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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THE SUPPLY-SIDE SCAM
George Bush’s $3 trillion dollar tax giveaway to the rich over the past 7 years has been a disaster for average Americans. Supply-side (trickle-down) economics is a bogus theory promoted by those who benefit from it. In a mature capitalist system, supply side never rules, it’s always the demand side of the equation that governs growth and well-being. Think about the 1930s Depression, General Motors had plenty of supply, but demand evaporated.
Previous U.S. economic downturns have been cured with only $200-300 billion in tax cuts targeted to the middle class, because the consumer (the great middle class and 2/3rds of the economy) spends that tax cut and primes the economic pump. But George Bush has raised the debt that our children and grandchildren will have to pay from $6 trillion to over $9 trillion for current economic growth (i.e. we all get trickled on, as the rich spend some small fraction of their gains). Unfortunately, this growth is largely and uniquely without wage gains, and so has shrunk the middle class that makes America strong and great. Also, this growth has already over ($3 trillion flushed down the toilet and gone!), as the FED has had to cut interest rates because recession is looming. Massive debt has led to a weak dollar, which is now at record lows vs. other major currencies because of FED interest rate cuts. In turn, the record low dollar has produced record oil prices ($100/barrel); and any additional needed FED interest rate cuts could cause a free fall in the value of the dollar, guaranteeing recession or worse, stagflation.
The middle class is slowly being tapped out, as home values (most of their net worth and the credit card of last resort) are falling in price, and a considerable number of homeowners are heading for foreclosure. With the rich-poor divide increasing, we’re headed toward previous shining examples of trickle-down economics: South America of the recent past and feudalism in the Middle Ages. SUPPY-SIDE ECONOMICS IS NEW FEUDALISM AND SERFDOM!
Very Good synopsis! Thank you.
Rethugs: barrow and spend till "you can drown the US federal government in a bathtub" as the Rethugs so gleefully crow.
the Rethugs are traitors dilibratly trying to bankrupt the USA!
Bill gates is only worth $175 million?
$17,500,000 * 10= $175 million.
If Bill Gates is worth barllpark $50 BILLION, the average income would go up about $5 BILLION, or $5,000,000,000.00
(If Bill Gates walls into a bar with ten people, the average income of everyone in the room goes up by $17,5000,000.
Larry, I wish you were running for President.
I think you rank infrastructure too highly. I can see why, but I am of the believe that until we set the programs we need and the economic stimuli are set, our services in roadway now are decent enough.
Health care is where I'm raising a huge red flag. We have a significant difference between ourselves and Canada, and that is population. We're a huge nation with immigrants pouring in. Insuring them would be wasteful spending and create decreases in quality. In Canada, there are waiting lines for cancer procedures that last over a month, and early detection is key for cancer patients. Same with Europe.
Instead, what is needed is not a wasteful single-payer system (which will only increase the tax burden on the consumer), we need competition. Prices will go down on their own with competition.
Taxing the rich always leads to disaster. They already pay most of the taxes in the United States anyway (the Statistical Abstract of the United States is my evidence, if you are inclined to look it up.) Penalizing them for being rich is wrong. If you want to pay for things, cut out the old things that don't work. Decrease government size, do away with welfare, and you'll be surprised by how much money there is to go around. Calculate a new budget with the money the now defunct programs had as the upper bound. Anything that's left, simply don't tax anymore. Tax relief for all, not for some. Everyone can get behind that.
Lord! You talk like a populist. Perhaps my hero FDR? I have always been an advocate of rebuilding our infrastructure. I know I do not need to bring up how effective the populist programs during the Depression turned out to be. I also have also believed for my whole adult life that if I cannot afford to buy the products at our retailers or by our manufacturers, how can they make money? Sell to the sweat shop workers in Nepal? Has John Edwards seen your ideas? I have not read his position papers but I think he may be familiar with your economic concepts.
Bravo for you though. Great job!
Excellent article, I agree with about 99% of what you've written. The only point I'd like to make is on your idea of raising corporate taxes. You mentioned that going to a single payer healthcare system will make us more competitive with companies from other countries, and I agree. Wouldn't cutting corporate taxes also make us more competitive? Now I'm not saying the rich should pay no taxes, but what I would like to see is a set of benchmarks for corporations to meet in order to remove possibly all their taxes. Give them goals like greenhouse gas reduction and other energy efficient methods of production. Also set benchmarks for employee salary parity, so you don't have a company that pays 90% of the workers minimum wage while the executives get multimillion dollar salaries. If any company meets these benchmarks then they won't have to pay any corporate taxes.
