Volscho: Socialism's for the Rich

... working and middle-class taxpayers now pay a “bondholder's tax” to firms like Goldman Sachs and JP Morgan Chase (as well as Japan and China). The domination had become quite apparent in early 1993 when President-elect Bill Clinton remarked "You mean to tell me that the success of the economic program and my re-election hinges on the Federal Reserve and a bunch of fucking bond traders?" Clinton ditched his 1992 campaign promises to the whims of the Wall Street Ruling Class and the Federal Reserve Bank.

Anybody tell you, "it's the economy, stupid."? (editor)

Who rules America? Sociologists and political scientists have debated this question since C. Wright Mills published his 1956 book The Power Elite. Writing in the 1950s, Mills argued that the United States was ruled by a triangle of power between the federal government, large corporations, and the military industrial complex (with many people moving between these sectors). Robert McNamara went from CEO of Ford Motor Company to Secretary of Defense under the Kennedy-Johnson administrations (modern examples include Dick Cheney, Henry Paulson, Robert Rubin, Larry Summers, etc). Since the late 1960s, sociologist G. William Domhoff has revised, updated, and increased the sophistication of power elite theory. If we look at the composition of cabinet-level and other White House appoints since the Reagan administration, it is clear that there is a significant movement between Wall Street and the Federal Reserve Bank and Treasury Department. But why? The answers are found in the social and economic crises of the 1960s and 1970s.

The rate of profit in the non-financial sector fell after peaking in 1966 and continued its fall into the mid 1970s. At the same time, the Civil Rights, anti-war, feminist, brown power, black power, American Indian Movement, student revolts, prison riots, and other rebellions against the establishment were taking place. Regulatory victories by Ralph Nader and other challenges to the power of the capitalist establishment were increasingly seen as a threat in the 1970s. Lewis F. Powell (a corporate lawyer, board member, and future Supreme Court Justice) wrote a memo to the Chamber of Commerce in 1971 and opened the document by stating, “No thoughtful person can question that the American economic system is under broad attack.” But what was most alarming was that “ Although New Leftist spokesmen are succeeding in radicalizing thousands of the young, the greater cause for concern is the hostility of respectable liberals and social reformers.” The great fear was that mainstream liberals were becoming more radical. A further fear was that Yale's graduating classes (composed of old and new money and elites-to-be) in the late 1960s and 1970s included those who were versed in the “politics of despair.”

In response capitalists mobilized politically and ideologically. By 1976, the U.S. Chamber of Commerce's membership started increasing rapidly and doubled by 1980. In 1975, there were just under 200 Corporate Political Action Committees (PACs) but about 1400 by 1981. The ideological factions of the right in the late 1970s included Supply-Siders, Monetarists, and Neoconservatives. Each of these factions were in power at the Treasury Department, White House, and Federal Reserve Bank beginning in 1979. While they didn't necessarily always get along, they put policies into place that led to the rise of the Wall Street Ruling Class.

Supply-siders argued that radical tax cuts would increase economic growth so much that it would actually increase government tax revenues. This theory (known as the “Laffer Curve”) was drawn on a napkin at a bar and then presented in editorials in the Wall Street Journal. One of Reagan's wunderkind, Office of Management and Budget David Stockman, confided to a Washington Post reporter (William Greider) that Reagan's tax cut was really a “trojan horse” for cutting taxes on the rich.

At the same time, monetarists believed that the only cause of inflation was the money supply. Beginning in October 1979, one of the first applications of the “shock doctrine” came in the form of very high interest rates. The vague proclamations of the Federal Reserve Banker, Paul Volcker, that the Fed was only focusing on M1 (a measure of money supply) and that the Fed's hands were tied such that it was “the market” that determined interest rates was sold to the public. What this really was, was “bitter medicine” and Volcker was quoted in the New York Times as saying that Americans must get used to declining living standards. In essence, the Federal Reserve Bank was implementing the “shock and awe” phase of the first-strike of a thirty year class war.

In 1981 Reagan signed the “Kemp-Roth” tax bill about a week after he had taken the radical step of firing 11,000 striking federal air traffic controllers. This was accomplished within the context of the highest interest rates and subsequent unemployment rates of the postwar era (in 1981-1982). This strategy, as explained by Naomi Klein in her book The Shock Doctrine, requires that radical policy shifts must occur when the public is disoriented and confused. High interest rates, business failures, foreclosures, plant closures, downsizing, and rising unemployment can have this effect. The interest-rate shocks enabled elites to pursue radical anti-union policies and radically reduce taxes on the rich. At the same time, neoconservatives argued that “missile gaps” and “acoustic submarines” (the inability to detect them being given as evidence for their existence) developed by the Soviet Union were posing a major threat to the United States. This justified unprecedented defense spending increases. One of the failed moments of the Reagan revolution, of course, was the decision not to pursue “Social Security reform” while only having limited success at cutting other social programs. This left a problem. Tax cuts for the rich reduced the tax revenue of the Federal government while a defense-spending spree threatened to create the largest federal deficit in history.

In a widely ignored 2000 book, Wall Street Capitalism: A Theory of the Bondholding Class, economist E. Ray Canterbery explains what happened. The tax cuts drastically increased the incomes of the rich and they used their newfound money from the tax cuts to buy the Treasury bonds, notes, and bills that the Treasury Department had to issue in order to finance Reagan's deficits. The combination of monetarism (high interest rates), supply-side tax cuts, and the phantom Soviet threat created the bondholding class. In essence, a Wall Street Welfare institution known as the bond market came to dominate politics in the United States. Instead of using taxes to fund the federal government (and increasingly state and municipal governments), taxes on the rich were cut and they were handed an “investment opportunity” so that working and middle-class taxpayers now pay a “bondholder's tax” to firms like Goldman Sachs and JP Morgan Chase (as well as Japan and China). The domination had become quite apparent in early 1993 when President-elect Bill Clinton remarked "You mean to tell me that the success of the economic program and my re-election hinges on the Federal Reserve and a bunch of fucking bond traders?" Clinton ditched his 1992 campaign promises to the whims of the Wall Street Ruling Class and the Federal Reserve Bank.

Treasury securities come in maturities of 1 month, 3 months, 3 years, 7 years, 10 years, and 30 years. But rarely does the bondholding class hold their securities to maturity. Instead, they are circulated through high-volume secondary markets. In October of 2010, for instance, the average daily trading volume of Treasury bonds was $558 billion. Treasury, State, and Municipal bonds are highly concentrated among the rich. In the 2007 Survey of Consumer Finances, the Top 5 percent (ranked by net worth) held about 93.6 per cent of all bonds (this does not include the savings bonds that the working and middle classes are familiar with). Likewise, the Top 5 percent owned 82.4 per cent of all stocks. The bondholding class oscillates between bonds and stocks as market conditions dictate. The Wall Street Ruling Class manipulates the supply of bonds, bills, and notes of differing maturities through its “Treasury Borrowing Advisory Committee” to maximize the economic gains of the bondholding class. The current Chairman and Vice Chairman are from JP Morgan Chase and Goldman Sachs, respectively.

By implementing what Canterbery calls a “bondholding class strategy,” the Federal Reserve Bank managed interest rates so as to optimize returns for the bond and stock market. Studies indicate that bond prices and the stock market generally react negatively to what is good news for most Americans: strong employment growth, a decline in jobless claims, an increase in wages, or an uptick of inflation sends bond and stock prices falling. When news reports of slower housing starts, slower than expected employment growth, an increase in unemployment or jobless claims are released, the bond and stock markets rally. This is a major difference in the class interests between the vast majority of Americans whose primary income is from wages and salaries and the minority of rich asset holders. When the economy grows too fast, the ideology of the bondholding class dictates that the Federal Reserve Bank should raise interest rates (which increases the unemployment rate and reduces wages). Keep wage and commodity inflation in check by all means necessary while allowing for stock market and home mortgage inflation.

The last thirty years of the class war waged by the Wall Street Ruling Class and the Federal Reserve Bank has been about reducing wages and goods inflation while sustaining financial asset inflation to increase the enrichment of the bond and stock holders. Net interest payments on Treasury securities are welfare payments to the Wall Street Ruling Class. One of the propaganda functions of the highly concentrated (by ownership) mass media is to keep the masses confused about this great source of power. From the perspective of the elite, it is better to inflame and encourage hatred for Mexican immigrants, welfare recipients, and Muslims. But Mexican immigrants and Muslims, generally speaking do not run the country. Instead, the simple answer is: follow the money. By following the money you will be led to a street with a river at one end and a graveyard at the other. In fact, it is for whom the firms located on this street received the largest welfare check ever written. As the chorus of Ron Paul supporters, Tea Party activists and white supremacists continues rising and violence escalates, the question arises: Is there socialism in the United States? The answer is a resounding Yes! Socialism for the rich.

Thomas Volscho is Assistant Professor of Sociology, CUNY / College of Staten Island.

Roberts: Really Irrational Exuberance

For a number of years I reported on the monthly nonfarm payroll jobs data. The data did not support the praises economists were singing to the “New Economy.” The “New Economy” consisted, allegedly, of financial services, innovation, and high-tech services.

This economy was taking the place of the old “dirty fingernail” economy of industry and manufacturing. Education would retrain the workforce, and we would move on to a higher level of prosperity.

Time after time I reported that there was no sign of the “New Economy” jobs, but that the old economy jobs were disappearing. The only net new jobs were in lowly paid domestic services such as waitresses and bartenders, retail clerks, health care and social assistance (mainly ambulatory health care services), and, before the bubble burst, construction.

