The Economy Is a Problem
So, now, at last we can discuss it.
Not just discuss it, in rapid order "Recession" became the word of the day, from White House, Congress, the Fed, and the media.
It's blamed, mostly, on the sub-prime crisis.
But that's not the problem. It's a symptom. It is the logical, and probably one of the necessary results, of Bushonomics.
Along with low, or no, job growth. Little or no business growth. Depressed wages. And the crashing dollar.
(The president has a different vision of the economy. In his vision it's booming! and the number of jobs is growing! Though there is this little blip.)
The idea under which Bushonomics was sold is this:
The rich are the investor class.
If the rich have more money, they will invest more.
Their investments will create more business.
Those businesses will create more wealth, thus improving everyone's lives and making the nation stronger. They will also create new and better jobs.
Whether or not the people who say such things truly believe them, I cannot say. But that's their pitch and the media certainly seems to buy it, as do most of the establishment economists.
A more realistic - and less idealistic - view of Bushonomics is that they came at the economy with the attitude of oil men.
They inherited a vastly wealth country.
They looked at it like the oil under the Alaskan wilderness. They craved to pump it out, turn it into cash, and grab as much of that cash as possible.
Wherever possible, they literally sold off the assets. This was called privatization. Our biggest asset - in terms of size - is, of course our defense establishment. With privatization, one dollar out of every three for direct military operations in Iraq and Afghanistan goes to private contractors like Halliburton and Blackwater. So when someone says "Support the Troops!" with budget appropriations, they should really yell, "Two thirds support to the Troops! One third support to Halliburton, et al!"
This is just an estimate. The degree of privatization is unknown. Presumably, that's deliberate. Nor does it count the amount of money the military spends with private purveyors to supply the troops and their operations. It is only the amount that goes directly to private contractors.
But for the most part, the assets of the United States, our collective wealth, could not be sold off in such a direct manner.
In order to turn them into cash, what the administration did was borrow against them.
That is, they cut taxes while continuing to spend lavishly, creating debt.
The debt is owed by all of us, the collective people of the United States.
The tax cuts hugely favored rich people. They also favored unearned income (dividends, capital gains, inherited money) as opposed to the kind of money people have to work for. The very richest got richer.
The spending was - to the degree possible - directed to themselves, their friends and their supporters: Big Pharma, the Medical Industry, Insurance, Banking and Financial, among others. And, of course, Big Oil, from whom they have spent close to a trillion dollars of our money, to conquer a big oil field for private exploitation.
Now let's take a look at some numbers.
The numbers will tell us if their idealistic tale about unleashing the capitalists to create a better world for us all is correct. Or if it's a fairy story that masks uncaring greed.
The big number is that the economy has grown.
As measured by the GDP it has. From 2001 - 2007 it went by 35%.
GDP stands for Gross Domestic Product. It could more accurately be called Gross Domestic Transactions, because it is the sum of all the financial transactions in the country.
Now let us look at Job Creation.
In the first six years of the Clinton Administration, 13.7 million jobs were created. In the same period, under Bush, only 3.7 million jobs were created. Barely keeping up with population growth, if that. (Source: Fox News)
Now let us look at Median Income. That's as opposed to average income (If Bill Gates walls into a bar with ten people, the average income of everyone in the room goes up by $17,5000,000. But the median income just moves up half a notch, from between the fifth and sixth person, to the sixth person's income). From 2001-2005, Median Income, for people under 65, went down $2,000.
That's worth restating. From 2001-2005, the income of the average working person declined by $2,000.
Now, let's look at the Value of America's Businesses.
A good rough measure of the market value of America's best businesses is the stock market. Under Clinton, the Dow Jones went up 324%. Wall-to-wall, after the dot.com bubble burst, it more than tripled in value.
Bush arrived in 2001. Since then the Dow Jones is up just 10%. Adjusted for inflation, that's absolutely flat. (It was briefly up 23%. It is now below the 10% mark, and tumbling down as this is written). Just pain, no gain.
If jobs have not increased, salaries have gone down, and the value of business has not risen, where is that 35% growth in the economy?
