Paul Krugman on The Huffington Post

Krugman: Health Care Reform Or Else

2009-12-04T08:38:30Z

Health care reform hangs in the balance. Its fate rests with a handful of "centrist" senators -- senators who claim to be mainly worried about whether the proposed legislation is fiscally responsible.

But if they're really concerned with fiscal responsibility, they shouldn't be worried about what would happen if health reform passes. They should, instead, be worried about what would happen if it doesn't pass. For America can't get control of its budget without controlling health care costs" and this is our last, best chance to deal with these costs in a rational way.

Leo W. Gerard: Some Jobs Taxpayers Don't Need to Buy

2009-12-02T21:10:07Z

Can't buy me love
Everybody tells me so
Can't buy me love
No, no, no, no
From the 1964 Lennon/McCartney song, "Can't Buy Me Love"

Maybe you can't buy love, but you can buy a job.

Franklin Delano Roosevelt did it with the Works Progress Administration during the Great Depression. And the $787 billion stimulus package passed in February created jobs to relieve what is now 10.2 percent unemployment.

Both came at the cost of taxpayer dollars. Now, as labor and business leaders, economists and politicians gather Dec. 3 for President Obama's Jobs Summit, some are calling for a second stimulus. These include Nobel-Prize-winning economist Paul Krugman. He says the initial stimulus was too small and insufficiently focused on jobs.

Krugman recommends instituting a reduced version of FDR's Works Progress Administration (WPA), offering public-service employment, the kind that left solid WPA bridges, bus shelters and other monuments that serve citizens to this day across this country. At a cost of $40 billion a year for three years, the Economic Policy Institute (EPI) estimates this would create a million jobs. Krugman also endorses the EPI's recommendation of tax credits for employers who add jobs.

A second stimulus is completely reasonable at a time when there are six unemployed Americans for every job opening and when it takes six months on average for an unemployed worker to find a job, the longest since the Great Depression. But the Obama administration already has sent out signals that it doesn't want Jobs Summit solutions to worsen the federal deficit.

Fine. There are ways to create jobs that don't have to be bought. One is to enforce and strengthen trade policy.

Chicken Littles all over this country ran around screaming, "A trade war is coming! A trade war is coming!" in September when President Obama enforced trade law by imposing tariffs on Chinese tires being dumped in this country. That flood of Chinese tires had cost 5,000 American workers their jobs.

The Chicken Littles, always wrong, were mistaken about a trade war. China never engaged in one. And now, Cooper Tire has announced a $10 million expansion of its Findlay plant, creating 100 new jobs, and tire factories across the country have increased hours.

By contrast, a paper company, NewPage, filed a trade case in 2006 seeking protection against Chinese and Indonesian dumping of coated paper, the heavy kind used in brochures and annual reports. The Commerce Department found egregious dumping, but later the U.S. International Trade Commission (ITC) refused to impose sanctions because it decided the U.S. industry hadn't been injured.

Now, three years later, the United Steelworkers union has joined NewPage and two other paper companies in filing for another trade case regarding coated paper. Perhaps since 7,000 U.S. paper workers have lost their jobs, the ITC will see injury to the American industry.

But here's the thing: Why do American workers and industries have to suffer? Our trade laws should be strong enough to prevent that injury in the first place. And that doesn't cost a dime.

Another obvious way to create good, family-supporting jobs that don't have to be bought is to develop an industrial strategy for this country. The idea of a strategy is to design a way to rebuild manufacturing as a base of the U.S. economy.

America cannot depend on housing or high tech or financial bubbles. These false financial mechanisms have led to nothing but heartache, recession and job loss. A strong economy is based on taking raw materials, adding creativity, energy, and work to construct products - like steel and tires and glass. Those products have real value and can be sold to make real wealth. They are not risky bets on the market like credit default swaps.

We need to place our faith in our own ingenuity and industry as a country, our ability to research and develop creative new products and manufacture them here, at home. For the love of country, that's what we can buy. And should.

Krugman: Deficit Hawks Trying To Scare People With Big, Out-Of-Context Numbers

2009-11-30T12:31:02Z

On ABC's This Week, host George Stephanopoulos asked Paul Krugman, the Nobel Prize-winning economist and New York Times columnist, about the argument that the nation's rising debt level may lead to "a major weakening of American power." Krugman responded:

KRUGMAN: You know, first thing to say is people are putting their money where their mouth is, which is the bond market. Things were fine. You know, the U.S. government is able to borrow long-term at 3.3 percent interest rate. So, obviously, you know, the market is not convinced.

Now, the market has been wrong. But, then if you do the arithmetic, these numbers look huge. The American economy is huge. The debt burden, even after five years, is going to be well below as a share of GDP well below levels that lots of industrial countries have reached in the past, including ourselves after World War II, when we were able to handle that just fine. [...]

We're not going to hit 100 percent (of GDP in debt) until a decade from now. And countries have gone above 100 percent. I mean, if you actually ask about the interest cost, particularly inflation-adjusted interest cost, you know, we're now paying 1.2 percent real interest rate on federal debt. Even if you add 50 percent of GDP in debt, which I don't think is going to happen, that's still only a fraction of a percent of GDP in additional debt service costs.

Washington Post columnist George Will, a vocal deficit hawk, pushed back: "But even unreasonably cheerful assumptions about economic growth and interest rates, we're apt to be spending in 10 years $700 billion a year servicing our debt."

WATCH (debt discussion begins at about 12:30):

On Monday, Krugman took to his blog to call Will's response an example of "debt scare," joking that the statistic about 700 billion dollars should have been "read in the voice of Dr. Evil."

I get that a lot -- people who talk about the big numbers which are supposed to imply that things are terrible, impossible, we're doomed, etc.

The point, of course, is that everything about the United States is big. So you have to interpret numbers accordingly. As the graphic above shows -- it's taken from an article that managed to maintain a grim tone while reporting numbers that actually weren't all that grim -- what we're talking about is a debt-service burden roughly comparable to that under the first President Bush. How many of the people now warning about the impossible burden of currently projected debt were issuing similar warnings back in 1992? Not many, I'd guess.

As Krugman notes, the cost of servicing debt levels are quite low today by historical standards, and even when interests rates rise, they are projected to grow to levels experienced during the 1980s and 90s.

Moreover, as Huffington Post's Ryan Grim reported recently:

The focus on the deficit is also fraught with economic miscalculations. Long-term interest rates are extremely low, despite the hysteria, and the U.S. government is well positioned to meet its obligations indefinitely. The Chinese government, meanwhile, which holds a pile of U.S. debt, has little recourse other than to continue to buy U.S. bonds.

The Nation's DC editor Chris Hayes put it succinctly, using an old saying, in a recent column: "'When you owe $100,000, the bank owns you. When you owe $100 million, you own the bank' -- and it aptly describes the US relationship with China, which holds approximately 70 percent of its 2.3 trillion foreign reserves in dollars."