The facts, issued monthly by the US Bureau of Labor Statistics, had no impact on the ”New Economy” propaganda. Economists continued to wax eloquently about how globalism was a boon for our future.

The millions of unemployed today are blamed on the popped real estate bubble and the subprime derivative financial crisis. However, the US economy has been losing jobs for a decade.

As manufacturing, information technology, software engineering, research, development, and tradable professional services have been moved offshore, the American middle class has shriveled. The ladders of upward mobility that made American an “opportunity society” have been dismantled.

The wage and salary cost savings obtained by giving Americans’ jobs to Chinese and Indians have enriched corporate CEOs, shareholders, and Wall Street at the expense of the middle class and America’s consumer economy.

The loss of middle class jobs and incomes was covered up for years by the expansion of consumer debt to substitute for the lack of income growth. Americans refinanced their homes and spent the equity, and they maxed out their credit cards.

Consumer debt expansion has run its course, and there is no possibility of continuing to drive the economy with additions to consumer debt.

Economists and policymakers continue to ignore the fact that all employment in tradable goods and services can be moved offshore (or filled by foreigners brought in on H-1b and L-1 visas). The only replacement jobs are in nontradable domestic services, that is, those jobs that require “hands-on” activity, such as ambulatory health services, barbers, cleaning services, waitresses and bartenders--jobs that describe the labor force of a third world country.  Even many of these jobs are now filed with foreigners brought in on R-1 type visas from Russia, Ukraine, Thailand, Romania, and elsewhere.

The loss of American jobs and the compression of consumer income by low wages has removed consumer demand as the driving force of the economy. This is the reason expansionary monetary and fiscal policies are having no effect.

The latest jobs report issued today shows that America’s transformation into a third world economy continues. The economy lost 95,000 jobs in September, mainly due to cuts in local education and federal employment. Part of the loss of 159,000 government jobs was offset by 64,000 new private sector jobs.

Where are the new jobs? They are in nontradable lowly paid domestic services: 32,000 were in health care and social services, and 33,900 were in food services and drinking places.

There you have it. That is America’s “New Economy.”

Paul Craig Roberts was an editor of the Wall Street Journal and an Assistant Secretary of the U.S. Treasury.  His latest book, HOW THE ECONOMY WAS LOST, has recently been published by CounterPunch/AK Press

Hudson: Helping Wall Street Help America

Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), and this editor's favorite economist.  He is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy. He can be reached via his website, mh@michael-hudson.com (editor)

I can smell the newest giveaway looming a mile off. The Wall Street bailout, health-insurance giveaway and support of real estate prices rather than mortgage-debt write-downs were bad enough, not to mention the Oil War’s Afghan extension. But now comes a topper: the $50 billion transportation infrastructure plan that Obama proposed in Milwaukee – cynically enough, on Labor Day. It looks like the Thatcherite Public-Private Partnership, Britain’s notorious giveaway to the City of London underwriters. The financial giveaway had the effect of increasing prices for basic infrastructure services by building in heavy financial fees – guaranteed for the banks, who lent the money that banks and property owners used to pay in taxes in more progressive times.


The Obama transport plan is like a Fannie Mae for bankers, based on the President’s guiding mantra: “Let’s help Wall Street put Americans back to work.” The theory is that giving public guarantees and bailouts will enable financial managers to use some of the money to fund some projects that employ people – with newly created, non-unionized companies, presumably.

Here’s the problem. Transportation projects will make real estate speculators, the construction industry and their bankers very rich unless the government recovers its public spending through windfall site-value gains on property along the right-of-way.

What’s the point of a party having a constituency, after all, if not to sell it out? Is not the Democratic Party’s role to deliver labor, the minorities and the large cities hog-tied to Wall Street?

Hollywood surely has made enough movies along these faux-populist lines. The banker of a Western town manages to grab property along the railroad tracks coming through, to make a killing. The local mobster pays off a state legislator to build a highway by his property, making his land much more valuable. Mortgages will be refinanced in much larger sums. At least, this seems to be President Obama’s hope as he positions himself to become America’s Tony Blair. The role of Britain’s New Labor, after all, was to ram through economic programs so far to the right than no Conservative government could get away with them. In the United States it falls to Obama’s New Democrats to shepherd through proposals that Democrats would vote down if the Bush-Cheney Republicans had tried to enact them.
What President Obama did not acknowledge is a basic principle that every transportation economist is taught: Transport investment normally can pay for itself, simply by a windfall-gains tax enabling cities or other jurisdictions to recapture the higher rent-of-location and site value along the right-of-way.
London’s extension of the Jubilee Tube Line to the city’s financial district in Canary Wharf recently demonstrated this principle. The line’s extension cost £3.5 billion but increased property values by an estimated £13 billion along the route. A political protest movement arose over London’s failure to finance its transport system by taxing the higher rent-of-location and site values it created. Failure to do so gave landlords a windfall – one that the city could have recaptured by a windfall tax to cover the cost of what it spent. For instance, it could have issued bonds secured by a windfall property-rent tax.

Paying for capital investment out of such tax levies could provide transportation at a subsidized price, minimizing the cost getting to and from work. That would have made its labor force more competitive by alleviating cost-of-living pressure on wages, freeing more income for spending on goods and services and thus helping the economy.

But Obama’s infrastructure plan is for Wall Street investors to get the windfall – as property owners or as mortgage lenders making much larger loans against the enhanced site value. Balzac said that behind every family fortune is a great theft, and I would add that behind every great fortune is a public-sector giveaway. The largest asset in most families, billionaires as well as small homeowners, is land. The key to its site value (“location, location and location”) is transportation and other public infrastructure. The land grants to railroad barons after America’s Civil War, for example created the largest American fortunes for the ensuing century.

Obama’s guiding principle since taking office is that of his Republican predecessors: It’s Wall Street that makes America rich. In this mythology it’s the wealthiest brackets that employ labor, not downsize and outsource it. So it’s the rich who deserve tax breaks.

No wonder Americans are listening to populist rants against “big government.” The Wall Street bailout was the watershed in making our government look like those of Britain and France in medieval times, with their special interests, insider dealings and giveaways to court favorites. Governments were hated when they were controlled by landed aristocracies and foreign bankers funding each new war debt by an excise tax borne by the population at large, not by the wealthy.

America got rich from the Progressive Era onward by a different kind of big government than we have today. From the Cumberland Road and Erie Canal onward, it provided roads and other basic services at public expense for free or at subsidized prices. The guiding idea was that the “return” to public investment should be measured by the degree to which it lowers the economy’s costs of living and doing business, not in the amount of income it could extract.

The plan would not add to the government deficit, Obama promised. Unfortunately, in place of government taking more revenue, it will be the finance, insurance and real estate (FIRE) sector that does the taking. The banking system will now do what government was supposed to do back in the Progressive Era: finance infrastructure. The difference today is that instead of funding transportation out of tax proceeds (levied progressively on the wealthy) or by the central bank monetizing public debt, the Obama plan calls for borrowing $50 billion at interest from banks.

The problem is that this will build in high interest charges, high private management charges, underwriting fees – and government guarantees. User fees will need to cover these financial and other privatization costs “freed” from the government budget. This will build about $2 billion a year into the cost of providing the transport services.

This threatens to be the kind of tollbooth program that the World Bank and IMF have been foisting on hapless Third World populations for the past half-century. The “infrastructure bank,” reports The New York Times, “would be run by the government but would pool tax dollars with private investment.” It would be a test balloon for financing “a broader range of projects, including water and clean-energy projects,” for which Democrats already are drawing up a blueprint:

“[Connecticut Democrat Rosa] DeLauro’s plan would create an infrastructure bank that would be part of the United States Treasury, where it would attract money from institutional investors, then channel the funds to projects selected by a panel. The program, which would make loans much like the World Bank, would finance projects with the potential to transform whole regions, or even the national economy, the way the interstate highway system and the first transcontinental railway once did.
“The outside investors would expect a competitive return on their money, so many of the completed projects would have to charge fees, taxes or tolls. In an interview, Ms. DeLauro said she would be “looking at a broader base,” meaning the bank would finance not just roads and rails, but also telecommunications, water, drainage, green energy and other large-scale works.
“But if the projects did not raise enough money, the Treasury might get stuck paying back the investors, a prospect that gave pause to so-called deficit hawks like [Ohio Republican Congressman Pat] Tiberi. In an e-mail last week, he said he agreed the nation’s road and communications networks needed to be improved but was concerned about creating another company like Fannie Mae that might need a bailout.” Sheryl Gay Stolberg and Mary Williams Walsh, “Obama Offers a Transit Plan to Create Jobs,” The New York Times September 7, 2010.

Britain’s Public-Private Partnership built enormous financing charges into the cost of providing transport. London could have built the tube extension without running up public debts to the banks, paying the construction costs by funding the higher rent-of-location. America could do the same. In fact, in times past the United States financed public infrastructure out of progressive taxation that fell mainly on the wealthy, and by monetizing the budget deficit. But under Obama’s plan, the rental value is to be capitalized into interest payments or simply kept by well-placed landowners.

It looks like President Obama sat down with Larry Summers, Tim Geithner and his other Rubinomics holdovers from the Clinton/Goldman-Sachs Administration and asked what policies can be funded without taxing the wealthy, but by borrowing via a separate entity – with a government guarantee like the Fannie Mae and Freddie Mac gravy train for Wall Street.

The cover story is always that giveaways to the wealthy are needed to employ labor. (“Wall Street creates jobs.”) The Democratic excuse these days is that the economy won’t work without providing financial investors with “incentives.” The Democratic Leadership Council helped President Clinton accept the world as it is, rife with the fraud, crime and the proverbial free lunch as part and parcel of how the economy works. This certainly is how to attract campaign contributors and the Wall Street lobbyists that are designing today’s right-wing shift by Washington.

