would cut $5 trillion from government spending, 69 percent of the cuts in the Ryan budget come from programs that benefit people with low or moderate incomes, according to the Center on Budget and Policy Priorities. Why pick on the poor?

Economist Paul Krugman can’t understand it either. “…while supposed Obamacare horror stories keep on turning out to be false, it’s already quite easy to find examples of people who died because their states refused to expand Medicaid. According to one recent study, the death toll from Medicaid rejection is likely to run between 7,000 and 17,000 Americans each year.

“But nobody expects to see a lot of prominent Republicans declaring that rejecting Medicaid expansion is wrong, that caring for Americans in need is more important than scoring political points against the Obama administration. As I said, there’s an extraordinary ugliness of spirit abroad in today’s America, which health reform has brought out into the open.”

The “ugliness” is really a bully mentality. Bullies prey on those weaker than them, and so they have tried every trick in the book to oppose any programs that smack of aiding those most in need. Why? Because it would empower the less fortunate so they are not so easily bullied. The Republican-dominated red states are the best example of the bully mentality.

If Republicans can’t keep their constituents poor and less educated, then they would lose their hold over them, and so their power. Conservatives oppose expanding educational opportunities such as Head Start and pre-school aid because it would encourage rational thinking, and an appreciation of science. Their constituents would then begin to understand global warming, and maybe evolution.

Republicans opposition to expanding voters’ rights; even social security and Medicare; is because Repubs fear being outvoted by those very same immigrants, minorities and seniors that depend on those services to improve their circumstances, and would enhance economic growth, by the way. Republicans only answer is to restrict voting hours and pass draconian voter ID laws in the red states. It is restricting citizens’ voting rights, even though sacrosanct and protected by the constitution.

In fact, the bully mentality requires such ignorance of facts about economic growth as well. The slow recovery from the Great Recession has mainly been because private businesses have been reluctant to hire due to slack demand, and governments have been unable to spend more on public services. Yet Republicans have opposed any form of government stimulus spending, even on badly outmoded infrastructure that will only cost more to repair and replace in the future.

Not all Republicans are bullies, and not all Democrats enlightened progressives, of course. But the bully mentality of House Speaker John Boehner’s “no compromise” tactics, or Senator Mitch McConnell’s filibustering of even the most innocuous Obama Administration appointments have been the reason recovery from the Great Recession hasn’t been stronger.

Fostering a culture of fear and ignorance is not the way to run a political party, or a country. Such tactics that attempt to suppress the rights of those that disagree, as well as the willful denial of scientific and economic facts are a danger to our democracy, not to speak of the US position as a leader of democratic nations. That is the ugliness that has crept into American politics. It is a complete denial of greater opportunity for all but Republicans’ most conservative constituents, and disregard for the most basic human rights.

Harlan Green © 2014

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

The Ryan Budget Myth and Obamacare

Popular Economics Weekly

Representative Paul Ryan has come up with his latest Republican budget proposal, and it changes nothing. It neither promotes economic growth, nor reduces the budget deficit, as with past Republican budget proposals. That’s because its real target is to win some Senate seats by targeting Obamacare, for starters. And it can’t do that without telling some whoppers, including the claim that it can balance the federal budget by 2024.

Why do Ryan Repubs keep insisting on repealing Obamacare, even though they are conceding that with 7.1 million now enrolled as of March 31, it won’t be repealed? Because with fall midterm elections coming up and the prospect of winning some Democratic Senate seats looming, Ryan, et. al., want to keep up the myth that government supported programs can’t work, including health insurance, even though the Affordable Care Act, aka Obamacare will be a success.

We know this because Massachusetts’ Romneycare plan has been working for both young and old, as well as employers. Employers haven’t cut and run, but instead opted to insure more of their employees, not less. For instance, the percentage of small businesses with more than 3 employees have increased their coverage from 70 to 76 percent.

Ryan has to cling to the Republican myth that cutting government spending—either by weakening the social safety net of pensions and health care, or weakening environmental protection and educational programs—will cause the wealthiest among us to invest in more jobs and growth, because that’s what the wealthy will do with the lower taxes and increased income that results from smaller government expenditures.

But we know that’s not what the 1 percent, and those who are paid by and support the 1 percent do. They have instead used those excess profits to speculate—in the financial markets, mainly. And that in turn has provoked the huge overinvestments in dot-com infrastructure and housing that brought on the last two recessions, which in turn has slowed job creation and overall economic growth.

This is no secret to most Americans. The wealthiest spend a smaller percentage of their income on necessities, and in doing so reduce the demand for the most essential goods and services. But Republican-dominated states would have their constituents believe the wealthiest are their benefactors, when in fact those Red states are most dependent on government aid because they are also the poorest states.