Nevertheless, deficit hawks are threatening a dramatic move to force cost-cutting plans, as McClatchy reported on Monday.

A bipartisan group of more than a dozen senators is threatening to vote against an increase in the debt limit unless Congress passes a new deficit-fighting plan.

"I will not vote for raising the debt limit without a vehicle to handle this. ... This is our moment," California Democratic Sen. Dianne Feinstein said.

She and nine other senators wrote to Senate Majority Leader Harry Reid, D-Nev., asking that Congress create a special commission to make recommendations that then could be decided by an up-or-down vote.

HuffPost's Jason Linkins has much more on this plan for a deficit-fighting commission HERE.

Les Leopold: Stimulus versus Deficit Reduction? Wrong Debate

2009-11-30T09:37:42Z

"With food stamp use at record highs and climbing every month, a program once scorned as a failed welfare scheme now helps feed one in eight Americans and one in four children."

New York Times November 29, 2009

Hunger is returning to a nation that has been blessed with everything. Shame on us.

The Wall Street bailout combined with the stimulus package was supposed to put our people back to work. Instead, these policies created another record year for Wall Street profits and bonuses while the jobless rate is the highest since the Great Depression. Even the Federal Reserve is forecasting an unemployment rate that will stay above 9 percent through 2010 and above 8 percent through 2012. It could be a decade or more before we see full-employment again. This is an unmitigated disaster for real people trying to hold their lives together.

Some economists argue that the initial stimulus package was too small to make up for the gaping hole the financial crisis tore out of the economy. But that analysis overlooks the incredible inefficiency of the stimulus itself. How could a $787 billion stimulus package only produce about 650,000 jobs, even if only half has been spent so far? At that rate the program is costing about $600,000 per job. That amount should be producing more like 10 jobs, not one job.

It seems as if the Congress and the Administration did everything possible not to create jobs directly. Instead, overall spending increases were supposed to make up for lost consumer demand and reboot the economy. All would be well as demand increased and bank lending resumed, especially to small businesses. But the lending is still stalled, in part that's because we no longer live in a unified economy. The wealthy and the large Wall Street banks seem to live in a world of their own.

Spending more money to increase overall demand no longer guarantees that new jobs will be created. For example, a careful accounting would show that a good deal of the stimulus money ended up as profits for contractors of all kinds rather than in new jobs. Also, we know that much of the renewable energy money has leaked abroad to purchase wind generators and other equipment. (See "Gone With the Wind: Blowing U.S. Tax Dollars Off Shore")

The answer is not more stimulus in general. The answer is direct hiring by federal, state and local governments. If we want more teachers, then we should create a national teachers' corps. If we want to insulate homes and businesses then we should build national caulkers corps modeled after New Deal programs like the Works Progress Administration.

The job/cost equation changes dramatically when government does the hiring. By the time the $787 billion runs out, the Obama Administration will be lucky to create 2 million new jobs. However, had that money gone directly into job creation at about $75,000 a job including administration and benefits, we're talking 10.5 million new jobs --- jobs we can believe in.... and count.

We do in fact need a new round of stimulus spending. But only if it funds direct job creation. We tried the indirect route and it doesn't put enough people to work.

And what about the deficit hawks? They sense the debate is drifting their way: "We all are living beyond our means"..."We have to get our fiscal house in order"..."The government is wasteful, always." Borrowing more, we are told, will lead to disaster. Not only will it put us more at the mercy of China which holds so much of our debt, but government borrowing will crowd out corporate borrowing and therefore kill jobs. You know the song and the hypocrisy--after all, it's those who claim to worry about the deficit who do the most to prevent the government from spending its money efficiently by demanding useless (and budget busting) tax cuts in place of effective, direct spending on job creation.

The New York Times recently joined the choir. In a lead article it argued that rising debt payments will dwarf the Pentagon budget in the next decade. But the New York Times, like the screeching deficit hawks are silent on the true underlying cause: The wealthy in America haven't been paying their fair share for more than 30 years.

We lead the world in billionaires. We also have the developed world's most skewed distribution of income. And our financial sector is much too large compared to the real economy it is supposed to serve. If we could see past our ideological blinders, we'd notice that there's plenty of money in this country tucked away in private hands. The super-wealthy never had it so good. If they ever paid anything like their fair share, as they do in Europe, our budget deficits would soon evaporate.

The Forbes 400 alone collectively holds about $1.5 trillion in net worth. You want deficit reduction? Then how about a wealth tax of 5 percent a year until the unemployment rate drops below 5 percent? That small tax on just 400 fortunate souls would reduce the deficit by about $75 billion a year. If we broadened the tax to include all those with a net worth of $500 million or more, we might generate more than $200 billion a year in public funds for debt reduction, or better yet, for real job creation.

A Tobin Tax on all Wall Street financial transactions also would move money from the financial sector to the real economy. A small fee would have almost no impact on 99 percent of Americans who invest long term for retirement or to pay for college. But the fee would dramatically impact the largest speculators who make billions of dollars worth of trades each day without creating one iota of value for the real economy. A Tobin tax could easily generate $50 billion a year for deficit reduction or job creation.

To put our people back to work we need to escape from the old debates. In our new billionaire bailout economy, jobs will be created when we directly create them and not before. Banks won't create them, nor will businesses until after the economy is humming again.

If we want to reduce our national debt, we need the super-rich and Wall Street to pay their fair share. If the fiscal hawks don't have the guts to correct our obscene distribution of wealth and income through progressive taxation and a Tobin tax, then they really have nothing useful to add.

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.

Linda Milazzo: Teflon Dick: How Cheney Uses Media For Protection

2009-11-30T04:52:15Z

On January 29, 2001, just nine days after taking office, Dick Cheney created The National Energy Policy Development Group, commonly known as the Cheney Energy Task Force. The task force was charged with the critically important task of designing America's national energy policy. Although the group's efforts would directly impact the entire nation, the new Vice President refused to divulge the names of its members or their specific activities, claiming the Executive Branch's right to confidentiality.

To challenge Cheney's claims of privacy and acquire the names and activities of the task force members, the Sierra Club and Judicial Watch filed Freedom of Information Act (FOIA) lawsuits, but the courts denied their initial requests and subsequent appeals. On July 18, 2007, the Washington Post revealed the names of members of the task force, which included executives of major conglomerates Enron, Exxon, ConocoPhillips, Chevron, the National Mining Association, and more.

Cheney's refusal to divulge the identities of the members of his task force was the earliest indication of the absolute power America's 46th Vice President presumed. His refusal demonstrated the covert nature of his Vice Presidency and his belief that transparency was not a requirement of the Executive Branch. The policies and practices predicated upon Cheney's presumption of confidentiality remained constant for the full eight years of his Vice Presidency. They ushered in the era of the Bush/Cheney Imperial Presidency that exercised sweeping authority, bypassed established law, and caused widespread concern amongst scholars and average citizens for the future of our democracy.