There is a number called the M3 Money Supply.
The M1 is basically cash, plus checking and 'current' accounts. The M2 adds savings accounts, money market accounts and CDs up to $100,000. The M3 adds in the big CDs, Eurodollar accounts and other large exotics.
Already rising very fast, the M3 took off like a rocket after 2001. The Fed stopped publishing the M3 in 2006 (conspiracy theorists please note.) But a quick look at the chart of its growth (en.wikipedia.org/wiki/Money_supply), and assuming its trajectory continued, it's very clear that the M3 grew by something in the range of 35%.
The entire growth of the economy under Bushonomics is accounted for by growth in the money supply.
The administration did not directly inflate the economy by 35%.
They pumped it by the size of the deficit. The rest happened this way.
When a government is 'printing money' (running big deficits), the big fear is inflation. Particularly in the financial community. Bankers make their money on interest, and inflation eats their profits, point for point.
The administration, very proudly, grew the economy (or at least the amount of money in circulation), without inflation. Which actually is a pretty good trick.
In part, they were able to so precisely because the policy was a failure.
If it had created business growth - actual business, not just financial business - that would have created jobs. Then there would have been inflationary pressure. Especially if they were good, high paying jobs. If the salaries for ordinary people go up, even a little, the total is a big sum because there are so many of us.
But due to free trade, out-sourcing, bad economic policy, policies aimed at keeping wages down, and relentless union busting, good jobs were lost, to be replaced with low wage jobs, when they were replaced at all. The proof is in that median income figure (down $2,000 per worker).
Due to free trade and outsourcing, consumer goods mostly went down also. The exception being in favored industries like pharmaceuticals, insurance and oil.
Finally, and this the key to the next step in the process, the Fed kept interest rates down.
Low interest rates mean that it's cheap to borrow.
The administration largely believes in supply-side economics (otherwise known as "trickle down," or "piss on the people."), if you increase the supply of something, consumers will appear to buy it.
The actual results are a perverse triumph of the idea.
The supply of money was increased. The price of money was kept artificially low.
Think of borrowing as buying money. It is.
People (and businesses and corporations) did rush forward to buy it. Once they had it, what was there to do with it? There was no new trend, no dot.coms, no high techs, no bio-techs, no nothing.
So they went out and sold money. That is, they made loans.
There are two big retail loan areas, credit cards and housing loans. Both were pushed very aggressively. With cheap, cheap money available to finance home buying, that market heated up. At the same time, commercial interests started aggressively buying up loans, packaging them together, and reselling them as financial instruments. That created more desire to make more loans (sell money). Financial institutions bought more money (borrowed), in order to sell it at a profit (make loans). Since the loans were quickly resold - and profit taken off the top - the quality of the loans didn't matter to the people who made them. The housing market - or rather the loans the fueled it -- grew into a bubble.
The sub-prime crisis, the housing bubble, whatever you want to call it, is not the problem.
It's a symptom of pumping in money with no place to go.
Other symptoms are no job growth, no business growth, no stock market growth, falling median incomes, disappearing pensions and health plans, and the fall of the dollar.
When Bush came into office, a Euro cost 95 cents. Now it costs a $1.50. The Canadian dollar (the Loony), was 70 cents. Now it costs a dollar. Most mainstream economists and pundits will opine that a low dollar is good for American industry, because it will help us sell our goods. That's only true if we're producing things that no one else is, or doing it better, or doing it cheaper, and we're not.
Also, many foreign exchange rate are being kept artificially low against ours. Some, like many of the oil countries, are pegged to the dollar. They're making it up for it by raising the price of oil (currently traded in dollars). Others, like the Asian manufacturing countries, are keeping their currency down to retain their edge in selling here, thereby canceling whatever advantage we're supposed to get from declining currency.
One way to think of what the administration has done, is as a leveraged buy-out. That's when someone buys a company, using the company itself as the collateral for the loan used to purchase it, usually at very high interest, then pays off the interest by cutting the work force and salaries, selling outsets and even breaking up the company.