After its $13 trillion giveaway to Wall Street, the government has little debt-creating ability left in its budget to create jobs by public spending. Or so we are told. The giveaway money has not been lent out as promised to “get America back to work.” It has been paid out as bonuses to the bailed-out campaign contributors on Wall Street – and make offenders such as Bank of America and Citibank for their purchases of Countrywide, Wacovia and Washington Mutual (Wamu) whole for junk mortgages, on the pretense that a “sound banking system” is needed to get the economy moving again – the euphemism for pushing it further into debt.

But if there was so much money for bailouts, why is there any need to finance the fairly modest $50 billion transport initiative by borrowing instead of funding it out of the general budget?
There is no such need, of course. The program is simply an excuse for re-introducing Reaganomics as if the aim this time around is to “create jobs.” The way that Obama proposes to do this threatens to price American labor even further out of world markets, by raising the cost of getting to work, and of renting or going into debt to buy homes and offices near the new transportation hubs. And I suspect that as in Britain, the new public-private agency will be non-unionized. Britain’s Public-Private Partnership still looms as the dress rehearsal for what we are getting into.

Whitney: Another One for the Gipper

Mike Whitney's got more disillusioning news for Americans who thought they were voting for change.  (editor)

The Fed's Beige Book, which was released on Wednesday, provides a sobering look at an economy that is sputtering-along on empty. Nearly all the districts reported slower activity amid "widespread signs of deceleration". The stimulus-fueled rebound which powered GDP above 5% two quarters earlier, has progressively dissipated slashing growth to an anemic 1.6%. As underemployment has soared to 16.5% and deflation has continued to tighten its grip, all talk of a "recovery" has ceased and policymakers have grown more tentative, unwilling to do anything that might cost them votes in the upcoming midterm elections.

Housing prices--which had been holding steady for nearly a year--have started to lose ground following the expiration of the homebuyer tax credit at the end of June. According to economist Joseph Stiglitz, "The foreclosure rate is increasing. Two million Americans lost their homes in 2008, and 2.8 million more in 2009, but the numbers are expected to be even higher in 2010." Residential construction activity has slowed to a crawl across the country as housing appears set for another leg down.

Not one sector of the economy is thriving. Everywhere demand is weak; from retail to real estate, from car sales to electronics, from manufacturing to exports. It's a wasteland.

The Obama administration has given up on stimulus and settled on an aggressive new campaign strategy. They've jettisoned "Recovery Summer" and shifted into full attack-mode. On Wednesday in Ohio, Obama delivered a blistering speech that rallied the Party faithful and left the GOP reeling in surprise. Here's an excerpt:

"I ran for President because for much of the last decade, a very specific governing philosophy had reigned about how America should work: Cut taxes, especially for millionaires and billionaires. Cut regulations for special interests. Cut trade deals even if they didn’t benefit our workers. Cut back on investments in our people and our future – in education and clean energy; in research and technology. The idea was that if we had blind faith in the market; if we let corporations play by their own rules; if we left everyone else to fend for themselves, America would grow and prosper.

For a time, this idea gave us the illusion of prosperity. We saw financial firms and CEOs take in record profits and record bonuses. We saw a housing boom that led to new homeowners and new jobs in construction. Consumers bought more condos and bigger cars and better televisions.

But while all this was happening, the broader economy was becoming weaker. Job growth between 2000 and 2008 was slower than it had been in any economic expansion since World War II – even slower than it’s been over the past year. The wages and incomes of middle-class families kept falling while the cost of everything from tuition to health care kept rising. Folks were forced to put more debt on their credit cards and borrow against homes that many couldn’t afford in the first place. Meanwhile, a failure to pay for two wars and two tax cuts for the wealthy helped turn a record surplus into a record deficit."

Notice how skillfully Obama absolves himself and his party of any blame in the crushing of the middle class and wrecking the economy. Many believe that both parties are equally culpable. And why the sudden transformation from president milquetoast to Jake LaMotta? Is Obama genuinely upset or is it just more political theater? Maybe Obama thinks he can avoid a GOP landslide by castigating the Republicans in public rather than pushing another stimulus bill through congress or closing down Guantanamo? In any event, a spirited bout of political mud-wrestling is bound to be more entertaining than two months of grandiose oratory and visions of the Elysian Fields.

Obama's speech sent up howls from the usual quarters. The Wall Street Journal took issue with Obama's "combative" style and dismissed the speech as "red meat" for disillusioned Democrats. The WSJ's editorial page, which serves as the stomping-grounds for the nation's far right ideologues, denounced the speech as "low rent rhetoric". And, while the president did provide some details of a $50 billion infrastructure upgrade and $200 billion in new tax breaks for small business, there's no mistake that the speech was meant to kick off the 2010 campaign season in grand style with a broadside aimed at the GOP leadership.

Obama must know by now that his abysmal performance has left downcast Dems with no reason to drag themselves to the voting booths in November. In the last few weeks the administration has been frantically trying to link together mini-events to create the impression that Obama is still serious about "change". The appearance of Mahmoud Abbas and Benjamin Netanyahu at the White House was a particularly cynical attempt to show that Obama is involved in an issue that is of vital importance to many of his supporters. The so called "summit" was nothing more than a photo op intended to establish Obama's bone fides as a peacemaker. But Obama was unable to get any concessions from Israel, so the public relations scheme fizzled without any real sign of improvement.

Perhaps developments in the Middle East don't matter--except of course to the small group of "professional leftists" that Obama has publicly repudiated already. What matters to most voters is the economy, and clearly, the outcome of the midterms will be decided on the condition of the economy and, more specifically, on jobs. On that front, there's both good and bad news. The nonpartisan Congressional Budget Office (CBO) recently released a report confirming that the American Recovery Act (aka--Obama's fiscal stimulus) did exactly what it was designed to do. It lowered unemployment by about 1.5%, provided jobs for roughly 2.5 to 3 million people, and increased GDP between 1.7 percent and 4.2 percent. Also, former Fed governor Alan Blinder and economist Mark Zandi released a report which showed that--without the emergency actions of the Fed and Obama administration--GDP would have plunged 12% rather than 4%, and unemployment would have skyrocketed to 16.5%. (rather than 9.6%) The two conservative economists concluded that, absent the monetary and fiscal stimulus, the budget deficits would have exceeded $2,600 billion in fiscal year 2011, nearly twice present projections. Bottom line: The stimulus and bank recapitalization programs worked. (although the TARP clearly rewarded crooked bankers who triggered the financial crisis)

Obama can also boast that (according to economist Robert Shapiro) of the 8.5 million jobs that were lost in the downturn, 7,800,000 of those jobs or 92 percent were lost either on Bush's watch or the first 6 months of the Obama administration. (before his policies were enacted) In other words, Obama can only be held accountable for about 41,000 lost jobs, while the Republicans are responsible for roughly 8 million jobs.

Even so, there's no indication that the job's situation is turning around anytime soon. Last Friday, the Labor Department reported that 67,000 new private sector jobs were created in August, a notable improvement. Unfortunately, at least 125,000 are needed to keep up with the growth of the potential work force. That means the economy will have to grow at a 2 to 2.5% GDP before we see a real decline in the jobless figures. And, now that the Fed and the administration are focused on "belt tightening", it is unlikely that the government will provide the necessary resources to dig out of the hole the country finds itself in. Gluskin Scheff's David Rosenberg summed it up like this,

"We are currently experiencing the recession with the slowest job creation in history. And based on our prior estimates, the recession will last around 85 months before we regain the unemployment rate seen at the onset in December 2007."

Meanwhile, the social safety net continues to get more and more frayed as the slump persists. Homeless shelters and food banks are stretched to the max while the Department of Agriculture’s Supplemental Nutrition Assistance Program (aka--the food stamps program) reports that 41 million people--more than one in eight people--now need government assistance to feed themselves and their families. That's up 10% from last year.

Ordinary working people are hurting bigtime, still waiting for the prophet Obama to lead them to the promised land. But Obama has abandoned "Big Government" as the answer, whether it be a second round of stimulus, government jobs programs, or expanded welfare assistance. He'll have none of it. Sure, he'll playfully joust with his GOP rivals, but he'll never seriously diverge from the path cleared by his ideological twin, Ronald Reagan.

Roberts: They Lied, the Economy Died

Paul Craig Roberts was an editor of the Wall Street Journal and an Assistant Secretary of the U.S. Treasury.

Having just returned from nearly a month in China, where everywhere I went the visible signs of strong and steady growth prevailed, I can attest to the gains job offshoring and relocation of manufacturing have brought the Chinese.

Returning to LAX from Beijing's spectacular airport, I understood what it is to visit a third world country! (editor)

If the government will lie to you about Iraqi weapons of mass destruction, Iranian nukes, why won’t they lie to you about the economy?

On August 17, Bloomberg reported a US government release that industrial production rose twice as much as forecast, climbing 1 percent. Bloomberg interpreted this to mean that “increased business investment is propelling the gains in manufacturing, which accounts for 11 percent of the world’s largest economy.”

The stock market rose.

Let’s look at this through the lens of statistician John Williams of shadowstats.com.

Williams reports that “the primary driver of a 1.0% monthly gain in seasonally-adjusted July industrial production” was “warped seasonal factors” caused by “the irregular patterns in U.S. auto production in the last two years.” Industrial production “shrank by 1.0% before seasonal adjustments.”