On August 27, 2004, future Nobel Prize winning economist Paul Krugman wrote the following criticism of Mr. Cheney's pursuit of privacy and power:

"Mr. Cheney's determination to keep his secrets probably reflects more than an effort to avoid bad publicity. It's also a matter of principle, based on the administration's deep belief that it has the right to act as it pleases, and that the public has no right to know what it's doing.

As Linda Greenhouse recently pointed out in The New York Times, the legal arguments the administration is making for the secrecy of the energy task force are "strikingly similar" to those it makes for its right to detain, without trial, anyone it deems an enemy combatant. In both cases, as Ms. Greenhouse puts it, the administration has put forward "a vision of presidential power . . . as far-reaching as any the court has seen."

From January of 2001 right through today, Dick Cheney has committed unconstrained, and as yet unprosecuted offenses, that include circumventing the Constitution, sanctioning unlawful torture, contributing to the outing of a CIA agent, concealing information from Congress, and lying the nation into war. The tragedy of Cheney's unrestrained lawlessness is further compounded by his unprecedented authority to preside over economic and foreign policies so calamitous that they drove this nation financially, militarily and morally into the ground. Despite his constant international and domestic catastrophes, for his first six years in office Cheney's crimes were supported by an ideological Republican legislative majority and a weak Democratic minority, both of whom succumbed to Bush and Cheney's Unitary Executive.

After the 2006 election, when Democrats took control of both Houses, Speaker Nancy Pelosi refused to abide by her Constitutional duty to investigate Bush and Cheney's crimes. Irrespective of public clamor for backbone and accountability, the Democratic majority rolled over for Bush and Cheney. They financed their plunder and allowed America to decay from within. Structural chasms in bridges, roadways, pipelines, and schools were matched by ideological chasms over religion, economics, politics and war. As Americans battled each other, Bush and Cheney bombed and tortured on, comforted by knowing there would be no repercussion. For a full eight years, they wreaked havoc on America and the world, and today, post administration, both men remain free.

Bush and Cheney understand that they're vulnerable to prosecution. Bush, for the most part, has stayed out of the limelight, though he's recently become more visible, perhaps inspired by Cheney's success at using THE BIG TOOL - the media - for protection. Since the beginning of the Obama presidency, Cheney has used the media full on. He's commandeered its major outlets, newspapers, cable and network TV, and the most caustic outlet of all, talk radio, to attack the very sources he knows could bring him down - the President and Attorney General. Cheney's best defense is his mass media offense and he knows exactly how to use it.

Dick Cheney has used the complicit American media, his most powerful anti-prosecution tool, to near Machiavellian perfection. He understands implicitly that American media employs no ethical standards that would prevent it from promoting him despite the atrocities he has caused. Regardless of his catastrophic failures, the shameless complicit media freely provides Cheney the platform to attack the President and Attorney General and advance his standing as their fiercest political critic. Because of this granted visibility to pummel Obama and Holder, Cheney is more able to establish himself as a victim of partisanship should Obama and Holder try to charge him for his crimes. Through widely broadcast speeches, like the one below of Cheney bashing Obama on Afghanistan, the complicit media is helping to immunize Cheney - and it's doing so knowingly.

It's baiting for ratings and justice be damned!

Cheney's transparent media offensive places him squarely, frequently and loudly in the public eye attacking Obama and Holder, and setting the stage for an adversarial relationship from which he can claim that he's their target. He's banking on the theory of American exceptionalism to keep his contrived "adversaries" from taking him down. American exceptionalism implies that America as a nation is superior to the rest of the world. In lesser nations, political rivals are targeted and imprisoned. Exceptionalism presumes that superior America, with its highly evolved democracy, would never do the same. Exceptionalism presumes that political targeting only happens in undeveloped and undemocratic nations led by unsavory leaders; Mugabe of Zimbabwe, Museveni of Uganda, Nkrumah of Ghana, Putin of Russia, have all imprisoned their opponents. Cheney's calculus has determined that American exceptionalism would prevent America's leaders from publicly engaging in tactics they condemn - like imprisoning political opponents.

Last week, Cheney's Machiavellian strategy reached a whole new level when his daughter Liz raised his status from political adversary to political opponent by floating the prospect of candidate Cheney in 2012. Brilliant! Behold Dick's calculating progeny doing his bidding on Fox TV:

What better protection from legal worries than planting the notion of a presidential run, elevating Cheney from harsh critic to political rival. It's the epitome of legal immunity in exceptionalist USA. Of course, there's little probability that Cheney would actually run. His approval ratings are dismal and he battles for breath whenever he speaks. But this is media manipulation - not political reality. Truth rarely imposes itself on TV.

Then there's the blogosphere, and the Keep America Safe website, created by scions Liz Cheney and Bill Kristol to propagandize for Cheney. The Cheney cabal is in full media combat when it comes to protecting Dick Cheney.

Notice the front page attack on Attorney General Holder - though Cheney's attacked Holder for a while.

On August 30th on Fox News, Cheney characterized AG Holder's decision to conduct a review of CIA interrogations as 'politically motivated,' laying the groundwork for Cheney's future claim of partisan targeting should the AG investigate him. Recognizing that Cheney and his "BFF" Donald Rumsfeld are thought to have instigated and sanctioned the interrogations, there is strong indication that CIA investigations would lead the AG directly to Dick Cheney. Here's Cheney's politicization of Holder's decision, broadcast on Fox TV:

Could the Cheney media strategy be any more obvious than it is in this video?

The saddest and perhaps most despicable irony in this symbiotic relationship between Cheney and the all encompassing media is the manner in which the media permits itself to be the tool to thwart justice. I recognize that in this article I've reproduced the messages Dick Cheney wants to send. But I've done so in the context of revealing Cheney's manipulations. It's my sincere hope that all media stop providing Cheney the wherewithal to immunize himself from prosecution. But sadly that won't happen. American media thrives on the point-counterpoint model, and Cheney has fashioned his offense perfectly to fit it.

Krugman: Financial Transactions Should Be Taxed

2009-11-27T09:47:16Z

Should we use taxes to deter financial speculation? Yes, say top British officials, who oversee the City of London, one of the world's two great banking centers. Other European governments agree -- and they're right.

Unfortunately, United States officials -- especially Timothy Geithner, the Treasury secretary -- are dead set against the proposal. Let's hope they reconsider: a financial transactions tax is an idea whose time has come.

Spending Up, Jobless Claims Down, But Still No Economic Recovery Yet

2009-11-25T12:59:07Z

There's good news and bad news today for the US economy. The good news is that consumer spending rose 0.7% last month, according to the Commerce Department. And, according to the Labor Department, the number of laid-off workers filing unemployment claims fell by 35,000 to 466,000 -- the fewest since September of last year and the first time since January that the number fell below 500,000.