It's good for the guy who makes the deal, skims the cream off the top and gets rich. (The company that Mitt Romney got rich working for, specialized in doing that.) It's good for the lenders, who get a good return (if the buyer is able to squeeze enough money out of his purchase), but it's bad for the work force, bad for the company, and, if no one comes along to replace it, bad for the business as a whole.
We've experienced a leveraged buyout of the national economy.
Our politicians, the media and economists are just now waking up to the fact that the economy is in trouble.
The current numbers make it clear that we are probably in, or probably headed for a recession.
Also, the polls show that people are concerned about the economy and it's an election year. The people are out ahead of our governing and media and professional economic classes on this, because they live in the real economy, the one that's been leveraged, and the professionals are either in, or work for, the investor class that has been doing well.
So there is, at last, talk about doing something about the economy.
The Feds will cut interest rates!
George Bush wants a stimulus package. Tax cuts, tax cuts and make my tax cuts permanent! After all, that policy has worked so well. He said the cuts must be at least 1% of the GDP. That will be $145 billion dollars.
Harry Reid and Nancy Policy (the King and Queen of Effective Politics) will offer a competing one (tax cuts, tax cuts!). Although they promised pay as you go economic policies from a Democratic legislature.
Pundits in the media talk about a crisis in consumer confidence. And how the fix is to restore it. So we will go out and buy. Presumably on credit.
How about, consumers think there's a problem because there is one. Not because they're weird emotionally. They reasonably see themselves so over-extended, with so little hope of being better earners, that they won't be able to pay things off. Not even with a one time government check of somewhere between $300 and $1,200.
In short, most of those solutions will go to making things worse.
The real solutions are pretty obvious and pretty simple.
First, we have to make a choice, do we want a sound economy for all of us and a strong America. Or do we want to have a few people of unlimited wealth who use that wealth, among other things, to control the government so that it helps them milk more money from the rest of us?
By the way, this is not a call for socialism! Or other ism! Except a call for sensible and effective capitalism. Based on what we've seen work and seen fail.
In the real world, there are no such things as free markets.
In the real world, business people manipulate and conspire to control markets, governments both control and collude with business, while tax policies and government spending have a major affect on the economy.
Let us accept that, and then the argument is only over how best to do it.
Simply giving money to rich people doesn't work.
Bob Novak, the conservative commentator who calls the investor class, "the most creative class," is flat out wrong. As we've seen, outside of their ability to buy influence in politics, the media and the law, the rich are like the rest of us, relatively passive and unimaginative, prone to putting their money in the easiest place that promises a return, in whatever bubble is in fashion at the moment, and wherever some salesman who gets their attention tells them.
Money has no mind of it's own. It has to be directed toward areas that will generate and support business and good jobs at good wages. As it happens, our economic goals are on the same road as the social good.
The number one target has to be alternative energy.
Energy that can be produced here, in the United States, renewable, non-polluting, and not, like corn based ethanol, requiring as much petroleum to produce it as it replaces. One third of our balance of trade deficit is oil, year in and year out. If the US can become the world leader in alternative energy and conservation technology, we will, at last, have something to export.
The number two target is infrastructure.
By it's nature, infrastructure has to be largely produced here with local labor and it stays here.
Hard infrastructure, like roads and bridges, cleaning up New Orleans and the Gulf Coast, protecting our coasts from future storms, internet and phone service as good as Europe's, Japan's and Singapore's.
Soft infrastructure, like education, youth services, parks and recreation programs, public safety, and a saner criminal justice system. The US has 5% of the world's population and 25% of the incarcerated population. That's expensive. And wasteful. Unsafe streets and high crime are expensive and wasteful.
Infrastructure makes doing business easier, quicker and cheaper. It becomes an invisible subsidy for all businesses. Try to imagine, for example, Fed Ex, that entrepreneurial triumph, without a national web of airports, flight controllers, and roads.
Please note: this has to be done with adult supervision and social goals in mind. Homeland Security gave Blackwater $73,000,000 to do security work in New Orleans. Mostly through no bid contracts. The result was the highest crime rate in the country. At the same time, Bush repealed the Davis-Bacon Act (a 1931 law that required contractors on government jobs to pay union wages) so that actual working people got as little as possible.