If the government and Bloomberg had announced that industrial production fell by 1.0% in July, would the stock market have risen 104 points on August 17?

Notice that Bloomberg reports that manufacturing accounts for 11 percent of the US economy. I remember when manufacturing accounted for 18% of the US economy. The decline of 39% is due to jobs offshoring.

Think about that. Wall Street and shareholders and executives of transnational corporations have made billions by moving 39% of US manufacturing offshore to boost the GDP and employment of foreign countries, such as China, while impoverishing their former American work force. Congress and the economics profession have cheered this on as “the New Economy.”

Bought-and-paid-for-economists told us that “the new economy” would make us all rich, and so did the financial press. We were well rid, they claimed, of the “old” industries and manufactures, the departure of which destroyed the tax base of so many American cities and states and the livelihood of millions of Americans.

The bought-and-paid-for-economists got all the media forums for a decade. While they lied, the US economy died.

Now, back to statistical deception. On August 17 the census Bureau reported a small gain in July 2010 residential construction housing starts. More hope orchestrated. In fact, the “gain,” as John Williams reports, was due to a large downward revision” in June’s reporting. The reported July “gain” would “have been a contraction” without the downward revision in June’s “gain.”

So, the overestimate of June housing not only made June look good, but also the downward correction of the June number makes July look good, because starts rose above the corrected June number. The same manipulation is likely to happen again next month.

We now have an all-time high of Americans on food stamps, 40.8 million people, about 14% of the population. By next year the government estimates that food stamp dependency will rise to 43 million Americans. So last week Congress cut food stamp benefits. Let them eat cake.

Wherever one looks--food stamps, home foreclosures, bankrupted states, mounting joblessness, the message to long-suffering Americans from “their government” is the same: go eat cake, while we fight wars for Israel that enrich the military/security complex and while we bail out banksters whose annual incomes are in the tens of millions of dollars and up.

It is impossible to get any truth out of the US government about anything. If private companies used US government accounting, the executives would be prosecuted, convicted, and incarcerated.

“Our government” is committed to fighting wars to enrich the military/security complex and Israel’s territorial expansion at the expense of cuts in Social Security and Medicare.

All most members of Congress, especially Republicans, want to do is to pay for the pointless wars by cutting Social Security and Medicare.

When they worry about the deficit, it is usually Social Security and Medicare--so-called “entitlements” that are in the crosshairs.

You don’t have to be smart to see that Wall Street’s and the government’s response to the amazing US budget deficit is not to stop the senseless wars and bailouts of mega-millionaires, but to cut “entitlements.”

I will end this column on unemployment. “Our government” tells us that the unemployment rate is just under 10 percent, a figure that would have wrecked any post-Great Depression administration. But, again, “our government” is lying.

Compare this fact with the number you read from the financial press. Right now, if measured according to the methodology of 1980, the US unemployment rate is about 22%. Thus, the reported rate of unemployment hides more than half of the unemployed.

And Secretary Treasury Tim Geithner welcomed us in the August 2 NewYork Times to “the recovery.”

Utterly amazing.

Green: On the Road to Serfdom

David Michael Green is a professor of political science at Hofstra University in New York.  (editor)

Let’s be honest: We live in stunningly, jaw-droppingly, ridiculously absurd political times.

Here’s the story in a nutshell: A far-right predatory overclass has spent the last thirty years undoing the hard-fought gains of the mid-twentieth century, which had produced a robust middle class and vastly more economic and social justice in America than the country had ever known before.

These regressives used every kind of deceit imaginable to persuade unsophisticated voters to choose candidates whose real agenda was to assist their plutocratic puppetmasters in fleecing the very same people who voted for them.

Such candidates ran on issues like the death penalty, immigration, bogus wars, gay marriage and abortion. But what they really were about as legislators was exporting jobs to where workers are dirt cheap and politically neutered, crashing organized labor, shifting the tax burden onto the mass public, deregulating industry to allow unhindered profit-taking on the upside and socialized public responsibility for risk on the downside, and locking in a Supreme Court majority that would never blanch at even the most outrageous rulings enhancing corporate power in American society.

If the product of this slow and silent coup wasn’t so bloody and so ruinous to so many lives, you’d really have to hand it to these guys for their political acumen and patience. It took a while, and it required the building of a broad and robust infrastructure, spanning from mainstream media to talk radio and TV to think-tanks to Congress, the presidency and the judiciary, to the GOP and now to the Democratic Party as well, but they have pretty much completely succeeded in grabbing all the levers of power in our society.

They dominate its discourse entirely, and they have been almost completely successful to date in securing all the elements of their legislative, regulatory and jurisprudential agenda, at least to this point (how far they ultimately intend to go isn’t clear – the US as Honduras, perhaps? – but it’s unlikely to be pretty).

Perhaps the only major exception to that rule was their 2005 failure to privatize the vast pool of public money sitting in the Social Security coffers, which they lust over lasciviously, like teenage boys inhaling online porn by the bucketful.

The product of these efforts has been precisely what one would expect. Corporations and economic elites have grown fantastically more wealthy than they already were thirty years ago. Their tax liabilities are now negligible and sometimes less than zero.

Massive national debt, the product in part of those tax gifts to the rich, plus huge bills for interest on that debt (this alone is one of the largest items in the federal budget each year), is now owned by the mass public, who got nickels and dimes worth of tax cuts, in exchange for which they will now have to literally work years of their lives to pay down the taxes the rich escaped.

Working people across the country get less and pay more for everything today. College is becoming increasingly out of the financial reach of average Americans. The minimum wage, which actually often isn’t the minimum, is far from a sustainable salary for one person, let alone a family.

As of 2004, the richest one percent of Americans possessed sixty percent of all wealth in the country, while the bottom forty percent accounted for a whopping two-tenths of a percent. Between 1979 and 2004, after-tax income for the top one percent of Americans rose by 176 percent, while for those in the bottom 20 percent that figure rose only six percent. And those figures are for six years ago, during what by current standards was flush times for working people.

Now jobs are disappearing, with the inevitable effect of driving wages down further, not to mention all the obvious effects on prosperity, security, health, mental health and sheer longevity.

Meanwhile, just the approach to regulation alone has produced three monstrous attacks on American society as a direct result. First the recession-starting-to-become-a-depression and all its devastation, then the recent mining disaster, and now BP’s WMD attack on the Gulf Coast states.

What all of these have in common is a government regulatory apparatus that over time transitioned from a public service mission into deference to those supposed to be regulated, and then from deference for the corporate sphere into constituting a straight-out satellite office of the corporations themselves, literally having business supposed ‘regulatees’ fill out their own monitoring forms in pencil, to be inked in later by the planted shills in government.

Hundreds of thousands of Americans have been wiped out by these actions and the public is paying for its own thrashing through bail-out funds. I’m sorry, but in what sense is this not treason?

Okay, so far so bad. Nothing particularly Alice-In-Wonderlandy or especially novel about rampant greed, is there? But what’s really bizarre to the point of being a fully hallucinogenic experience that really should come under the supervision of the Controlled Substances Act is the effect that this has had on politics.

Could there ever be a moment when right-wing ‘economics’ have been so thoroughly and manifestly repudiated? Could there ever be more overt examples of corporate greed gone nuclear? Could the repercussions of these policy decisions ever more clearly have wrecked the lives of economically insecure ordinary Americans?

No, no and no. All this is as obvious and predictable as sunrise. And yet... Here we find ourselves in this remarkable and remarkably absurd position where the folks who not only created this monster, who not only have worked assiduously to prevent any solutions to the destruction they’ve wrought, and who now also promise even more of the same – these very folks are poised to win resounding electoral victories in November. And the folks who will be voting for them will once again become victims of their predations.

And the folks in Congress and the White House they’ll be voting against – supposed socialist-fascists (whatever strange Janus-faced zoological beast that would look like if it actually existed) – are in fact just about the most pro-plutocrat government imaginable. But they’re going to get stomped by voters for being socialists.

How on earth did this happen?

Well, to start with, it happened because it was intended to happen. As described above, this is the product of a broad, concerted and patient effort by the radical right to capture and control American government, and it has worked remarkably well, especially when one considers the sheer amount of deceit required to pull it off. It’s like trying to sell a cocktail of Dirt Drink mixed with Sawdust Soda to a man dying of thirst. But it can be done, and we know that because the process is now all but complete.

When even John McCain refers to Congress “the best government that money can buy” you know you’re really hurting, pal.

As for that Trotskyite socialist in the White House, well he’s staffed his economic team directly out of Goldman Sachs’ boardroom, he bails out mega-banks one hundred cents on the dollar without even requiring that they loan money, he wrote a health care bill that forces thirty or forty million Americans to buy a product from bloated thieving insurance companies whether they want it or not, and he has dramatically increased spending on an already astonishingly distended military, while remaining essentially silent about (meager but essential) unemployment benefits right now in the process of terminating for millions of Americans.

Yeah, baby – that socialist. “Workers of the world unite” is definitely what they rap about at White House cabinet meetings. Geithner, Summers, Gates – all those revolutionary syndicalists can’t talk it up enough. Then they sing “The Internationale”.

Clearly, the political branches of the US government have been fully captured by monied elites. Perhaps scariest of all, however, is the newly emboldened ultra-radical majority on the Supreme Court (that description is not reckless hyperbole used for effect – look at what they’ve done in cases like Bush v. Gore, Ledbetter and Citizens United, and watch what they do in the coming years – it will be astonishing in its scope, radicalism and hypocrisy).

After decades of histrionic lies about supposed objections to judicial activism (what they really hated was the impudent offense of an elite court handing down liberal decisions and siding with mere mortals in American society, period), they have now kicked out the jambs to expand the practical definition of the ‘activism’ term beyond all recognition.