Signs of a recovery? Not so fast. The bad news is that the Federal Reserve expects unemployment to remain high -- around 7% -- through 2012, and says it could take "about five or six years" for the economy to return to normal.

Given this forecast, Paul Krugman asks: "Why is anyone talking about an 'exit strategy'?"

"The truth is that policy should be piling on," writes Krugman, "not looking for the exit."

Ann Pettifor: Strengthening The Levees Against Unemployment And Rising Debt

2009-11-24T21:22:13Z

Some may wonder why I cheered when White House Chief of Staff Rahm Emanuel announced that the president plans to cut the deficit, because he "does not want to keep on adding to the debt."

It's no secret that conservative economists believe that the way to cut the deficit is to cut government spending. In other words, government must manage the federal budget in the same way that you manage your household budget.

But in truth, the president must do the opposite.

To strengthen the levees against the rising tide of debt and the "hurricane of unemployment," the president must both spend down the debt with a bigger fiscal stimulus, and also get a grip on monetary policy -- regulating lending and keeping interest rates low for all of us, not just the banks.

Third, the administration must manage government debt effectively and not leave it to the self-serving and private financial markets.

I am surprised at how often I have to explain why the fiscal stimulus is so important. But because fiscal conservatives just don't get it, they must be reminded of the well documented evidence again and again.

Government spending, unlike private spending, will pay down the debt by generating income, including tax revenues, and by reducing welfare payments. For unlike private households, governments generate revenues when they spend or invest, particularly on projects at home.

When a household spends its savings on say, a new wind turbine, solar panels for the roof, or insulation, money drains away from the household bank account. The engineers, builders and laborers that construct the turbine don't pay money back into the householder's bank account -- regrettably.

By contrast, when the federal government invests in jobs that can't be exported to China, the engineers, builders and laborers employed pay taxes back into the government's account. They then spend the balance of their incomes in shops and businesses, and these pay taxes too. Indeed the spending might stimulate a small business to invest and hire, adding even more taxpayers paying back into the government's account.

It's called the multiplier effect because guess what? It multiplies government revenues. The evidence shows that the increase in revenues outweighs the spending and thus helps cut government debt.

However, it's not enough to spend away government debt. More must be done, (and this is where Paul Krugman and I part company).

If the president is really determined to not "keep on adding to the debt," then he must tackle monetary as well as fiscal policy. As John Maynard Keynes repeatedly emphasized, monetary policy must always precede and underpin fiscal policy. They go together like a horse and carriage -- you can't have one without the other.

It is not enough to use public funds to bail out the economy, while at the same time allowing the private banking sector to arbitrarily raise interest rates for government, commercial and household borrowing.

It's particularly not fair -- indeed it's downright immoral -- that the private banking sector is reaping such rich pickings from low rates set by the Federal Reserve; from the struggling body that is the US economy, and from government borrowing.

For proof of the bankers' rich pickings, study the chart below from the International Monetary Fund. It shows (in pink) the low rates of interest paid by banks to the Fed and other central banks, in contrast to the rates of interest (in green) that the banks then charge to companies, households and individuals.

Note how the rates for those of us active in the real economy are always higher than they are for bankers borrowing direct from the Fed and/or central banks.

Then note how much they diverge after 2008. Bank borrowing costs fall to nothing, while private borrowing costs soar. No wonder bank profits are ballooning.

(The chart is from the IMF's October 2009 Global Financial Stability Report. The composite real private borrowing rate [RPBR] is a GDP-weighted average of the U.S., Japan, euro area, and U.K. RPBRs.)

The Treasury must get a grip on high rates of interest -- rates bankrupting businesses and homeowners, causing foreclosures and unemployment to rise -- all "adding to the government debt" by increasing welfare spending.

The administration (through the Treasury, the Fed and the banking system) must adopt policies to force down rates across the spectrum, for government and the private sector; for the commercial and household sector as well as banks; all loans, short-term and long-term, safe and risky.

To stop "adding to the debt" it is vital to keep interest rates very low -- while ensuring that lending is 'tight' -- i.e. well regulated. Today, in the midst of the crisis, money is tight, and it is expensive.

Above all the Treasury must get a grip on its own debt management -- and not leave that to the private, self-interested finance markets.

Because after all, bankers have one great way of making capital gains: by "adding to the debt."

US Debt A 'Phantom Menace,' Krugman Argues

2009-11-23T09:39:52Z

The United States is borrowing trillions of dollars under terms that seem "too good to be true" just as a "spending explosion" on benefits programs like Medicare and Social Security is set to begin, according to the New York Times.

In a series titled "Payback Time: Debt Bomb," the Times details the magnitude of our nation's borrowing and warns of an impending and monumental reality check:

The government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.

With the national debt now topping $12 trillion, the White House estimates that the government's tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically."

Replete with charts and stupefying figures (Americans must pay off more than $1.6 trillion in debt by March 31, 2010), the piece states that there is "little doubt that the United States' long-term budget crisis is becoming too big to postpone."

Au contraire, says Times columnist and Nobel Prize-winning economist Paul Krugman, who argues today that "Most economists I talk to believe that the big risk to recovery comes from the inadequacy of government efforts: the stimulus was too small, and it will fade out next year, while high unemployment is undermining both consumer and business confidence."

Krugman cites a recent interview during which President Obama warned that "if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession."

Krugman's response: "What? Huh?"

[T]he concerns Mr. Obama expressed become comprehensible if you suppose that he's getting his views, directly or indirectly, from Wall Street.

Ever since the Great Recession began economic analysts at some (not all) major Wall Street firms have warned that efforts to fight the slump will produce even worse economic evils. In particular, they say, never mind the current ability of the U.S. government to borrow long term at remarkably low interest rates -- any day now, budget deficits will lead to a collapse in investor confidence, and rates will soar. [...]

A better model [for our current scenario], I'd argue, is Japan in the 1990s, which ran persistent large budget deficits, but also had a persistently depressed economy -- and saw long-term interest rates fall almost steadily. There's a good chance that officials are being terrorized by a phantom menace -- a threat that exists only in their minds.

Read Krugman's full piece here.

Likewise, economist and blogger Dean Baker scoffs at the Times's over-hyped debt reporting. Baker's post -- titled, "In Just a Decade the U.S. Interest Burden Could Be as High as It Was in 1992!!!!!!!" -- notes that there is "no evidence presented in this article that the rise in interest rates will place the U.S. government in a situation where it will be unable to pay its bills and no one cited in this article makes such a claim."

Incidentally, today's Wall Street Journal features more evidence that the Obama administration is rejecting Krugman's advice. "The White House is lukewarm about proposals by congressional Democrats to introduce broad legislation to create jobs, instead favoring targeted measures that would be less likely to inflate the deficit," the Journal reports, citing administration officials.