The number three target is health care.
Health care in the United States costs at least 50% more than the next highest spending country, and double what it does in most other modernized countries. All of them have better health than we do. They live longer and in better condition.
The difference is that they have national health plans. Mostly single payer, usually tax supported. Our plans are based on a hodge-podge of a thousand private insurers.
A single payer national health plan should cut the costs of our health care by at least 25%, possibly 50%. That's an astonishing number. That money could go to more productive things. Or, to even more health care.
American businesses who supply health care to their employees claim they are non-competitive with companies from countries that have national health. This will make them more competitive. This will make American labor more competitive.
The number four target is a balanced budget.
There are, in fact, times for deficit spending. Just as there are times in our personal lives to borrow and times for business to borrow.
This is probably not one of them.
There is an ocean of money sloshing all around the world, looking for a home. If there are real business opportunities in America (like taking the lead in alternative energy, bio tech, and whatever is next around the corner), it will come.
Especially if there is a sound business environment and dollar investments return to being the most reliable in the world. That means paying down our debt.
How can all this be done?
Raising taxes.
On the wealthy. And on corporations. That's not class warfare. That's simple practicality.
After your first twenty thousand dollars, how much of the next twenty do you need, to live, thrive and survive? Damn near all of it. After your first twenty million, now much of the next twenty million do you need? Not a nickel.
The rich will whine, writhe and scream, that they won't do business, they'll be driven out of business, that business will collapse. Bullshit. If they dislike keeping twenty or thirty or forty cents of each dollar of profit so much that they won't take the dollar, someone will come along who gladly will. That's how markets work.
The Iraq War is obviously part of the equation. The administration routinely leaves the financial cost of the war off the books (an accounting deception that Bush learned back when he was with Harken Energy). It should be made part of the budget and it should be made pay as you go. Then see how many people are willing to pay cash - through their taxes - to keep that failed enterprise going.
All of this is pretty straight-forward and common sense.
The illogic of Bushonomics is obvious. The results were foreseeable. After all, similar effects took place under Reagan and Bush the Elder, except insofar as they reversed courses, which they did.
Only this Bush is able to keep himself so far out of touch with reality that his prescription for disaster is more of what brought the disasters on.
The facts bear out the theory. Go back to Hoover and Roosevelt, then look at the down, up, down, of Bush the Elder, Bill Clinton, and Bush the Lesser.
(We do note that there are minor industries dedicated to proving that Franklin Roosevelt was, in the words of CNN's Glenn Beck, 'an evil son of a bitch,' that the New Deal really, really, really didn't work, and that Bush the Elder was really, really, really responsible for the boom of the Clinton years and that Clinton was responsible for the first recession during the reign of Bush the Lesser. But they are like people who see the image of the Virgin Mary in bread sticks and crullers.)
None of our politicians (with the exception of Dennis Kucinich and John Edwards), pundits or economists are addressing the fundamentals.
The last time we switched from the nonsense of worshipping unmitigated greed, disguised as Free Marketeering, it took a market crash and the Great Depression, to move us out of our public relations manufactured delusions and make us understand that when we all do well the rich get richer too, so let's start with the common good.
Based on the dialogue as it stands now, we will go with tinkering and twaddle, doing more of what doesn't work. And only if the whole things collapses will we address the real problems.
Larry Beinhart is the author of Wag the Dog, The Librarian, and Fog Facts: Searching for Truth in the Land of Spin. All available at nationbooks.org His new novel, Salvation Boulevard, (Nation Books) will be released in September, 2008. Responses can be sent to beinhart@earthlink.net.
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Very, very good article, Larry!
May I be so bold as to toss in a few observations?
(1) "Alternative energy" can actually mean a lot more things than ethanol. For example, let's take the (ahem...) side of "factory farming" and turn that (ahem...) into fuel just for that farm. We have an existing process to do that, and it's profitable right now. Bingo... we clean up a very unsanitary and very (ahem...) problem, and we cut energy costs.