Ryan proposes to trim $5 trillion from government spending. He said it would bring federal spending and taxes into balance by 2024, through steep cuts to Medicaid and food stamps, and the total repeal of the Affordable Care Act just as millions are reaping the benefits of the law, according to the New York Times.

But with current programs the deficit would increase just 1 percent to 4 percent of GDP over the next 10 years, according to the Congressional Budget Office. So why cut the social welfare programs that benefit so many, including our seniors and retirees, when it isn’t necessary?

Raising doubts about the effectiveness of Obamacare is the real target of Ryan’s plan, as we said. That’s the real reason Republicans continue to make these unpassable proposals. They want to keep their majorities in the Red states, without which they couldn’t continue the transfer of wealth from those most in need to those least in need, and which perpetuates the growing inequality of the socioeconomic classes.

In fact, we already know the result of such policies. Under GW Bush, when the Republican agenda of lower taxes and increased defense spending was in full flower, fewer jobs were created and the budget deficit ballooned. And that led to the Great Recession.

Harlan Green © 2014

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

Fed Chairman Yellen Will Boost Economic Growth

Financial FAQs

If we need any more evidence that Janet Yellen should be the next Federal Reserve Chairperson, it was the decision by the Fed Governors to continue their easing at the conclusion of their September 18 FOMC meeting, just 3 days after Larry Summers withdrew his candidacy for Fed Chairman.  Their action was basically an endorsement of Yellen’s policies as the Fed’s current Vice Chairperson that confounded the pundits who were sure the Fed would begin it’s ‘taper’ of bond purchases in September. 

In a word, Dr. Yellen has always been pro-job creation, and that is the big change in economic policymaking that should make this economic recovery self-sustaining, as opposed to Republican Paul Ryan’s latest budget proposal that is in fact anti-jobs. Instead, he wants to focus on reducing the budget deficit by cutting entitlement benefits for the elderly in return for lifting some of the sequester (i.e., Budget Control Act) spending cuts. 

But that doesn’t reduce the current debt or boost hiring directly, although lifting spending cuts and ending the government shutdown will bring back all those furloughed workers.  Labor’s share of national income has been steadily falling, which reduces the buying power of consumers who power 70 percent of economic activity, and so the overall demand for goods and services.

Graph: Economix

           Economist Jared Bernstein said as much in a recent New York Times column, illustrated in the Economix graph from 1995 to Q3 2012:  “In fact, as many inequality watchers have noticed, profits as a share of income are at or near record highs while the compensation share is around a 50-year low.” And as Robert Samuelson also reported in the Washington Post, “…labor’s share has plunged in the past decade. In 2013, it’s 57 percent (vs. 63 percent in 2000). This shifts about $750 billion annually from labor to capital.” 

The so-called supply-side policies of smaller government and lower taxes that have favored producers over employees are out of touch with the real economic problems today.  It is mainly a lack of demand, rather than the supply of goods and services that has stunted this recovery.  We are in fact awash in cheap goods produced globally.

The best sign that we have a demand problem that no longer requires lowest taxes for the producers and corporations is almost no sign of inflation and record low worldwide interest rates.  These indicators signal the sluggish circulation of money and so reduced demand.  Most of it is being saved, or hoarded.  Banks have almost $1 trillion in excess reserves that would normally be loaned out or invested, while corporations have more than $2 trillion in cash and cash ready reserves not being invested.

Why?  Because labor has been left out of the recovery as almost everyone knows.  Thomas Piketty and Emmanuel Saez have documented that 95 percent of the wealth created since 2009 have gone to the top 1 percent, while household incomes have fallen.  That is why debt is even a problem.  Simply put, debt can’t be paid down unless tax revenues increase.  Paul Ryan and the Tea Party stalwarts have it all wrong.  Cutting back on government spending directly translates to fewer jobs and less tax revenues, as the current shutdown illustrates.

How to right the imbalance in order to boost growth?  Raise the minimum age for starters, as I’ve said in past columns, and raise some of the tax rates. Or, close those tax loopholes that have the wealthy such as Mitt Romney and Warren Buffet with lower tax rates than their employees. Our policymakers and politicians have enough choices, if they choose to act.

But until such happens, we have only the newly nominated Janet Yellen to rely on to keep interest rates low enough to create a sustainable recovery.

Harlan Green © 2013

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

Austerinomics, the Anti-Growth Orthodoxy

Financial FAQs

The Federal Reserve Open Market Committee has just said it in the press release from its latest committee meeting in an otherwise ‘moderately’ upbeat announcement: “Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth.”