Paul Krugman: Government Squandered Our Trust In Wall St. Bailout

2009-11-20T11:24:28Z

Earlier this week, the inspector general for the Troubled Asset Relief Program, a k a, the bank bailout fund, released his report on the 2008 rescue of the American International Group, the insurer. The gist of the report is that government officials made no serious attempt to extract concessions from bankers, even though these bankers received huge benefits from the rescue. And more than money was lost. By making what was in effect a multibillion-dollar gift to Wall Street, policy makers undermined their own credibility -- and put the broader economy at risk.

Sen. Fritz Hollings: Quiet Conspiracy

2009-11-19T15:54:02Z

Fifteen years ago, I called my friend Walter in California to ask that his next expansion be in South Carolina. Walter responded: "I don't produce anything in the United States. It's all in China. I lease the plant for a year. They provide the workers, and I put a quality control man in charge, keeping up with him on the internet. If I make a profit, I don't have to pay any tax. I just invest in another plant and expand. If business has a downturn, I just walk away. I haven't lost any capital investment or incurred any legacy costs."

The conspiracy begins with business keeping this deal quiet. It is globalization. Nothing you can do about it. If one tries, call for "free trade," "protectionism," "don't start a trade war." Instead of leading the way in Congress for a strong economy, hush! Or better still, call for "free trade.

Thus, business began the conspiracy of silence on the Trade War that rages in globalization. Globalization is nothing more than a Trade War with production looking for a cheaper country to produce, and producing off-shore one doesn't have to bother with health care, labor laws, protecting the environment, OSHA's safety rules and anti-trust provisions.

Next in the conspiracy is Wall Street interested in off-shore profits and the banks and investment houses like Goldman-Sachs that finance off-shore production.

Then comes the conspiracy of silence on the Trade War by the President and Congress. Both go along with the charade because Wall Street, the financial crowd, and Corporate America furnish the contributions for the campaigns.

The fourth and cancerous part of the conspiracy are the economists and free press. They give credibility to the charade of silence on a Trade War. The economists follow the adage: "Whose bread I eat, his song I sing." The best of the best, Paul Krugman, recommends more stimulation, "New-Deal-style employment programs," such as the WPA and the CCC, and Germany's reducing "workers' hours rather than laying them off" --everything about creating jobs, but nothing about stopping the loss of jobs in the Trade War. Krugman has to know that off-shoring our production and jobs at the present rate will soon put the economy beyond repair. The media avoids mentioning the Trade War like the plague. Last week's Time magazine lists "5 Things We Can Learn From China:

(1) "Be ambitious;"

(2) "Education matters;"

(3) "Look after the elderly;"

(4) "Save more;"

(5) "Look over the horizon."

Time ignores China's employing every device to secure research and technology and China's total control of its financing, labor, production and trade. As the United States government remains AWOL, Time ignores China's lesson that government is the "comparative advantage" in the Trade War.

I was drafted in this Trade War by the northern and southern textile industries to testify before the old U.S. Tariff Commission in 1960. I told how we were losing textile production and jobs because Japan was dumping its textile exports at less than cost into the U. S. market. John Kenneth Galbraith later helped draw up President John Kennedy's seven-point program in 1961 to protect textiles from Japan's trade practices. But Japan continued building plants around the Pacific Rim and transshipping in violation of its trade agreements into the United States. Twenty-five years ago, U. S. Customs estimated that the textile industry was suffering from $5 billion in textile transshipments. We were receiving textiles from Matsui that didn't even have a textile plant.

In 1968 we passed five bills to counter this conduct and have the President enforce our trade agreements, but President Lyndon Johnson blocked one in the House of Representatives, President Carter vetoed one, President Reagan vetoed two, and President George H. W. Bush vetoed one. In passing bills through both Houses of Congress, we proved the textile industry was the most productive in the world -- investing $2 billion a year in new machinery, downsizing the card room from 25 employees to none, downsizing the weave room from 112 to 12.

Zenith spent three years and $3 million going through the courts to protect its production and finally won before the U. S. Supreme Court. But President Ronald Reagan said we had to help his friend, Nakasone, in Japan and overrode the Supreme Court decision. Industry, seeing it could get no relief in the courts or from the Congress, started off-shoring in earnest. And under President Clinton's and George W. Bush's free trade policies off-shoring hemorrhaged. Milliken Textiles, that launched the program "Crafted with Pride in the USA," had to move its carpet production to Beijing in order to sell the carpet for the Chinese Olympics' Bird Nest.

In the last ten years, the United States has lost one-third of its manufacturing and now imports a majority of what we consume. Long before today's recession, the United States lost a substantial portion of its production of textiles, shoes, watches, radios, TVs, steel, electronics, computers, machine tools, robots, communications equipment, automobiles, advanced technology and now research. But Corporate America, the financial interests, the government in Washington, the economists and media, act as if there is no Trade War.

The President, as he dithers on how to get in a war that he should be out of, now calls a White House summit on jobs to dither about how to stay out of the Trade War that we ought to be in. We need to:

(1) Stop subsidizing off-shored production transferring its tax benefit to domestic production.

(2) Corporate America can't produce for a profit in the U. S. in the Trade War. One hundred twenty-three countries in globalization compete with a value added tax that's rebated at export. The corporate income tax is not rebated. Cancel the corporate tax and replace the revenues with a 3% value added tax. The average corporate tax is 27%, and together with China's 17% VAT, constitutes a 44% incentive to produce in China rather than the United States. Removing this incentive and canceling the corporate tax with a 3% VAT that's rebateable, Corporate America becomes competitive in the Trade War.

(3) Under Section 201 of the Trade Act, institute quotas on imports endangering our production like automobiles and auto parts. In the last eight years, Detroit has been subjected to $1 trillion worth of subsidized automobile and auto parts competition. The bailout can't work if this continues.

(4) We have off-shored our defense production to such an extent that we can't go to war except with the approval of a foreign country. For example, Boeing can't produce a fighter plan or Sikorsky a helicopter without vital foreign parts. Globalization is so rampant that I doubt a policy requiring complete production in the United States would pass. But a studied policy under the Defense Production Act of 1950 is absolutely necessary. By a studied policy, the Congress working with industry must determine what major production is required in-country and what can be warehoused, so that the nation is ready to defend.

These steps should be taken immediately, rather than dithering with a summit.

Don't give me this "free trade," "protectionism," nonsense. The country was founded in a trade war with England. Protectionist tariffs financed and built the country into an industrial power superior to England in the first hundred years. We did not pass the income tax until 1913. As Henry Clay on the floor of the United States Senate said of free trade: "It never existed; it never will exist."