(2) "Free trade" has one critical flaw: it squeezes out redundancy. It not only looks for the cheapest market, but it shuts down the domestic one that "costs more." (And it generally ignores transportation-cost.) Then, "Mister Murphy's Law" kicks in and suddenly that system ... which, absurdly, might be based on "just in time!" ... has no Plan-B. Furthermore, "free trade" ignores the fact that there needs to be both a local and a global flow of money: some dollar-bills travel thousands of miles; others never leave the neighborhood. {See: http://www.askgeorge.com, a totally-voluntary currency tracking site.}
(3) Another casualty of recent memory are the laws against Usury. This is a crime that has been historically reprehensible: not only outlawed by ancient societies but damned by them and even by their gods. I think there was a good social reason for that. Today's citizens are suffering under "a cross of gold" far more than by onerous taxation. Ruinous interest rates, capriciously altered with no recourse, pick a man's pockets every single day... and apparently the banks are winding up bankrupt anyway.
I completely agree with the principles of this post. Investing in renewable, non-polluting energy and fuel would not only make us a leader in technology once again, but also help with the global warming and environmental issues we face. Massive investments in the infrastructure are needed, as roads, bridges are currently unsafe and crumbling. Investing in education and youth programs would ultimately lead to less incarcerations. Those with viable jobs that can support families are not pre-disposed to criminal activities. Healthcare is a great source of concern amongst those under-insured or uninsured. They simply can't afford it, unless there's a serious illness or accidental injury, at which point the E.R.'s treat them while passing the tab onto local tax-payers. Balancing the budget and reducing the $9.2 trillion national debt, which is currently 65% of our GDP is necessary as well. A balanced-budget amendment, and the elimination of pork-barrel or earmark spending is long overdue.
Supply-side, trickle-down and laissez-faire economic policies of the past have led this country in each instance, into recession or depression. Tax cuts for corporations that use those gains for research & development, and do NOT outsource U.S. jobs is worthwhile. Tax cuts for the wealthiest are not needed. Instead, tax cuts for the middle and lower classes are on a permanent basis. It's the lower and middle classes that work and will use money to buy items, which will keep the economy running better.
I always wonder who "we" is. If the U.S. get's socialized medicine, "I" will be worse off. I don't give a rip if some statistically computed average person will be better off. Additionally, your belief that the government has the power to solve these problems is indicative of mental illness.
Mr. Beinhart, this is one hell of a post, great work!!
Like many others, I admire the writing and concise description of our problems and their solutions. I "came of age" during Reagan and fought the battles, against all odds (and lost), trying to tell people what we were in for (and experiencing) - but they'd already drunk the KoolAid. -sigh-
"Bushonomics" is a great term, though somehow I think of the phenomena as involving both Bushes and Reagan. I guess this term can accommodate them all.
Frankly, I think your article points out our desperate need for the likes of Edwards/Kucinich. (Or GORE if he would only bother to have run!) We are in desperate need of shedding these failed mythologies. Thank you (and Huf Po) for providing a destination URL that I can provide to the uneducated so they get a glimpse at reality.
Sounds good.
My take: whereas FDR used deficit spending to try and save the nation during the great depression, and then again during World War II, Bush and the neo-cons have realised that deficit spending can be used to maintain the economy while slashing taxes for the super-rich. The thing is, one can't use deficit spending on the scale that the Republicans have relied on it, and not eventually reach rock bottom, like any common junkie.
I am shocked that the neo-con "economists" have been allowed to spread the idea that they can raise overall tax revenues by slashing tax revenues on the rich. Why would anyone capable of common sense go along with such nonsense? The idea that doing away with progressive taxation is good for the economy and good for balancing budgets is an idea whose time has passed. The next President will have to end the Republican era of record-setting national deficits, and do it not by doing away with all of the social programs that we all rely on, but by reinstating progressive taxation.
Bravo!!!!!
Wow! That's the most comprehensive and concise Post about our economic troubles I have read. Americans appear to not want to change our borrowing ways and will only do so when cheap money is history!
You forgot to mention the labor market. By over supplying the labor market with illegal foreign workers Bush and company are able to drive down wages and benefits of the lowest paid American workers thus keeping inflation in check.