Lori Blatt, former attorney in the Solicitor General’s Office, put it best: “They are fearless. This is a business court. Now it’s the era of the corporation and the interests of business.”

No case underscored this tendency better than Citizens United, of course, where the regressive majority was so blatantly activist that they literally told the stunned litigants to go home, come back in a month and reargue the case around a far, far bigger question than was at stake for the parties involved, and then sweepingly cast aside long existing law in order to blow blitzkrieg-size breaches in the barriers that had previously controlled corporate influence of elections.

The only case that can rival this one for utterly transparent activism seeking a regressive outcome is Bush v. Gore, in which the right-wing bloc simultaneously violated three of their own cardinal tenets – judicial restraint, states’ rights, and hostility to civil rights principles – in order to require vote counting be stopped (say what?!) and to crown the mentally deficient dauphin as king.

It could hardly be clearer that the Roberts Court ominously completes the troika of the right-wing governmental coup.

But there are other reasons we’re in this state, as well. Think about Barack Obama and the Democrats for a second, and then try applying Ms. Blatt’s phrase, “They are fearless”, to those folks.

Now pick yourself up the floor. Change the underwear you just soiled from laughing so hard. Wring out the hanky you just soaked from sobbing so relentlessly. Part of why we’re in this mess is that Democrats wouldn’t know what guts looked like if they were all board-certified gastrointestinal surgeons.

But, of course, to complain that “the people’s party” lacks sufficient courage of their convictions assumes that they have any. The good news is that they do, as a matter of fact. The bad news, however, is that those convictions can be reduced neatly down to two: serving themselves and serving the nice folks who donate money to get them elected.

It’s a bit of a problem when the gang who are meant to protect us from the crimes of the GOP are nearly indistinguishable from Cheney’s thugs, apart from stylistically. Democrats are happy to give you a little kiss on the cheek before they screw you. Republicans prefer to just get on with the assault.

Then there’s the media in this country which is, of course, beyond hopeless. Watching Rachel Maddow the other month throwing a few medium-speed hardballs at Rand Paul only served to remind me just how rare it is for any of these pathetic hacks to actually do their job, as opposed to doing the cash-driven bidding of those in power, especially tough-guy Republicans who must get plenty of laughs out of how easy it is to bully the Washington press whores – er, sorry, I mean press corps.

There’s nothing quite so self-made as the disasters of Election 2000 and the Iraq invasion of 2003, and the absence of any sort of serious media scepticism in those cases simply illustrates how utterly worthless the press truly are. Except, of course, as excellent public relations specialists for plutocrats.

These days it seems like the only outlet doing anything approaching serious journalism is Rolling Stone. As to what it says about American society and journalism that you have to wade through cover photos of Lady Gaga’s full-on unclad posterior to find out the lies our government is telling us, well, I’ll leave that to you.

But clearly the neutering of the obedient profit-motivated media has worked spectacularly. One of the key fronts in this class warfare conducted by the wealthy in America has been with respect to framing.

For three decades now, all we’ve heard is how government is a screw-up and how heroically efficient are the captains of industry in the private sector. The way regressives trash our own government in a democracy would certainly have seemed traitorous in another day. Just imagine if you said the same things about the military, which seems to miraculously escape the right’s attention as the biggest and most famously wasteful government bureaucracy of all.

Moreover, looking back over Korea, Vietnam, Iraq and Afghanistan, not just a small bit of the curtain has been pulled back from the notion of the military’s supposed infallibility. It’s been two-thirds of a century since the United States won a big war against a serious adversary, and even then the Russians did the heavy lifting, at least in Europe. Somehow we never hear much about big, incompetent government in that context, though.

But, hey, forgive my little flight into logical analysis there. We really cannot have that in these times. For a minute there, I forgot to forget. It won’t happen again, Mr. O’Brien, I assure you.

From now on, up is down, black is white, war is peace, government is bad and corporations are purveyors of Happy Meals (happy, that is, unless you happen to be a cow, like having small businesses around, have a problem with obesity, don’t want your planet to catch fire, or object to the creation of massive great lakes full of animal waste).

Yep, big business is good! That’s why we need to apologize to BP for our government “shaking them down” and forcing them to be slightly-barely-kinda-nominally-sorta responsible for their ecological and economic epic disaster in the Gulf. Get it?

But the other sad truth is that, at the bottom of this roll call of nefarious predators – under every Cheney and Obama and Brian Williams and Lloyd Blankfein doing (his green) god’s work, is a great big stinking pile of yahoos better known as “Us”.

We’ll vote Republican this fall because we utterly lack the intellectual curiosity to investigate other options. We’ll vote Republican because we’re greedy and lazy and willing to step on anyone’s throat to get our little slice of prosperity back. We’ll vote Republican as if we weren’t only two years ago just absolutely counting down every second until the previous government packed up and left town. You know, the er, uh, Republicans.

But I have just one question for my fellow Americans before they step into that voting booth. The truth is that what ails us now is exactly what y’all have been voting for over the last three decades. The truth is that if you vote Republican in November it will all only get worse. The truth is that you’re living the regressive dream just now, right as we speak.

We’ve let corporations run wild. We’ve decimated the government whose function it was to regulate them in the public’s interest. We’ve shifted a very large pile of your money into the hands of the richest one percent of us, and given you and your kids loads of government debt to pay off in exchange. We’ve shipped your job off to China or India. We’ve completely immunized all branches of your government from any form of influence other than from rapacious plutocrats.

So my question is, fellow Americans, now that we’ve all had a nice heaping helping of what regressive politics means for us real people down here below the stratosphere, “How’s that recessioney, oily thing working out for ya?”

Simon Johnson: The Toxic Waste of Morality

The US financial sector received an unconditional bailout – and is not now facing any kind of meaningful re-regulation.

We are setting ourselves up, without question, for another boom based on excessive and reckless risk-taking at the heart of the world’s financial system. This can end only one way: badly.

Informed opinion is sharply divided about how the next 12 months will play out for the global economy. Those focused on emerging markets are emphasizing accelerating growth, with some forecasts projecting a 5% increase in world output. Others, concerned about problems in Europe and the United States, remain more pessimistic, with growth projections closer to 4% – and some are even inclined to see a possible “double dip” recession.

This is an interesting debate, but it misses the bigger picture. Whether the world economy grows now at 4% or 5% matters, but it does not much affect our medium-term prospects.

In response to the crisis of 2007-2009, governments in most industrialized countries put in place some of the most generous bailouts ever seen for large financial institutions. Of course, it is not politically correct to call them bailouts – the preferred language of policymakers is “liquidity support” or “systemic protection.” But it amounts to essentially the same thing: when the chips were down, the most powerful governments in the world (on paper, at least) deferred again and again to the needs and wishes of people who had lent money to big banks.

In each instance, the logic was impeccable. For example, if the US hadn’t provided essentially unconditional support to Citigroup in 2008 (under President George W. Bush) and again in 2009 (under President Barack Obama), the resulting financial collapse would have deepened the global recession and worsened job losses around the world. Similarly, if the eurozone had not stepped in – with the help of the International Monetary Fund – to protect Greece and its creditors in recent months, we would have faced further financial distress in Europe and perhaps more broadly.

In effect, there were repeated games of “chicken” between governments and major financial institutions in the US and Western Europe. The governments said: “No more bailouts.” The banks said: “If you don’t bail us out, there will most likely be a second Great Depression.” The governments thought briefly about that prospect and then, without exception, blinked.

Creditors were protected and financial sectors’ losses were transferred to the domestic government (as in Ireland) or to the European Central Bank (as in Greece). Elsewhere (the US), the losses were covered up with a great deal of regulatory “forbearance” (i.e., agreeing to look the other way while banks rebuild their capital by trading securities).

And it worked – in the sense that we are now experiencing an economic recovery, albeit one with a disappointingly slow employment rebound in the US and some European countries. So what is the problem with the policies of 2007-2009, and why can’t we just plan on doing something similar in the future if we ever face a crisis of this nature again?

The problem is incentives – what bailouts imply for attitudes and behavior within the financial sector. The protection that was extended to banks and other financial institutions since summer 2007, and more comprehensively since the failure of Lehman Brothers and AIG in September 2008, sends a simple signal. If you are “big” relative to the system, you are more likely to get generous government support when there is system-wide vulnerability.

How big is “big enough” remains an open and interesting question. Major hedge funds are presumably looking for ways to become bigger and take on “systemic importance.” Ideally – from their point of view – they will bulk up without attracting regulatory scrutiny, i.e., no ex ante limits on their risk-taking activities will be imposed. If all goes well, these hedge funds – and of course the banks that are already undoubtedly Too Big to Fail (TBTF) – get a great deal of upside.

Of course, if anything goes wrong, everyone who is TBTF – and who has lent to TBTF firms – expects to receive government protection. This expectation lowers the cost of credit for megabanks today (relative to their competitors, which are small enough that they are more likely to be allowed to fail). As a result, all financial institutions gain a powerful incentive to bulk up (and borrow more) in hope of also becoming bigger and therefore “safer” (from creditors’ point of view, not from a social perspective.)

Top US policymakers acknowledge that this structure of incentives is a problem – interestingly, many of their European counterparts are not yet willing even to discuss these issues openly. But the rhetoric from the White House and the Treasury Department is “we have ended TBTF” with financial reform legislation currently before Congress and likely to be signed by Obama within a month.