Now I'm not advocating the rich get a free ride. What we then do is require that income from dividends and capital gains be included as regular income and subject to the normal income tax as well as Social Security and Medicare, and so forth. This allows the corporations to keep more of its money to invest in equipment, or lower its prices, or even give more to its employees. If the company decides to pass all that extra money along to the stockholder in the form of higher dividends then the income tax will catch them. And I'm talking 40% for the highest bracket, not the 15% bullshit their getting away with now. What do you think?
Up until you got to the recovery plan, I was eating this up. Your write-up on the discussion of economy, it's successes and failures, is lovely. A few problems, though. We haven't had recession-like qualities since 2001, and that was due to a problem I think we can all see: Economic slowdown as the aftermath of 9/11.
I think, also, that you are making a false assumption on the President's position regarding the economy. Truth is, they have very little to do with each other. What you need to do is look at consumer activity. You hit on a marvelous point that allowing the corporation owners to make investments doesn't provide a lot of growth stimuli. They do something, but not a lot. What you need to do is put economic power back in the hands of the consumer. Consumers need to realize the power they have over the economy, and start making their own decisions. I read an article in the Times about how consumer spending is reaching a low, and that's going to cause economic slowdown.
But, ultimately, what is needed to be commented on is the response plan.
Alternative energy sources are a good (but certainly not the only) way to start American manufacturing. Most of those are still in their infancy, however, and investing in them will expedite results, but won't give us economic growth. We should first start with the things we know we can do: Nuclear fission, for example (yes, I know Chernobyl, but those are isolated incidents. Nuclear fission is generally pretty safe.) Wind power for higher elevation communities is another, solar is decent. If we can cut out home usage of oil, then we can buy ourselves time to hit the cars.
(I'll continue in another post.)
In the case of Bush, when you’re a simpleton there’s a simple solution for everything. After all, Bush had this brilliant answer to our health care crisis…
"No one goes without health care in America. After all, you just go to an emergency room.''
And this clown is going to save us from a economic recession?
Election day can’t come soon enough…
Makes me wonder if the rich are stupid. Do they not understand if the working classes can't buy their oil and cars and plane tickets and over priced clothes and electronics, can't save any money in their banks, have only enough to survive, that they, too, will suffer? Who do they think will buy their goods and services when they grind the rest of us into dust? Each other? How far would that go? The only good thing is, being close to the bottom the fall, when it comes, is not going to be as far. When the economy totally fails, the rich will suffer more, because they have more to lose. Those of us who have almost nothing now are used to it, and we'll get by. I can't wait to hear the whining when the uber rich bite the dust.
Great piece. I remember when the Bush tax cuts went into effect, my economist husband and I couldn't believe it that so few pundits pointed out that there wasn't a lack of capital for investing -- which was the problem those tax cuts were supposed to fix. There was instead not enough places to invest.
So the Right figured a nice war, just like WWII would keep enough people busy and feeling too patriotic to argue.
Beinhart's solutions -- energy reform (not just alternative energy, but, as he writes, conservation technology), infrastructure, single-payer health care, and balancing the budget -- are exactly right.
The problem, of course, is that those solutions are more democratic -- they offer less chance of making anyone rich. And so they won't have a big lobbying effort behind them. Just us -- we the people.
Will we have the steadiness of purpose to pull it off? Will we leave a decent country for our kids -- or something more resembling the terrible class divides of Karachi or Mexico City?
Wow!!! Great post!
It is full of such rational, common sense ideas. There is a team in Washington preparing a plan to shoot holes in it. What a shame.
Perhaps we will be more prepared to listen once the bottom truly drops out?
Viva la Revolution. (Hope it gets here soon.)
Yeah great way to put it all in perspective so we can understand it all.
I think "Trickle Down", "Privatization", "Let the market's dictate" and everything else the conservatives tell us really does work. But only in a perfect world where corporations are not trying to build wealth that will last into many non productive future generations. If every large company owner said "I'm going to live comfortably on a few hundred thousand dollars per year and make sure that the rest goes into expanding and providing middle class jobs for all within my company, Reaganomics, Bushonomics or whatever you call it might work............ in a perfect world of course.
Let's not forget the real axis of evil: Reagan/Bush, Greenspan, Bush 2.
We can still prosecute three. The devil can take care of The Gipper. .
Well done!
Excellent writing. Well laid out, coherent, concise, to the point, dispassionate, practical and logical. You just sold yourself a book.
I agree with all of it, even the Kucinich, Edwards part, having come to that conclusion myself a while ago.
I especially like the part that said, In the real world there are no such things as free markets.
Take that, Larry Kudlow!
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