Austerinomics, or the policy of starving the beast of government by cutting both its revenues and spending doesn’t work at a time when 7.6 percent of those looking for work cannot find jobs, and some 4.7 million have been unemployed for more than 6 months. In fact, austerinomics is really starving most Americans of their wealth, as well as necessary public services and safeguards.

We know the restraints are across the board sequestration spending cuts on top of the $1.6 trillion in spending cuts enacted in 2011. The results, says the Congressional Budget Office are the loss of up to 750,000 jobs and up to 1.5 percent in GDP growth in 2013.

The real beef of Keynesian economists such as Paul Krugman, Joseph Stiglitz and a host of other Nobelists is that the advocates of austerity in both U.S. and Europe won’t acknowledge the evidence. Austerinomics hurts economic growth. The evidence is really overwhelming, both in Europe that is back in recession and the weak U.S. recovery. Cutting government spending and other stimulus measures during recessions, and consequent recoveries makes no economic sense, because it reduces the demand for more goods and services.

Austerinomics isn’t based on any economic theory (nor is Laffernomics, the theories of Arthur Laffer who predicted that lower tax rates would increase growth). It hasn’t happened, as GDP growth has been slowing since the 1970s rather than speeding up as tax rates have been slashed.

For what drives growth is both public and private spending, not just spending of the wealthiest few. Consumers spend less and investors invest less when unemployment is high and incomes are low, period. Even GW Bush understood this, which is why he refused to cut government spending after his first recession and 9/11 attacks.

Unfortunately, most of that spending was to finance 2 wars and tax cuts for the wealthiest individuals. But it did bring back full employment, until the housing bubble burst.

So what is the real goal of the advocates of austerinomics? It is the continued transfer of wealth to the wealthiest. Representative Paul Ryan’s budget proposals provide the blueprint, and Bush’s Brain Senior Advisor Karl Rove provided the rationale for re-creating the cartels and monopolies of President William McKinley’s time—1897-1901. Rove believed Republican principles and power would reign supreme for generations, if Republicans and their supporters accumulated enough wealth.

But that has never stuck with Americans. Vice President Teddy Roosevelt initiated the progressive era upon McKinley’s assassination, battling the monopolies and cartels of that era. The result was what he called the “New Nationalism”, a government that functioned for all the people, in his famous 1910 Osawatomie, Kansas speech.

“The new Nationalism puts the National need before sectional or personal advantage. It is impatient of the utter confusion that results from local legislatures attempting to treat National issues as local issues. It is still more impatient of the impotence which springs from over-division of governmental powers, the impotence which makes it possible for local selfishness or for legal cunning, hired by wealthy special interests, to bring National activities to a deadlock. This new Nationalism regards the executive power as the steward of public welfare. It demands of the judiciary that it shall be interested primarily in human welfare rather than in property, just as it demands that the representative body shall represent all the people rather than any one class or section of the people.”

We cannot turn the clock back to the beginning of the 19^th century, in other words, even if some people want to.

Harlan Green © 2013

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

Ryan’s 19th Century Budget Plan

Financial FAQs

Republican Paul Ryan’s 2011 budget plan is being trotted out by House Republicans once again. In spite of the sequester cuts and a declining budget deficit, Ryan wants to create even more economic austerity. Representative Ryan and House Republicans have to still be living in 19th century rural America to believe this budget plan would work.

Its purpose is obvious—to cut government spending by abolishing Obamacare, or the Affordable Care Act, as well as downsizing Medicare to a private voucher program, and cutting taxes for the wealthiest even further by simplifying tax brackets to 10 and 25 percent. And he maintains this will balance the budget in 10 years!

Yet balancing the budget isn’t the problem, as many economists have pointed out, including Paul Krugman. The annual deficit that is the source of federal debt is in fact dropping too quickly, thanks to the sequester agreement, 2011 spending cuts, and the year-end income and payroll tax increases. Any further cuts will cost tens of thousands of public and private sector jobs that depend on government contracts. This will in turn strangle government revenues that would further increase the deficits and so overall debt.

Graph: CBPP

It is a vicious circle that those who still espouse 18^th Century economics do not want to recognize. It is being tried in Europe and has precipitated a second, and third recession in the case of Great Britain. As so many, including the Center For Budget and Policy Priorities (CBPP) have pointed out, most of the debt was accumulated by wars and the Bush tax cuts. Just two policies dating from the Bush Administration — tax cuts and the wars in Iraq and Afghanistan — accounted for over $500 billion of the deficit in 2009 and will account for nearly $6 trillion in deficits in 2009 through 2019 (including associated debt-service costs of $1.4 trillion).  By 2019, CBPP estimates that these two policies will account for almost half — over $8 trillion — of the $17 trillion in debt that will be owed under current policies.