Unfortunately, this is simply not the case. On the critical dimension of excessive bank size and what it implies for systemic risk, there was a concerted effort by Senators Ted Kaufman and Sherrod Brown to impose a size cap on the largest banks – very much in accordance with the spirit of the original “Volcker Rule” proposed in January 2010 by Obama himself.

In an almost unbelievable volte face, for reasons that remain somewhat mysterious, Obama’s administration itself shot down this approach. “If enacted, Brown-Kaufman would have broken up the six biggest banks in America,” a senior Treasury official said. “If we’d been for it, it probably would have happened. But we weren’t, so it didn’t.”

Mike Whitney: Acropolishment?

Back in the day, "Uncle Tom" was a term reserved for those who went along and didn't oppose their masters.  Is our president the slave of current  financial oligarchs like Jamie Dimon at JP Morgan-Chase?

As his administration balks at breaking up financial institutions "too big to fail" and caves to Wall Street's lobbyists on amendment after amendment meant to strengthen his and Dodd's anemic financial reform bill, Obama is rapidly forfeiting any right to repeat his claim to represent "change you can believe in."  (editor)

The banking system is still so weak that the President of the United States has to spend his whole weekend hectoring heads-of-state throughout Euroland to beef up their bailout or the whole financial system will come crashing down.

Despite the news this week that all four of the nation's biggest banks (Bank of America, Goldman Sachs, JP Morgan, and Citigroup) racked up perfect quarters off their trading desks, (showing that the Fed's liquidity and zero-rates has restored profitability) Barack Obama must have been very frightened, indeed. Otherwise he never would have inserted himself so forcefully into Greece's debt crisis.
 
The truth is, there's much more at stake than people seem to realize. A Greek default would be a major blow to the banking system and the damage would not be limited just to Europe. It could easily spread to the United States and trigger another meltdown.

Obama's concern is that a Greek default will put pressure on French and German banks (which have 110 billion-euro exposure) that will start the dominoes tumbling again.

According to Dow Jones,

"JP Morgan's holdings of non-U.S. government bonds increased by $36.5 billion in 2009, while Citigroup's increased by almost $40 B." ("The European Bailout", James Hamilton, Econbrowser)

That's why Obama spent most of his weekend on the phone, exhorting EU finance ministers to take swift action.  And that explains why the Federal Reserve reopened its controversial swap lines with European central banks, providing unlimited short-term loans in dollars for collateral to prop up the euro and exposing the US to tens of billions in potential losses without congressional approval.

Not surprisingly, the details were omitted in the US media.  Here's an excerpt from the UK Independent explaining what happened behind the scenes last weekend:

"As the dust settles and the markets cool, details are beginning to emerge of the frantic background negotiations which generated the €750bn plan to save the euro in the early hours of Monday.....the most startling – and most pivotal role – may have been played by Barack Obama, according to both American and French officials. He convinced the Europeans that it was time not just to Do Something, but to Do Something Very Big, to rescue the euro and prevent the world from plunging into another financial crisis and recession..... It was after these calls that the headline figure for the EU rescue plan inflated rapidly to €500bn, plus another €250bn from the IMF."  (John Lichfield, Independent)

The Telegraph's Ambrose Evans-Pritchard tells a similar tale, but with a twist. In this incident, Obama spoke directly to Spanish Premier Jose Luis Zapatero. Here's an excerpt from the Telegraph:

"Premier Jose Luis Zapatero told a stunned nation that public sector pay will be reduced by 5 percent this year and frozen in 2011...Pension rises will be shelved. The country’s €2,500 baby bonus will be canceled. Aid to the regions will be slashed and infrastructure projects will be put on ice....

“US President Barack Obama played a key role behind the scenes, pleading with Mr Zapatero for ‘resolute action’. The telephone call from the White House is a clear indication that contagion from Greece and Portugal to the much larger debt markets of Spain had become a global systemic threat by late last week.

"The markets were going in for the kill: the eurozone itself was on the brink of collapse," said Jose Garcia Zarate from 4Cast."   (Ambrose Evans-Pritchard, Telegraph)

Is that why Obama was twisting arms all Saturday and Sunday, because he thought the EU might collapse?  And is that why ECB chief Jean Claude Trichet reversed his position on monetization and agreed to initiate an EU quantitative easing (QE) program that would buy up government and corporate bonds?

What's clear, is that very little of last weekend's behind-the-scenes maneuvering had anything to do with the problems facing ordinary Greeks, who are merely the victims in this latest bank bailout fiasco.

Greece will not escape default, so it's not in its long-term interests to stick with the euro. That just ensures years of high unemployment, severe cuts to public spending, and never-ending recession. A return to the drachma would provide an opportunity to restructure debt and regain fiscal equilibrium via devaluation. It would give Greek exports and tourism a boost by making them instantly cheaper. The fact that the Greek “rescue” and kindred efforts in Spain, Portugal and other tottering economies is designed to bail out bankers and the rich and sock it to ordinary people was well explained by Michael Hudson, and also by T.P. Wilkinson, on Counterpunch last week.

No country large or small has managed to close a fiscal gap as large as 10.9 per cent of GDP (which is what Greece is being asked to do.) It's cruel, especially in an environment where deflation is gradually tightening its grip. Greece needs counter-cyclical fiscal stimulus to get out of the hole its in and to grow its way out of recession. The EU plan implements an anti-Keynesian regimen that is the exact opposite of Obama's American Recovery and Reinvestment Act (ARRA) the $787 billion fiscal stimulus package to build aggregate demand and lower unemployment. The EU has no funding mechanism to implement such a plan, so it is prescribing extreme austerity measures instead. It's stupid, cruel and won't work, except as a short-term shot for the banks.

Greece didn't create this crisis by itself anyway. It had help from Germany. Germany dictates monetary policy in the EU, which means that it bears much of the responsibility for the deficit-mess in the south. Of course, now that the countries that enriched Berlin (by gobbling up their exports) are flailing about in red ink, German politicians have started lecturing them about the evils of profligate spending. Here's how Michael Pettis sums it up:

"The strong euro and burgeoning liquidity it brought on meant that much of Germany’s trade surplus had to be absorbed within the eurozone, forcing especially southern Europe into high trade deficits. These deficits were dismissed, very foolishly it turns out, and against all historical precedents, as being easily managed as long as the sanctity of the euro was maintained.....

“As I see it, domestic German policies, perhaps aimed at absorbing East German unemployment, forced a structural trade surplus. The strong euro, along with the automatic recycling of Germany’s large trade surplus within Europe, ensured the corresponding trade deficits in the rest of Europe – unless Europeans were willing to enact policies that raised unemployment in order to counter the deficits. As long as the ECB refused to raise interest rates, southern Europe had to accept asset bubbles and rapidly rising debt-fueled consumption.

“This couldn’t go on forever, or even for very long. Now southern Europe is paying the inevitable price, and of course the moralists are accusing the south of being shiftless and lazy, confusing the automatic balancing mechanisms in the balance of payments with moral weakness." (Michael Pettis, China Financial Markets)

Only a small portion of the nearly $1 trillion bailout will go to Greece. And, even that pittance comes with strict "belt-tightening" conditions. The bulk of the funds will be held in an structured investment vehicle (SIV) as a way to ward off speculators who smell blood in the water and think they can make a killing by toppling sovereign bond markets in Portugal, Spain and Italy.
What does that tell us? It tells us that the whole "recovery" meme is a fraud. It tells us that the banks (where lending is down 20 per cent, and foreclosures are running at 300,000 per month) are once again engaged in the riskiest type of speculation; that they're using complex financial assets and repo to maximize leverage to goose profits in the middle of a slump.

And, it tells us that Obama is Wall Street's biggest champion, a real "enabler" in chief.

Dean Baker: Apologia pro Novus Ordo

"Shame on you.  It's your own fault.  Now, learn to live with it."   Or so the great Thomas Friedman at the New York Times would have it. 

Now and then Dean Baker really nails it.  His daily blog, Beat the Press, regularly pulls down the pants of writers at the NYT and Washington Post who reach absurd conclusions based on stupid premises.

But this post succinctly lays out the difference between the new ideology of the financial elites and the rest of us.  Baker pokes one big hole in this windbag's defense of the master class. 

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, including False Profits: Recovering from the Bubble Economy. (editor)

May 8, 2010

You get paid a really big premium for ignorance at the NYT, just ask Thomas Friedman who undoubtedly gets paid more than 99 percent of his generation. Thomas Friedman likes to tout the fact that there are still good paying jobs for people without skills in every column he writes.

He's in top form today, getting just almost everything wrong about the current economic situation as he tells readers: "My generation, 'The Baby Boomers,' turned out to be what the writer Kurt Andersen called 'The Grasshopper Generation.' We’ve eaten through all that abundance like hungry locusts."

Of course those who know anything about the economy know that the vast majority of baby boomers have not fared especially well. In the years before the baby boomers entered the workforce wages for most workers rose consistently between 1-2 percent a year, after adjusting for inflation. However wages began to stagnate in the mid-70s, when the oldest baby boomers were in their mid-twenties and the youngest were not yet teenagers. Baby boomers entered this labor market and most saw very little gain in living standards relative to what their parents had. Many had to go heavily into debt to buy and hold a home, to send their kids through college or to cover the cost of a serious illness.

There were gains in living standards during the last three decades, but they overwhelmingly went to the people at the top. This included the Wall Street crew, corporate executives, highly educated professionals, like doctors and lawyers, and elite columnists like Mr. Friedman. This was not an accident. These people designed economic policies that were intended to redistribute income upward. The government became openly hostile to unions. It pushed trade policies that made our factory workers compete with low-paid workers in Mexico and China while leaving our doctors and lawyers largely protected from the same sort of competition. The government also deregulated sectors like airlines, telecommunications, and trucking that offered good paying jobs for millions of workers without college degrees. The result of these and other deliberate policies was to ensure that most of the gains from productive growth went to those at the top rather than the vast majority of baby boomers.