And don't give me this education or innovation sing-song like there's some magic bullet to the creation of jobs. South Carolina needs more education. But we are presently making turbines for G.E., tires for Michelin, automobiles for BMW and vital sections of the 787 Dreamliner for Boeing. We confronted the innovation problem in Congress twenty years ago with an "Advanced Technology Program" that worked extremely well until terminated by President George W. Bush. Any innovation today in the U. S. like windmills is immediately developed and produced in China. And stop spreading the myth that John McCain started in the campaign in Michigan by telling the voters that in globalization automobile jobs are not coming back. There're coming back like gangbusters in South Carolina, Alabama, Mississippi, Tennessee and Kentucky.

And don't give me this put-off of exports. The United States has off-shored so much of its value added production that we have ended up with the export profile of an eighteenth century colony. Today's plus-balance of trade is made up in agricultural products, chemicals and most of all airplanes, engines and parts. But last week, China announced the flight testing of a fighter plane of the same technology as the Lockheed Martin F-22. And this week, GE and China announced a 50/50 deal for the production of avionics - in China. Ignoring the Trade War, our country will soon lose a major contributor to our defenses and the balance of trade.

Stop dithering. Stop the summits. Get into the Trade War and trade.

Alison van Diggelen: Paul Krugman's Advice for Obama Job Summit

2009-11-14T11:27:35Z

Silicon Valley -- Paul Krugman shared some wisdom last night about the White House Job Summit, which President Obama announced earlier in the day. The Nobel Prize winner for Economics was in Silicon Valley as part of the Foothill College Celebrity Forum Lecture Series. In an exclusive interview, he was forceful in his view that "the jobs summit cannot be an empty exercise."

In particular, he said that the Obama administration ought to use a combination of tax credits for jobs added, and subsidies to encourage companies to retain their employees. He pointed to Germany as a country that has largely contained the extent of its job losses despite the Great Recession, thanks to job conservation measures.

"He can't come out with a proposal for $10 or $20 billion of stuff because people will view that as a joke. There has to be a significant proposal," said Krugman. "If I had my druthers, if there were no limits politically, I'd say let's just have a really massive second stimulus plan to get the economy going, but since that's not going to happen, we need some measures that are cheaper, don't maybe do as much for GDP but create a lot of jobs."

When asked if he has a minimum spending level in mind, Krugman was clear, "There's no hard and fast number, but if it isn't several hundred billion dollars... OK, probably it's not going to be as big as the first stimulus bill and not going to be as big as I think it should be. But I have in mind something like $300 Billion, you could do quite a lot that's actually targeted on jobs."

Krugman has not yet received his invitation from President Obama to be part of the Job Summit but indicated that it would be "revealing" if he didn't get an invitation. The full five minute interview is featured at FreshDialogues.com, along with a transcript.

Dean Baker: Job Sharing Could Ease Unemployment

2009-11-13T14:30:12Z

Paul Krugman today solidifies his membership in the Job Squad, that growing contingent of bloggers and policy mavens calling for a new stimulus directed at employment. I've shared many of the Job Squad's ideas -- direct state aid, a tax credit for companies that hire, a payroll tax holiday, public work projects -- but here's one I haven't given much attention to: Job sharing. What is that and how would it work?

7 Great Books By Economists

2009-11-13T07:37:32Z

There's a major panel discussion going on today in Washington, D.C. called "The Next Stage," in which economists are coming together to discuss the problems facing America, from unemployment rates to the mortgage crisis to the Obama administration's economic policy as a whole.

Over here at HuffPost Books, the panel inspired us to create a list of some of the best and most important books by economists. We hope this will shed light on the history of our country's economic policies and the point that we've come to now.

Vote on the books you think are the most important, and leave your own suggestions in the comments section below.

Get HuffPost Books On Facebook and Twitter!

Filed by: Jessie Kunhardt

Alan Miller: The Recession, President Obama and The Future. Do ideas matter?

2009-11-12T12:38:00Z

Recently, the Mayor of London, Boris Johnson, penned an article bemoaning the
greed of bankers and hatred of politicians. Indeed, it has been a widely popular argument that many commentators from around the world have put forward as an explanation for why we currently face such a tough recession -- that "greed" is a major culprit.

However, it is striking that while it is certainly the case that increasingly complex financial instruments were used to make a profit, blaming "greed" does not really clarify what the problem is. What it does do, though, is reinforce an already strong opinion that something about human nature is at root of the where the real problem is.

Once we had competing ideas -- some referred to them as "grand narratives" -- however there were loudly differing views as to how to organise the world, the market, society generally. The end of the Cold War also saw off the end of most left-wing alternatives. The Age of TINA (There Is No Alternative) to the market, so loved by Margaret Thatcher and Ronald Reagan, did not, however, resolve some of the tough questions that inevitably raise their heads. How to solve ongoing poverty, improve housing, prevent infant mortality and avoid the damaging impact of recession on jobs, families and individuals.

The eras of John Maynard Keynes and Milton Friedman were defined by the attempt to battle out the ideas of how best to organise society and its resources. As Bruce Bartlett points out in his latest book, he only realised was a pro-capitalist anti-Socialist when he read The General Theory of Empolyment, Interest and Money. It seems that while there has been so much discussion about the recession, there has been very little theoretical clarity -- and increasingly a tendency not to discuss critical issues such as real investment in infrastructure and how we address the long term trend of decreasing manufacturing in an ageing western world versus increasing manufacturing in Asia, particularly China.

It seemed as though the election of President Obama, with all the enthusiasm that went along with it, may have introduced a new era. "Yes we can!" Although not so long after, it appears that perhaps it was a little more "Yes he can" with the "we" part no longer so necessary. Or as Anna Quindlen put it in Newsweek recently: campaigns are one thing, politics when in power (apparently) quite another. We all projected our hopes on to a new comer who only actually promised "hope" and "change," she reflects.

However, with Ben Bernanke declaring that the recession is likely over and some celebrating the stock market rallies, it begs the question to what extent are we goint to see and experience real change? Sean Collins, a New York writer for Spiked Online suggests that the problem is a lack in productive investment in infrastructure and long term development. So "cash for clunkers" and housing rebates do not an increase in productivity make. Further, he argues the lack of investment will mean fewer jobs in the future and more problems, and that " In the second quarter of 2009, net private investment fell off the cliff to a nearly non-existent 0.1 per cent of the total economy (gross domestic product or GDP), the lowest level since modern records started in 1947." Justin Fox, the "curious capitalist," also asks whether the financial sector can become too big, while Robert Samuelson has writtten regularly in The Washington Post and elsewhere about President Obama's escalating debt problem. Nouriel Roubini, economics professor at NYU, put it more bluntly when he said that the recession will be "long and painful" and could place the US more in a position like Japan.

Paul Krugman has noted several times that he believes it will take a long time to recover and even then that may look very different to what went previously.

As Daniel Gross points out in Slate though, maybe we should not jump to conclusions just yet prior to the entire spending of the Stimulus money, however, it has been noted that the former pariah toxic assets are now making JP Morgan Chase and Citigroup billions on securitisation.