Rather the focus needs to be on creating more demand, and Ryan doesn’t give us a plan to do that. Instead he maintains that downsizing government at a time when the private sector has been holding back on job creation will magically cause the private sector to create more jobs.

Graph: Calculated Risk

The problem is really a lack of demand, due to fallen household incomes, as the graph makes clear. If the private sector saw a greater demand for its products and services, they would be hiring more. Most of the benefits of the huge increase in labor productivity since the 1970s has either gone to Wall Street, record high corporate profits, or its wealthiest executives.

Money has to be returned to those who produce it, not those who manage its profits if we want to create the demand that causes economic growth. The Ryan Plan sets us back to a 19^th century regulatory environment, with its huge wealth disparities, dependence on fossil fuel use, and a less safe safety.

Harlan Green © 2013

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

Romney-Ryan Austerity Leaves Out 47 Percent

Popular Economics Weekly

It should be obvious by now that the Romney-Ryan program of fiscal austerity—cutting government spending, while cutting taxes in the hope businesses and their investors will invest more of their wealth—can’t work. Latest evidence is the just out IMF 2012 World Economic Outlook (WEO) report that confirms European austerity policies over the past year have made things worse.

So how can Romney say he will create 12 million jobs during his tenure by cutting government spending while lowering taxes? He has said his blueprint is Paul Ryan’s House passed budget bill that drastically downsizes safety net programs, and cuts some $5 trillion in taxes over 10 years, without specifying where he will raise additional revenues to pay for those tax cuts. Since no expert believes it can be done without removing such favored tax shelters as the home mortgage interest deduction, it will create the same austerity trap Europeans now find themselves in.

For instance, we know from the IMF study Great Britain has fallen back into recession over the past 3 quarters by explicitly following Conservative PM Cameron’s austerity program. Ireland and Greece are also in recession because of draconian spending cuts, with Italy and Spain soon to follow.

Chapter One of the WEO report stated that current European policies that demand a reduction of debt as the path to recovery without job creation programs were wrong. In fact, “…IMF staff research suggests that fiscal cutbacks had larger than-expected negative short-term multiplier effects on output, which may explain part of the growth shortfalls,” said the report.

This only confirms what Keynesian economists such as Paul Krugman have been saying for years. The only path to increasing economic growth is to literally create more jobs. Only then will there be sufficient revenues to grow the economy and thereby reduce debts, both in the private and public sectors.

As Lord Keynes famously said, jobs can be digging ditches and then filling them up again, or, how about repairing some of the $2 trillion in needed U.S. infrastructure repairs being put off, which will only increase their costs? Roosevelt’s New Deal created WPA projects that grew the economy by putting people back to work—such as building Hoover Dam, planting trees and the like.

The reason austerity has been ruling economic policies of late is bond vigilantes have been in control, a relic of Germany’s fears of a repeat of their 1920s inflation rate, and U.S. creditors’ fears of inflation that eats away at bond prices. Republican conservatives have used this argument to demand lower taxes, though it has done nothing to reduce government debt. Republican Presidents Reagan and GW Bush created the largest budget deficits since World War II, as I have said.

In fact, other studies, such as by acknowledged budget experts Peter Diamond and Emanuel Saez, conclude that “the revenue-maximizing top federal marginal income tax rate would be in or near the range of 50-70 percent (taking into account that individuals face additional taxes from Medicare and state and local taxes). Thus we conclude that raising the top tax rate is very likely to result in revenue increases at least until we reach the 50 percent rate that held during the first Reagan administration, and possibly until the 70% rate of the 1970s”.

And does it significantly lower economic growth? In the postwar U.S., higher top tax rates tend to go with higher economic growth—not lower, said the study. Indeed, according to the U.S. Department of Commerce's Bureau of Economic Analysis, GDP annual growth per capita (to adjust for population growth) averaged 1.68 percent between 1980 and 2010 when top tax rates were relatively low, while growth averaged 2.23 percent between 1950 and 1980 when top tax rates were at or above 70 percent.

Neither does international evidence support a case for lower growth from higher top taxes, say Diamond and Saez. “There is no clear correlation between economic growth since the 1970s and top tax-rate cuts across Organization for Economic Cooperation and Development countries.”

It is only recently that historical evidence has been able to examine so-called supply-side economic theory that says lowering taxes promotes growth, which it turns out is just a theory not borne out by the facts.

Harlan Green © 2012

Why Do We Need QE3?

Financial FAQs

It’s not hard to see why we need “QE3”, the Fed’s bond buying program to keep long term interest rates low. It’s almost an act of desperation. The Fed is the only game in town to stimulate growth at the moment, when we are teetering on the edge of several ‘fiscal cliffs’.