Now the baby boom cohort is retiring. The vast majority have next to nothing to support themselves other than their Social Security. The vast majority of baby boomers do not have the defined benefit pensions that their parents did. They never had much money in 401(k) accounts and they lost much of what they did have in the stock crashes of 2000-2002 and 2008. More importantly, they lost most of their home equity, the major source of wealth for most families, with the collapse of the housing bubble.

We can blame the average auto worker, shoe salesperson and school teacher for not being smarter about the macroeconomy than Robert Rubin, Alan Greenspan, and other managers of economic policy, but the fact is that they made the mistake of listening to these people. They thought that stock prices and house prices would just keep rising forever. Sure, this was stupid, but Rubin, Greenspan and the rest were supposed to be really smart people, and it was their job to know the economy. Too bad Thomas Friedman was never smart enough to notice either the stock bubble or the housing bubble and to warn his readers.

Instead, Thomas Friedman wants to lecture us all about how we have been living too lavishly. We have to give up our Social Security and Medicare and accept lower living standards. This would be laughable except for the immense political power and the hundreds of billions of dollars that stand behind Friedman's agenda.

At the moment, the concern about deficits is painfully absurd. If only Friedman could learn the most elementary economics he would know that the economy's problem right now is too little spending, not too much. He probably hasn't noticed, but the unemployment rate is almost 10.0 percent. If we got frugal now, then the unemployment rate would go still higher -- of course that probably would not matter where Mr. Friedman lives.

Over the long-term we do face a problem with our broken health care system. This is the cause of our projected long-term budget problems. Of course fixing our health care system would hurt the health insurance industry, the pharmaceutical companies and highly paid medical specialists, so that is not on Mr. Friedman's agenda. Instead, he wants to tell school teachers and auto workers (both current and retired) that they have to tighten their belts. And, he gets paid big bucks for this.

Mike Whitney: Bernake's "Big Con"

They're back again with the second in the old two step. The final step to bailout the big banks that created all that toxic "securitized" mortgage debt.  

Step two is: stick the taxpayers with another $Trillion$ in worthless paper the Fed (that's a private institution remember) bought from the banks.  

Will they fool congress?  Will they fool the taxpayers?  Let Mr. Whitney explain just how they will. (editor)

The right-wing white paper mill, the American Enterprise Institute, is helping the Federal Reserve to develop a strategy to transfer $1.25 trillion in toxic mortgage-backed securities (MBS) and non performing loans onto the public's balance sheet. Although it's unknown whether Fed chair Ben Bernanke will act on the AEI's recommendations, it does show that the Fed's Quantitative Easing program (QE)--which moved the bulk of garbage assets from the banks to the Fed's balance sheet--poses long-term problems that will need to be addressed. Bernanke never intended to keep these assets any longer than necessary. Now he is actively exploring options for getting rid of them.

Ostensibly, the QE program was designed as the first leg in a two-step process to remove the bad paper from the banks balance sheets and then dump it on Fannie Mae and Freddie Mac as discreetly as possible. So far, Bernanke has been relatively successful in convincing people that he was buying the assets to increase lending, which was clearly never the objective. Quantitative Easing was a fraud from the get-go.

Here's an excerpt from the AEI's web page by the eerily-named "Shadow Financial Regulatory Committee" which explains what's going on:

"Freddie and Fannie have been placed in conservatorship and the Treasury has confirmed that their debt is now guaranteed by the U.S. Government. This means that their debt is essentially identical to Treasury debt. The Treasury could simply issue Treasury debt to Freddie and Fannie with the offsetting accounting transaction being an IOU to the U.S. Treasury. Freddie and Fannie could then swap the acquired Treasury debt for MBS held by the Federal Reserve. This transaction would have several desirable features. It would place housing debt on the books of Freddie and Fannie where it belongs and remove the Fed from financing U.S. housing policy, which is appropriately a fiscal policy and not a monetary policy function. This would also help to re-establish Federal Reserve independence from the Treasury and fiscal policy. Finally, it would free the Fed to device strategies to reduce its balance sheet by engaging in more traditional asset sales in the much deeper Treasury market where the pricing impacts would be smaller and would accommodate a more rapid reduction in excess reserves." ("Mortgage Backed Securities in the Federal Reserve’s Portfolio" Shadow Statement No. 294, American Enterprise Institute)

So, there it is in black and white: the committee believes that the "transaction would have several desirable features. It would place housing debt on the books of Freddie and Fannie where it belongs and remove the Fed" from any further obligation. Naturally, the Fed will need an excuse to justify what-amounts-to another gigantic bailout. The AEI thinks that the fear of inflation will do the trick, and they are probably right. Expect the Fed to mobilize its allies in the media to launch a public relations campaign that focuses on the imminent threat of hyperinflation. That way--when Bernanke dumps more than a trillion dollars of toxic sludge into Uncle Sam's mortgage-recycling center--he'll only be performing his statutory duties to maintain price stability.

There's nothing fancy about the AEI's strategy; it's a pretty straightforward "no frills" ripoff. Bernanke buys the garbage from the banks and then transfers it to the GSE's. No muss, no fuss.

It's a shame that congress can't figure this stuff out. Bernanke is merely acting as one would expect. He's bent-over-backwards to save the banks from nationalization and to keep their political and financial power intact. He's also usurped congress's power over the purse-strings by initiating fiscal policy (in the purchasing of the toxic assets) which is well-beyond the Fed's mandate. Now he's putting the finishing touches on another giant bailout so he can clear the Fed's books and resume the arduous task of bubblemaking.

Is it really that hard for congress to figure out what's going on?

Dean Baker: Free Market Mythology

Next time you hear the right-wingers lament interference in the "free market" ask them how they feel about creating markets that drive wealth to the top instead of the middle.

Yes, ask them how they feel about facilitating patent and copyright monopolies instead of focusing on a more egalitarian distribution.

Hey, ask them how they feel about the drug companies sucking 3 trillion in monopoly profits out of us the next ten years. Puts that trillion for health care in a different light, huh!

Economist Dean Baker has some other insights for lefties who get themselves trapped in the talking points of the right. (editor)

Progressives have wailed against “market fundamentalism" for the last quarter-century. They complain that conservatives want to eliminate the government and leave everything to the market. This is nonsense.

The Right has every bit as much interest in government involvement in the economy as progressives. The difference is that conservatives want the government to intervene in ways that redistribute income upward. The other difference is that the Right is smart enough to hide its interventions, implying that the structures that redistribute income upward are just the natural working of the market. Progressives help the Right’s cause when we accuse them of being “market fundamentalists,” effectively implying that the conservatives’ structuring of the economy is its natural state.

This is not just a question of framing; although the framing is important. Economic outcomes that appear to be the result of the natural workings of the market will always sound more appealing than the machinations of government bureaucrats, especially in the political culture of the United States. If we label the Right’s interventions as nothing more than the free market left to itself, then we place progressive policies at an enormous political disadvantage.

But the confusion that this misguided war against market fundamentalism creates in designing policy is even more serious than the political damage. Progressives have no reason to look to government to reverse market outcomes. Rather, like our conservative opponents, we should look for ways in which we can structure market rules so that markets have better outcomes from a progressive perspective.

The most obvious recent government intervention to redistribute income upward has been the bailout of the financial industry. Faced with complete collapse in the fall of 2008, Goldman Sachs, Citigroup, Morgan Stanley and the rest did not yell that they wanted the government to leave them alone. No, these financial behemoths insisted that the government lend them money at below-market interest rates and guarantee their assets. Firms like Goldman Sachs even insisted that the government make good on the debts of bankrupt business partners, such as AIG.

Deregulation also increases profitability and has nothing to do with the free market. In other words, the financial industry wants the government to provide “insurance” through the Federal Reserve Board, the Federal Deposit Insurance Corporation and various ad hoc channels, but it doesn’t want to pay for it. It also doesn’t want the insurance to come with any restrictions. In effect, the financial industry wants to run an explosives factory out of its home and pay only the standard residential insurance premium. That’s not the free market.

The demands of the financial industry on government are not qualitatively different from what other sectors get as a result of government interventions in structuring the market. To take another example, the government grants pharmaceutical companies patent monopolies that allow them to mark up the price of prescription drugs by several hundred percent or even several thousand percent above what the same drugs would sell for in a competitive market. As a result of patent protection, many drugs sell for hundreds or even thousands of dollars per prescription. By contrast, if all drugs were sold as generics in a competitive market, the overwhelming majority could be bought for $4 or $5 per prescription.

Patent monopolies do serve an important economic function—they provide an incentive for researching new drugs—but they clearly are not the only way to finance research. The government spends more than $30 billion a year financing biomedical research through the National Institutes of Health, an amount comparable to what the industry spends on research. In principle, we could replace the industry-funded research through direct, publicly funded research. Or, as Nobel Prize-winning economist Joe Stiglitz has suggested, research could be carried on in its current manner, but new patents could be bought out through a prize system. Under this system, a committee would assess the value of new patents and pay this amount to patent holders. This would allow the drugs based on new patents to be sold as generics in a competitive market.

We can debate whether these alternative mechanisms are better for supporting prescription-drug research than the patent system, but the patent system is clearly not the free market, and it is not essential for financing prescription drug research. The proponents of drug patents cannot claim to support a free market.