Larry, You need to cite your sources so people can see which ones not to use.
Real median household income in the United States climbed between 2005 and 2006, reaching $48,200, according to a report released today by the U.S. Census Bureau. This is the second consecutive year that income has risen.
Meanwhile, the nation’s official poverty rate declined for the first time this decade, from 12.6 percent in 2005 to 12.3 percent in 2006. There were 36.5 million people in poverty in 2006, not statistically different from 2005. The number of people without health insurance coverage rose from 44.8 million (15.3 percent) in 2005 to 47 million (15.8 percent) in 2006.
http://www.census.gov/Press-Release/www/releases/archives/income_wealth/010583.html
http://www.irs.gov/newsroom/article/0,,id=156040,00.html
The SOI Bulletin includes an article on preliminary data from individual income tax returns for 2004. In 2004, Adjusted Gross Income (AGI) rose for the second year in a row, increasing by 8.9 percent to $6.8 trillion. The largest component of AGI, salaries and wages, increased 6.0 percent to $4,977.9 billion, while net capital gains rose 53.2 percent to $442.1 billion. Taxable income increased 10.6 percent to $4.6 trillion.
Personal income increased $60.6 billion, or 0.5 percent, and disposable personal income (DPI)
increased $50.8 billion, or 0.5 percent, in December, according to the Bureau of Economic Analysis.
Personal consumption expenditures (PCE) increased $67.1 billion, or 0.7 percent. In November,
personal income increased $32.4 billion, or 0.3 percent, DPI increased $25.4 billion, or 0.3 percent,
and PCE increased $51.1 billion, or 0.5 percent, based on revised estimates.
http://www.bea.gov/bea/newsrel/pinewsrelease.htm
poverty rate declines, household income up
http://www.census.gov/Press-Release/www/releases/archives/income_wealth/010583.html
None of the candidates are addressing the economy except Kucinich and Edwards?
Hello? The ONE person that completely understands the economy, monetary system, and spending is Dr. Ron Paul.
He knows what is a symptom and what is a disease. I am not fan of Bush, but these symptoms have been growing as a cancer for 20+ years - because it has to do with our debt based monetary system on a currency that is just paper...it is fiat. throughout history, all fiat money systems fail. some by design, some by attrition.
give some credit where credit is due.
Re: the 1% 'stimulus'.
Let's be honest here. Those needing the 'rebate' will not spend it on new things, they'll pay down some debt. Those not needing the 'rebate' won't spend it either, they'll stash it away because of this truism about them: they HATE to be poor.
Borrowing money is renting money. It must be paid back. With interest.
"But they are like people who see the image of the Virgin Mary in bread sticks and crullers."
Not exactly. They make themselves more appealing by hiring PhDs to speak for them. Hey look! We have someone with a PhD who says that the New Deal was really counterproductive! Therefore, the rationale goes, there is no conclusive result regarding measures like the New Deal. A similar thing happens with environmental science. Hey look! We have someone with a PhD who says that global warming is bunko! etc. etc.
Excellent article, all of it true and good areas of concern and investment, but it will never come to pass if we don't get rid of debt based money.
What is debt based money ? It is Federal Reserve Notes and currency. The current method of 'creating' money is by the banks counting your loans as assets, then lending more out based on those assets. So, simply put , if the United States and all the people paid off all our debts we would run out of money because the banks wouldn't have any loans to turn into assets to make more loans. There would be no money in circulation.
A 'Greenback' money system simply means that the government creates the money simply by printing it , Not turning loans into assets.
What's wrong with debt based money ? Very simply we will always need more and more debt to have enough money because there are more people, more loans to pay, more inflation, and now more trade deficits every year. We can never get out of debt without crashing the money supply and bringing the economy to a halt !
The answer , Fire the privately owned and operated Federal Reserve and use Government created money , not money based on debt.... 'Greenbacks'
Ask yourself this simple question:
Why is there a National Debt when the government could print the money and pay it off saving trillions in interest over time.
The video they don't want you to see:
http://www.youtube.com/watch?v=cy-fD78zyvI
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