That is, the private sector is not creating enough jobs on its own to pay down the budget deficit, or maintain a secure social safety net. In fact, the unemployment rate has to fall at least 2 points—close to 6 percent—to bring us near full employment and an economy that returns us to prosperity. The U.S. economy is also dealing with the prospect of another credit downgrade that could endanger our fiscal solvency.

“The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails,” said Fed Chairman Ben Bernanke at the Fed’s annual Jackson Hole conference, “but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.”

Graph: Calculated Risk

There were just 96,000 payroll jobs added in August, with 103,000 private sector jobs added, and 7,000 government jobs lost. A meager total much below the first part of the year. The unemployment rate decreased to 8.1 percent (from the household survey), and the participation rate declined to 63.5 percent, mostly from the decline in manufacturing employment, which depends on exports which have flagged of late.

The reason for “persistently high levels of unemployment” is not a mystery. Incomes of the 80 percent of wage and salary earners whose spending powers most economic growth have fallen with no relief in sight when productivity gains are soaring. The problem is very little of those gains are flowing to the workers producing those goods and services.

From 1948 to 1973, the productivity of all nonfarm workers nearly doubled, as did average hourly compensation.  Although productivity increased by 80.1 percent from 1973 to 2011, average wages rose only 4.2 percent and hourly compensation (wages plus benefits) rose only 10 percent over that time, according to government data analyzed by the Economic Policy Institute.

That is a lesson that seems to have been lost at least since the 1970s. So until programs that stimulate actual job growth are enacted, there won’t be much more job growth, in spite of the Fed’s best efforts.

What programs are needed? This is also self-evident. Programs that decrease the record income inequality, the worst since the 1920s. And can be government-led, at the moment, without increasing the deficit. That is the misinformation being spread by those who do not understand growth. Romney, Ryan, et. al., don’t seem to realize that spending tax dollars on infrastructure, education, fire, police, healthcare, and the like, are actually dollars spent in the private sector that are deficit neutral. It’s called pay-as-you-go, the congressional rule that any spending increase had to be matched with a revenue increase. This rule that served President Clinton so well and enabled 4 consecutive budget surpluses, was only abandoned in 2000 when the Bush-Cheney administration cut taxes while increasing spending.

The huge inequality gap has reached historical levels not seen since 1928, which has depressed demand for the goods that drive growth. Economic historians such as Professor James Livingston, in particular, have known this. Private investment has been diminishing as a share of GDP since 1900. “So corporate profits do not drive economic growth — they’re just restless sums of surplus capital,” said Livingston, “ready to flood speculative markets at home and abroad. In the 1920s, they inflated the stock market bubble, and then caused the Great Crash. Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the “shadow banking” system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble.”

The policies that created such weak payroll numbers cannot be allowed to continue. Fed Chairman Bernanke and his Board of Governors are the only federal officials able to act at a time when our economic health hangs in the balance.

Harlan Green © 2012

Repubs Platform—Reverse Robin Hoodism

The Financial FAQs

Reagan Budget Director David Stockman and even President Obama have called it the reverse the Robin Hood effect, or taking the meager wealth from the poorest to give to the wealthiest. Because the Tea Party has created the Republican election platform, their agenda has been laid bare, which is a blatant effort to suppress the wages and salaries of 80 percent of our workforce. This after more than 200 years of government working for both the advantaged and disadvantaged.

The Republican platform no longer even tries to hide what they want to do--make the poor and middle classes even poorer by shrinking the social safety net, as well as restrict or outright ban collective bargaining of both public and private sector employees.

It is unbelievable, but true. Their platform even includes removing all restrictions on assault rifles, with no limits on magazine sizes, and taking away a woman's freedom to choose her own health care options, including contraception.

They are doing it in their time-tested way, playing the blame game again. As Rick Santorum said in his convention speech—“Almost half of Americans are on some form of government assistance,” implying that the poorest among US are too lazy to work. But most who receive government aid have retired on social security and Medicare, with very few on welfare, thanks to Clinton’s welfare reform that required welfare recipients to find work.

In fact, playing the blame game is their attempt to direct attention away from their own wholesale draining of the public coffers with tax breaks for the wealthiest that continue to increase the federal deficit, while income inequality is already at record levels. They would even make it worse under the Paul Ryan’s budget proposals by continuing to cut taxes, as well as social security, Medicare, education, and environmental protection programs.

Meanwhile defense spending would increase from some $500 trillion to over $900 trillion in 10 years by some estimates, if we follow Ryan’s prescription,  when we are the only super-power. This includes 9 super-carriers when no other country has even one.

What best confirms the Republican Party’s outright suppression of wages and salaries is the change in labor laws that have happened since at least 1980, when President Reagan disbanded the FAA Air Traffic Controllers Union, after only 4 days of negotiations.