There is real money at stake. The country spent $250 billion last year on prescription drugs. In a competitive market, the cost likely would have been closer to $25 billion. The difference of more than $200 billion swamps the size of the payments to such programs as Food Stamps, the State Children’s Health Insurance Program (SCHIP) or Head Start.

Furthermore, the drain from this patent monopoly is projected to grow rapidly through time. Prescription drug spending is the most rapidly rising component of health care costs. In 2019 the country is projected to spend almost $500 billion on prescription drugs. Over the course of the next decade, expenditures are projected to exceed $3.5 trillion, implying excess payments to the drug industry of more than $3 trillion, more than three times as much as will be spent on the health care reform proposed in Congress at this writing in early winter.

A similar story can be told about copyrights. Bill Gates is an incredibly rich man because the U.S. government gives him a monopoly on Windows, threatening to arrest anyone who sells it or even gives it away without Gates’s permission. Without the monopoly created by copyright protection anyone would be able to instantly download Microsoft software anywhere in the world at no cost. As with drug patents, copyrights serve an important economic function. They provide an incentive for creative and innovative work, like developing new and better software or producing good movies and music, but we already have alternative mechanisms for supporting this work and can develop new ones.

Copyright monopolies lead to an enormous transfer of income to software and entertainment companies. Microsoft alone pockets more than $60 billion a year in revenue, almost all of which would not be possible without copyright protection. The industry association claims that, taken together, copyright industries accounted for 6.6 percent of GDP. This is more than one-third of the tax revenue collected by the federal government.

I could list more mechanisms and beneficiaries, but the point should be clear. The idea that a “free market” is allowing some people to get incredibly rich and causing other people to be poor or financially insecure is nonsense. The distribution of income is determined by government policies that favor some groups and work against others. If progressives accept the structures put in place by conservatives as the free market and then look to use tax and transfer policy to redress the inequities, we have given ourselves a hopeless task.

We must instead focus on altering the rules that redistribute income upward. There are many different ways to structure markets. We must be as opportunistic and creative as the Right in finding rules that both produce efficient outcomes and lead to better distributions of income.

The health care bill illustrates the need for a fundamentally different approach. It does a good job of meeting the important goal of extending coverage to most of the uninsured. However, it does very little to address the problem of exploding cost growth. As a result, we will have created a system that we know will be unaffordable over the long run. The idea that we can somehow pay for this system in future decades with progressive taxes is absurd on its face. It will almost certainly not be possible politically to raise taxes high enough to cover public-sector health care costs. We will eventually either have to ratchet back the extent of coverage and/or the quality of care or impose substantial taxes on the middle class.

The alternative route is to directly attack the structure of the health care system that leads to such bloated costs. In this context, it is important to remember that we pay more than twice as much per person for care as people in other wealthy countries. As any number of studies have shown, the reason for higher costs in the United States is not the better quality or greater volume of services but rather the higher cost of the services that we get. This can be addressed by changing the markets for these services.

Let’s return to prescription drugs. The current system leads to enormous inefficiencies from any perspective and leaves us with absurd choices that would disappear with a more rational system of financing prescription drug research.

Consider the situation of an 80-year-old woman, in generally good health, who develops a form of cancer. Suppose that the only treatment likely to be successfully is a new, bioengineered drug that would cost $250,000 a year. Should the government be willing to pay this expense?

As our moral philosophers labor over this problem, consider that the drug would probably cost $200 a year in the absence of patent protection. That would be the marginal cost of manufacturing and distributing the drug. Although the drug company may have spent a huge amount of money developing the drug, this is money out the door. We have already paid the research cost (ideally through one of the mechanisms discussed above.) The relevant question is, what does it cost to produce the next dose. In the world where the year’s dosage costs $200 we won’t have to spend too much time debating the treatment.

This is not the only problem with the patent system. When the government intervenes to artificially inflate prices, it creates unexpected perverse incentives. As a result of the enormous profits on its drugs, the pharmaceutical industry spends a fortune marketing them. This causes them to court and even bribe doctors to get them to prescribe drugs. It leads to expensive direct-to-consumer marketing campaigns. It leads the industry to buy politicians to ensure that Medicare, Medicaid and other government programs pay for the drugs. And, it gives the industry an enormous incentive to conceal research results that call into question the effectiveness and safety of its drugs.

Progressives should have been pushing these “free market” arguments in discussing prescription drugs. The amount of money at stake dwarfs the sums at issue with either the “Cadillac” plan tax or the millionaires’ surtax in the health care plans approved by the Senate and the House.

Similarly, we could use a little free trade in health care. Trade policy has been quite explicitly designed to place our manufacturing workers in direct competition with low-paid workers in the developing world. Progressives often point to the loss of manufacturing jobs in the United States and the depression of wages for non-college educated workers as evidence that free trade doesn’t work. This is completely wrong. These outcomes are exactly what the trade models predicted would be the result of the trade policies that the United States has pursued. I would be surprised if there were any other outcome.

However, we can design “free trade” policies that produce different outcomes. In the case of health care, we can start by allowing Medicare beneficiaries to buy into the health care systems of other wealthy countries. Because health care costs are so much lower in Germany, Canada and everywhere else, if beneficiaries opted to move to another country to receive their care, there would be enormous savings that could be split between the U.S. government and the beneficiaries. We recently did calculations showing that a few decades out the projected savings would be tens of thousands per beneficiary each year. This was even after allowing for a substantial premium above costs to the receiving country of treating elderly patients, to ensure that they also benefited from the deal.

In fact, since these countries would be getting a premium above their cost of care, this could be a major source of growth for these countries. The fact is that everyone has a huge comparative advantage in health care relative to the United States. Our health care industry only survives because of the extraordinary protectionist measures that restrict foreign competition. It is easy to devise mechanisms through which foreign countries could provide care for U.S. citizens and use the profits to provide better care for their own populations. An international Medicare voucher system could allow retirees to enjoy a much higher standard of living than would otherwise be the case, while at the same time saving the U.S. government tens of trillions of dollars in Medicare costs over the long term. By reducing demand for health care in the United States, it would also lead to downward pressure on domestic medical costs more generally.

There are other ways in which the government can promote trade in medical services. For example, it can license facilities in other countries to ensure high standards and also standardize rules on legal liability to ensure that people who go overseas for treatment can be assured of reasonable legal redress in the case of malpractice.

Given the enormous gap in costs for health care services between the United States and Europe, not to mention high-quality facilities in places like India and Thailand, there would likely be a huge flow of patients for treatment outside the country, if we created the proper institutional structure.

Of course, it would be much better to reform the system in the United States so that people did not have to leave the country to get decent affordable care. But, if we lack the political power to reform the domestic system, as is obviously the case now, it is absurd to hold patients here as hostages of a broken system. After the forces of market competition have worked their magic, we will be much better able to discuss reform with the domestic health care industry.

It is far more productive to talk about ways to use market mechanisms to fundamentally restructure the health care system than to try to scrape together nickels and dimes in tax revenue to pay to maintain a broken health care system for a few more years. The same approach can be applied to almost any social problems. We can and should push for progressive taxation, but it is even better to change the institutional structures that lead to gross inequality.

CEOs in the United States get paid tens of millions of dollars a year because we have created a corporate governance structure that allows top managers to plunder the corporation for their own ends. This corporate governance structure was created by the government, it did not develop through the free market. No other country allows for the same sort of plundering. Changing the rules in ways that return control to shareholders is not government interfering with the market; it is simply repairing a dysfunctional system. Europe and Japan both have dynamic capitalist economies, but they do not have the huge executive compensation packages of the United States. This is not due to legal restrictions on pay, it is due to the fact that they have governance structures that don’t allow the top executives to pilfer the corporations that they ostensibly work for.

In the same vein, although minimum wages and other direct income supports for less-educated workers are desirable, it is better to restructure markets in ways that increase the relative demand for their services. For example, we should insist that the Fed allow the unemployment rate to fall to low levels, rather than raise interest rates to choke off any possibility of inflation. Former Federal Reserve chief Alan Greenspan made this choice in the 90s (over the protest of Bill Clinton’s appointees to the Fed), allowing the first sustained period of real wage growth for workers at the middle and bottom of the wage distribution since the 60s. More union-friendly laws, such as serious civil or even criminal penalties for employers who violate workers’ right to organize, would also help equalize the distribution of income.

We can also apply some good free market principles to highly paid professionals, such as doctors, lawyers and economists. Easing professional and immigration restrictions that largely protect the most highly educated workers from international competition will reduce pay for those in the top 1 percent to 2 percent of the wage distribution and help to lower the cost of everything from health care to a college education.

There is an endless list of policies that alter economic rules to lead to more egalitarian outcomes. The current rules were not given to us by a deity or by nature, they were written by the wealthy and powerful interest groups who benefit from them.

These people are absolutely not free market fundamentalists, nor are they opposed to a well-working government. No one can mass market unauthorized versions of Pfizer’s latest drugs or Microsoft’s new software.

Even under Republican administrations the government would quickly arrest a large-scale violator of patent or copyright law. The wealthy want and expect a government that enforces the rules that protect their wealth and power. They don’t care about government social programs, but that is because they don’t depend on these programs. No rich person died in Hurricane Katrina.

A serious long-term progressive agenda must move away from a focus on tax-and-transfer policy and instead concentrate on changing the rules that lead to undesirable market outcomes. We must be as aggressive and creative as the Right in designing new rules that redistribute income downward rather than upward. And, we must bury the concept of “free market fundamentalism.” There are no free market fundamentalists in this debate, just conservatives who want to pretend that their rules are the natural working of the market. Progressives should not help them in this effort.


Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This column was originally published by Dissent.