The thing is, of course, President Obama and his team, a long way from being stupid, realise much of this. Therein lies the rub. We have a situation today however where really unpopular measures, such as allowing some things to fail and transforming our relationship to others (whether by investing heavily in infrastructure, rather than simply allowing reflation in private finance or creating a truly free universal health care for all), are seen as "unrealistic" or not viable politically.

Sadly, in spite of all the enthusiasm behind the election of President Obama, particularly from younger people, we live in an age where TINA dominates not only our outlook re the market -- but it seems bold, challenging, controversial ideas that have to be won politically and argued out and possibly lost -- are just off the agenda. While the new health bill passed just passed in the House, it seems certain limitations always need to be assumed, rather than fought out.

On Monday evening, I shall be moderating a panel in New York City with a title similar to the one above where a panel of esteemed thinkers will be putting their views forward and where an audience will be able to thrash out some of these views together. It will probably raise far more questions than it will answer, for surely that is the precursor to real change -- to ask the difficult questions, not to immediately make policy, but perhaps to get a handle on how we can truly understand the current situation. With so many experts and pundits clearly in the dark, having citizens discussing what they think about these political issues would seem to be the first step to any type of real change. Rather than blaming a broad and unspecific notion of human greed or dodgy bankers (which is really an attack on human aspiration), we would be better placed getting to the heart of where the core of the problem lies.

Then, maybe us humans could do something positive about it.

Rob Kall: Top-Down Blowback; The GOP Discovers That the Grassroots Bites Back

2009-11-11T10:37:44Z

Sometimes it's not wisdom of the crowds, it's madness of the crowds. What happens when a top-down organization which has exploited the grassroots finds that the grassroots won't take it any more and starts to bite back, to take control?

For years, the GOP was a totally top-down organization. It exploited the fears, faiths and foibles of its core constituency. Paul Krugman, , described it in his November 2009 NY Times Op-ed, Paranoia Strikes Deep. He discusses how a major protest in Washington D.C., officially sponsored by the House Republican leadership, which he described:

...including large signs showing piles of bodies at Dachau with the caption "National Socialist Healthcare." It was grotesque -- and it was also ominous. For what we may be seeing is America starting to be Californiafied.

The key thing to understand about that rally is that it wasn't a fringe event. It was sponsored by the House Republican leadership -- in fact, it was officially billed as a G.O.P. press conference. Senior lawmakers were in attendance, and apparently had no problem with the tone of the proceedings.

True, Eric Cantor, the second-ranking House Republican, offered some mild criticism after the fact. But the operative word is "mild." The signs were "inappropriate," said his spokesman, and the use of Hitler comparisons by such people as Rush Limbaugh, said Mr. Cantor, "conjures up images that frankly are not, I think, very helpful.

What all this shows is that the G.O.P. has been taken over by the people it used to exploit.

Krugman describes how paranoia has seeped back into the Republican party, a paranoia that Hofstadter described in 1964. He discusses how, with the election of Reagan, Republicans began pandering to the passions of the angry right, but how, until recently

...that catering mostly took the form of empty symbolism. Once elections were won, the issues that fired up the base almost always took a back seat to the economic concerns of the elite. Thus in 2004 George W. Bush ran on antiterrorism and "values," only to announce, as soon as the election was behind him, that his first priority was changing Social Security.

Then, Krugman observes:

But something snapped last year. Conservatives had long believed that history was on their side, so the G.O.P. establishment could, in effect, urge hard-right activists to wait just a little longer: once the party consolidated its hold on power, they'd get what they wanted. After the Democratic sweep, however, extremists could no longer be fobbed off with promises of future glory.

Furthermore, the loss of both Congress and the White House left a power vacuum in a party accustomed to top-down management. At this point Newt Gingrich is what passes for a sober, reasonable elder statesman of the G.O.P. And he has no authority: Republican voters ignored his call to support a relatively moderate, electable candidate in New York's special Congressional election.

Real power in the party rests, instead, with the likes of Rush Limbaugh, Glenn Beck and Sarah Palin (who at this point is more a media figure than a conventional politician). Because these people aren't interested in actually governing, they feed the base's frenzy instead of trying to curb or channel it. So all the old restraints are gone.

In the short run, this may help Democrats, as it did in that New York race. But maybe not: elections aren't necessarily won by the candidate with the most rational argument. They're often determined, instead, by events and economic conditions.

Krugman is describing the power of bottom up passion. Limbaugh, Beck and Palin tap the energy and emotions of the masses, and flame their biases and bigotry. This is the "madness of the crowds" that was always to be feared. It is a potent force that, if effectively tapped, can be very destructive.

Krugman looks at how the teapartying far right acolytes of Beck and Limbaugh could literally gain enough power to do what Republicans in California have done, saying:

In California, the G.O.P. has essentially shrunk down to a rump party with no interest in actually governing -- but that rump remains big enough to prevent anyone else from dealing with the state's fiscal crisis. If this happens to America as a whole, as it all too easily could, the country could become effectively ungovernable in the midst of an ongoing economic disaster.

The same thing could and may already be happening with the Democratic party. Obama either promised or allowed people to develop expectations that he would make big changes happen. Who would have thought that would mean reducing women's access to abortion -- an issue central to the women who make up at least 60% and probably closer to 65% of the Democratic party?

Who would have thought that Obama's health care plan would enrich big Pharma and raise profits for health insurers while raising taxes on small businesses and threatening to jail people who were uninsured?

It is not surprising that both major parties are facing either backlashes or major groups within their constituencies who are raging and leaning towards operating as independents, or even towards starting third parties. Already, there's a "Tea" party being discussed and there are more people who identify themselves as independents than as either Democrats or Republicans.

The fact is, the web and the media have changed the basic rules. The grassroots are connected in new ways, like never before. Glenn Beck's madness can be reinforced on right wing blogs and media sites. Tea partier activities can be shared by listserves and e-mail blasts, whereas in the past, it took money and much more time for bulk mailing via the post office, by conservatives like Richard Viguerie, to get the word out.

The grass roots are the ultimate "bottom" and they have more power than perhaps any time in history. But they can be influenced, aggregated, coalesced and whipped up by top-down powers, forces and entities. Top-down groups that thought they had control of bottom-up groups and energies will more and more find that they have created powerful new coalitions that they have no power over. It's unlikely this will stop top-down organizations from creating, encouraging or exploiting these groups. But it will, or at least should get them to change their expectations and the way they handle these forces of nature that are no longer in their control.

That doesn't seem to be happening with the Republican party today. It may be because the forces of wildness -- Limbaugh, Beck, Palin and their imitators -- have become more powerful than any of the top-down leaders, like Michael Steele, who in some ways, has echoed the sentiments and messages that have emerged from the grassroots teapartiers.