In a just released report by the Center for Policy and Research, “Protecting Fundamental Labor Rights: Lessons from Canada for the United States,” begins with a comparison of the current state of organized labor in the United States and Canada.  It notes that, from the 1920s to about 1960, Canada and the United States had roughly the same unionization rates. But in 1960, the two began to diverge. As of 2011, the unionization rate in Canada stood at 29.7 percent, compared to less than half that in the U.S., at 11.8 percent.

While Canada and the U.S. both have elections as one route to forming unions, Canadian workers in several provinces also have the much faster option of card-check certification. Under card check, once a majority of employees signs cards in support of unionizing, an employer is required by law to recognize their union. . While the United States, however, workers must first file a petition showing support for unionizing and then vote to unionize in an election before an employer is required to recognize their union, unless an employer voluntarily recognizes a union.

And this can take months, during which companies are able to employ tactics to intimidate their workers. “During this time, U.S. employers usually engage in anti-union campaigns, often committing illegal acts – such as threatening to close the workplace or threatening to fire workers – to discourage them from voting to form a union,” said the report . “In fact, workers were illegally fired in about 30 percent of certification elections in 2007. Unfortunately, the legal response to such practices is slow and ineffective.”

Even more damning is the direct suppression of wages in the 23 right to work states  that say workers don’t even have to join a union, or outright banning collective bargaining of public workers, such as teachers, police and fireman, in Wisconsin, which other states are attempting to emulate.

For instance, A February 2011 Economic Policy Institute study found:

• Wages in right-to-work states are 3.2 percent lower than those in non-RTW states, after controlling for a full complement of individual demographic and socioeconomic variables as well as state macroeconomic indicators. Using the average wage in non-RTW states as the base ($22.11), the average full-time, full-year worker in an RTW state makes about $1,500 less annually than a similar worker in a non-RTW state.
• The rate of employer-sponsored health insurance (ESI) is 2.6 percentage points lower in RTW states compared with non-RTW states, after controlling for individual, job, and state-level characteristics. If workers in non-RTW states were to receive ESI at this lower rate, 2 million fewer workers nationally would be covered.
• The rate of employer-sponsored pensions is 4.8 percentage points lower in RTW states, using the full complement of control variables in [the study's] regression model. If workers in non-RTW states were to receive pensions at this lower rate, 3.8 million fewer workers nationally would have pensions.

The damage to economic growth is considerable when the 80 percent of Americans who are wage and salary earners have not been able to boost their incomes sufficiently to grow the economy. The facts are daunting. Income inequality has been growing since the 1970s—so much so that economic growth will continue to suffer, unless workers have sufficient bargaining power to begin to grow their incomes again.  But that can’t happen unless/until they recognize who is blocking their path to greater prosperity.

Harlan Green © 2012

It’s Ryancare vs. Obamacare

POPULAR ECONOMICS WEEKLY

Will Ryancare replace Obamacare? Ryancare could become the campaign buzzword with Mitt Romney’s choice of Wisconsin Republican Paul Ryan as his Vice Presidential candidate. Ryancare is bringing budget-cutting austerity that Paul Ryan once called his “Path to Prosperity” budget proposals now endorsed by two Republican-led House majorities, vs. President Obama’s program of stimulus spending via health care, infrastructure repair, and job creation.

Yet history says Ryancare won’t work. It is a battle between almost polar opposites—government austerity vs. government stimulus—when the two must work together to bring back prosperity to the 80 percent of us who are wage earners that have lost out on this recovery.

Romney has come off the fence, in other words, since being Massachusetts’s governor that supported abortion and universal health care. Mitt has said during the campaign that he supported Ryancare, which “will greatly shrink the government, largely undoing the social safety net by shifting more costs onto individuals and essentially converting Medicare into a capped voucher program. It would also alter the progressive income tax system, which, like the safety net, was built through the 20th century under Republican as well as Democratic presidents,” said the New York Times.

So Ryancare is really about more austerity when we know the track record of austerity programs. The latest is England’s Conservative Party program that has returned it into recession with their program to slash government spending while lowering taxes for the wealthy, thus starving the government of revenues during the euro crisis. Only President Clinton was able to slow government spending while balancing the federal budget. He did it by raising taxes back to pre-Reagan rates for the highest income brackets, while slashing defense spending.

In fact, though few economists will admit it, Republican economic policies since 1980 based on slashing tax rates have been disastrous for economic growth and budget deficits, which is why President Reagan had to raise taxes 11 times during his tenure.

While GW Bush helped to create the largest federal deficit since World War II with his tax cuts of 2001 and 2003 that starved the government of revenues at a time when spending soared. The historical fact remains: the recessions, President Bush’s tax cuts and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years.

Graph: CBPP. Org

“In fact, the deficit for fiscal year 2009 — which began more than three months before President Obama’s inauguration — was $1.4 trillion and, at 10 percent of Gross Domestic Product (GDP), the largest deficit relative to the economy since the end of World War II,” said the Center for Budget and Policy Priorities, a progressive think tank.

So is it just coincidence that the historical record also shows all recessions since 1980 have occurred during Republican administrations? The recession score (gray shadings)—Presidents’ Reagan and GW Bush two recessions, GHW Bush, Sr. one, and Democrats zero.

Graph: Calculated Risk Blog

If austerity in the guise of slashing taxes to shrink government isn’t the answer, then what is? That, also, is no secret to most economic historians, at least. Promote economic growth in both the private and public sectors. It turns out that growth has been greatest when tax revenues were higher, because those revenues also boosted private sector growth. How so? Through almost too many ways to be counted—via boosting spending on education, environmental protection, infrastructure, and Research and Development.

President Clinton proved it with his 23 million jobs created and 4 years of actual budget surpluses. In other words, all those public tax dollars boost growth, while the historical record shows that the Bush and Reagan tax cuts benefited the wealthiest; including those corporate CEO’s whose salaries and benefits have gone through the roof, leaving their own employees with little to spend.

And so does social welfare spending, which should be a no-brainer. Medicare and social security have almost no overhead, so that more than 95 percent of revenues flow to the elderly and health care providers, which boosts job growth in the health care professions, as well as consumer spending.

“Nonpartisan analyses of Mr. Ryan’s proposed income tax cuts reached conclusions much like those of Mr. Romney’s tax proposals in recent weeks’” said the same New York Times column. “The tax cuts in Paul Ryan’s 2013 budget plan would result in huge benefits for high-income people and very modest — or no — benefits for low-income working households,” Howard Gleckman, a senior fellow at the Urban Institute, a policy research organization, wrote in summarizing the findings of the Tax Policy Center.

Thus we have the consequences of Ryancare, or shall we now call it Romneycare, which will provide very little care for most Americans.

Harlan Green © 2012

Ryan Budget Punishes the Poorest—A Return to ‘Les Miserables’?

Popular Economics Weekly

We know Victor Hugo’s message is alive and well when Paul Ryan’s latest budget proposal continues to punish the poorest for the sins of the wealthiest who caused the Great Recession, and have yet to be punished. Les Miserables’ Jean Valjean is punished for stealing a loaf of bread while the French aristocracy refused to share their wealth. Then came the French Revolution, of course

And Republican Paul Ryan’s latest budget proposal punishes the poor to pay for the excesses of the wealthiest that created the worst budget deficit since WWII. “We propose to stop fraud in the food-stamp program by ensuring that individuals are actually eligible for the taxpayer benefits they receive,” said Ryan at a recent press conference.

Yet congressional Republicans will do nothing to return the fraudulently obtained $trillions of the wealthiest beneficiaries of the burst housing bubble by raising their taxes. The fraud of those like Goldman Sachs who benefitted most has been well-documented by Chairman Philip Angelides’ Financial Crisis Inquiry Commission, which was set up to determine the causes of the financial meltdown that led to the Great Depression, among them criminal fraud.

“The bipartisan panel appointed by Congress to investigate the financial crisis has concluded that several financial industry figures appear to have broken the law and has referred multiple cases to state or federal authorities for potential prosecution, according to two sources directly involved in the deliberations,” said the Huffington Post.

“Though civil charges appear a more likely outcome should prosecution result, one source familiar with the panel's deliberations said criminal charges should not be ruled out. The commission's decision to refer conduct for prosecution underscores the severity of the activities it has uncovered and plans to detail in its widely anticipated final report, the sources said.”

One-quarter of the House GOP spending cuts come from programs directly benefitting the poor; such as Medicaid, food stamps, the Social Services Block Grant, and a child tax credit claimed by working immigrants.

“This plan hits the food and nutrition programs but totally exempts all the agricultural subsidies,” said House Democrat Chris Van Hollen. Republicans would also eliminate Social Services Block Grants, a $1.7 billion a year program that gives states money for Meals on Wheels, day dare, adoption assistance and transportation help for the elderly and disabled.

And the Bureau of Labor Statistics in its latest JOLTS report  said the number of job openings in March (not seasonally adjusted) increased over the year for total nonfarm, total private, and government. Job openings increased over the year for durable goods manufacturing, nondurable goods manufacturing, retail trade, health care and social assistance, and state and local government. Job openings in the Midwest and South regions increased over the year. The total number of job vacancies jumped 172K from an upward-revised level in February. The 3.737 million job openings for March 2012 is the highest since July 2008.

Lastly, the NFIB Small Business Confidence Survey shows both increased hiring and income.  It outperformed expectations in April, rising two full points to a level of 94.5, and thereby matching the recovery high set in February 2011. The employment-related measures improved as had been previously reported, and there were some pleasant surprises among the other components.

Graph: NFIB

We can therefore say those who want to punish the poor, without punishing those who caused the Great Recession for their misdeeds has a historical precedent, thanks to Victor Hugo. Do we really want to repeat the mistakes of the French aristocracy?

Harlan Green © 2012

The Terrible Cost of Bush II’s Deficit

Popular Economics Weekly

It is now becoming evident just how much damage the GW Bush budget deficit has done to the U.S. In part from the tax cuts of 2001 and 2003, which sharply reduced taxes on income, capital gains, and corporations, two wars, and the Great Recession that began halfway through Bush's second term, the deficit now threatens not only our fiscal soundness, but status as the world's economic powerhouse.

It was VP Cheney who maintained that Reagan had said deficits don't matter, but President Reagan raised taxes 11 times during his tenure to save the budget, and economy, as his Budget Director David Stockman described so well in The Triumph of Politics. In other words, President Reagan didn't dare go as far as Dubya and VP Cheney in creating a deficit that siphoned off revenues to the wealthiest 1 percent and raised corporate profits to the highest in history as a percentage of GDP, while almost causing the disappearance of our middle class and endangering Medicare and social security.

So it shouldn't be a surprise that Republican Paul Ryan's 2013 budget proposal passed by the Republican House follows in GW Bush's footsteps. President Obama assailed it as "...a Trojan horse, disguised as deficit-reduction plans," said the president at an Associated Press luncheon in Washington on April 3. "It is thinly veiled social Darwinism."

Obama was referring to the fact that Ryan's plan doesn't really reduce deficits. Because it calls for $trillions in spending cuts without raising revenues, 62 percent of which would come from low-income programs, just as the Bush II budgets did. And both revenue increases and spending reductions are necessary to pay down the budget deficit. In fact, the new tax cuts at the top would dwarf those for middle-and lower-income families, says The Center for Budget and Policy Priorities, a non-partisan think tank. After-tax incomes would rise by 12.5 percent among millionaires, but just 1.9 percent for middle-income households. It's Bushonomics all over again.

What was most unconscionable about the Bush tax cuts was that they occurred during his first recession -- from March to November 2001, caused mostly by the dot-com bubble bust. In fact, he was starving the government of revenues at the same time that he was planning two wars, as has been revealed in several books by Ron Susskind, including The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neil.

Now we have a yawning federal deficit that continues to grow past $15 Trillion. Bush Treasury Secretary Paul O'Neill, who was fired by VP Cheney for advocating that the four Clinton years of budget surpluses be used to put social security and Medicare on a more secure footing, described the result of the debate that led to such a disastrous decision in The Price of Loyalty. It was return government to its 1900 size, the era of William McKinley and the Robber Barons, by reducing government spending enough "to shrink it down to the size where we can drown it in the bathtub", said Grover Norquist once famously, architect of the no tax increase pledge signed by more than 200 Republican legislators.

So we now know what makes up the current $15 trillion federal debt. Most of the deficit was created by the Bush tax cuts, war spending, and the second Great Recession that occurred under the Bush presidency -- from December 2007 to June 2009-- says the CBPP. It resulted in the most anemic recovery since WWII, with just 5 million jobs created, not even recovering from the 8 million jobs lost since 2000, and the median household income decline from $56,000 in 2000 to $52,000 in 2011 dollars, where it was in 1997, according to the New York Times and Moody's Analytics.

Graph: CBPP

That cost of the Bush II deficit is just now becoming evident, because of its growing size and the fact that budget matters are so arcane and hard to understand by the public and politicos alike. But all of the Bush tax cuts contributed to the deficit, because they weren't paid for. GW Bush wouldn't cut back spending to match the loss in revenues because he wanted to pay for his wars, so he borrowed the monies. Whereas during the Clinton era, legislators had agreed to pay-as-you-go rules, where spending cuts had to match tax cuts.

And the Great Recession has continued to grow the deficit. In fact, if just the Bush tax cuts were extended it would increase that deficit by $4.6 trillion over the next 10 years, says Andrew Fieldhouse and Ethan Pollock of the Economic Policy Institute, a labor think tank. That means we are now facing its terrible cost. Republicans have proven their ideology of starving the beast of government ends up starving the economy of growth, except for the 1 percent who are their supporters.

Harlan Green © 2012