What happens when the bottom causes the top to adopt its ideas and issues? Sometimes craziness, but sometimes democracy, and maybe even elected officials actually representing the true interests and concerns of their constituents. Or those elected officials could just represent the loudest voices. That's also a bottom up consideration. Squeaky wheels will always get the grease.

Crossposted from OpEdNews.com

Is It Time For Another WPA? Why Government-Created Jobs Aren't The Answer

2009-11-09T10:01:41Z

Putting aside the standard concern about central planning, there are some unintended consequences that could come with a modern WPA. This 1990 paper by Robert Margo points out that the long-term unemployed with Depression-era WPA jobs were more likely to be unskilled, and when economic conditions picked up, were less likely to get back into the private sector:

Krugman: Paranoia Taking Over GOP

2009-11-09T08:39:13Z

Last Thursday there was a rally outside the U.S. Capitol to protest pending health care legislation, featuring the kinds of things we've grown accustomed to, including large signs showing piles of bodies at Dachau with the caption "National Socialist Healthcare." It was grotesque -- and it was also ominous. For what we may be seeing is America starting to be Californiafied.

Krugman: Obama's Economic Cautiousness Could Cost Dems In 2010

2009-11-06T09:14:57Z

The president, then, having failed to exploit his early opportunities, is pinned down in his too-small beachhead.

If the Democrats lose badly in the midterms, the talking heads will say that Mr. Obama tried to do too much, this is a center-right nation, and so on. But the truth is that Mr. Obama put his agenda at risk by doing too little. The fateful decision, early this year, to go for economic half-measures may haunt Democrats for years to come.

Les Leopold: Sparking a Populist Revolt Against the Billionaire Bailout Society

2009-11-03T10:30:46Z

It's just sitting out there.

Talk to your neighbors and you can sense how angry they are about the rich gaining ever more wealth during the Great Recession. They understand that the bailout money -- our tax dollars -- went to the largest financial institutions in the world which had caused the crisis in the first place. They sense that the middle class is getting screwed yet again.

What a teachable moment! But what are we teaching?

It looks as if this resentment may reinforce a conservative resurgence. The tea party storm troopers are but the tip of the renewed revulsion against big government that is likely to send many a Democrat to defeat. People will blame the government for its failure to reign in Wall Street. If they government won't punish Wall Street, then the public will punish the government.

If progressives don't intervene decisively, we'll soon return to the faith-based ideology that got us here in the first place. But what can we do in the face of so much wealth, so much lobbying power and so much weakness on the part of so many political leaders?

We can do the basics that every other movement in our nation's history has done. We need to work on three fronts:

1. We need a clear cut analysis and narrative that explains the problem in ways that everyone can understand.

2. We need a concise set of solutions that captures and directs the anger toward bold reforms.

3. We need a broad movement that takes the agenda door to door to build an organized, sustained response.

What's our Narrative?
This crisis is the direct result of a two-pronged, failed experiment starting in the late 1970s that supposedly was intended to lift all boats. The first part of the experiment was to set "free" the financial sector by taking away most of the strong controls put in place during the Great Depression. This was supposed to unleash financial innovation that would make our system stronger and richer.

The second part was to demolish the progressive tax system so that money would concentrate in the upper income brackets - the investor class. They supposedly would invest in new goods and services that in turn would create more jobs and increase incomes.

This experiment in deregulated finance and redistribution of income to the super-rich failed spectacularly.

Instead of an investment boom in the real economy, the super rich poured their money into Wall Street's deregulated fantasy finance casino. They got much richer. We didn't.

The last time our income distribution was this bad was 1929-28 when a similar fantasy finance casino exploded. One factoid tells it all: In 1970 the ratio of the top 100 CEOs compensation to that of the average workers was 45 to 1. By 2006 it was 1,723 to 1! (The Looting of America p.167)

The casino was betting on risky debt and pawning it off by claiming that the risk had been engineered away. When housing prices stopped climbing, the risk was revealed and the investments turned toxic. The financial sector froze up and pushed the real economy off a cliff. Unemployment rose rapidly and is continuing to rise.

To prevent another Great Depression, we poured trillions into the financial sector. Unfortunately we asked for and got little in return. The billionaire bailout society is still intact and we're paying for it.

What's our Agenda?
It's time for Wall Street and the billionaires at the public trough to pay their fair share:

a.) The President's Wage Cap: Until unemployment returns to below 5 percent, no one in the financial sector should earn more than the President of the United States: $400,000 a year. Why? Because the entire sector is on welfare to the tune of $13 trillion in TARP funds, liquidity programs, and various bond/asset guarantees. (See Nomi Prins ) This proposal calls for shared sacrifice. The super-rich can afford it more than the 29 million who are unemployed or stuck in part-time work because they can't find full time jobs.

b.) Windfall Profits Tax on Wall Street Profits: Until unemployment returns to below 5 percent, profitable Wall Street firms should return 90 percent to the US Treasury rather than to their shareholders and bonus pools. To make record profits during the deepest recession since the Great Depression is both obscene and impossible without tax payer support. It's time to pay us back.

c.) Wealth Tax of 5 percent a year on those with a net worth of over $500 million. Again, until unemployment goes below 5 percent, the super rich should pay their fair share. They benefited mightily from the billionaire bailout society that has unemployed so many and gutted the middle class. They can easily pay without suffering.

d.) Break up all institutions that are too big too fail so that they are small enough to fail. This is a no-brainer. Unless we do so, we'll always be bailing them out, making the billionaire bailout society permanent.

There's no need to be defensive about this kind of agenda. It's about as radical as the policies of Republicans like Teddy Roosevelt, who busted the trusts, and Dwight D. Eisenhower, who presided over an era where the marginal tax rate on those earning more that $3 million (in today's dollars) was 91 percent. These Republicans actually believed that a fairer income distribution was better for our country. These Republicans actually believed that concentrated power was a threat to liberty.

Obviously this agenda is not set in stone. Rather it could be a starting point for a discussion with our neighbors and other agenda creators. Only through a robust dialogue will we learn enough to formulate a final program that truly strikes a common cord.

How do we mobilize?
Ah, this is the hard part. We seem to have forgotten how to mobilize ourselves outside of elections that then disappoint us. But the civil rights and anti-war movements of a generation ago show that it can be done. However, it requires hard work and leadership by labor and church organizations that have sufficient resources to support a giant educational effort.

Somehow we have to get to a point where many progressive organizations are working in common to conduct a mass door to door canvassing campaign. The key is talking with our neighbors. I think you'd be surprised at how many people want to talk about how to end the billionaire bailout society and who currently are only hearing the voices of the Neanderthal talk shows. They know the system is messed up, and they know that Palin and Beck have some screws loose. But if those are the only critical voices they hear, then eventually those voices start sounding sensible. It's been a long, long time since we've had a door to door dialogue about the common good. (If we need devices to facilitate those encounters, it would be easy to come up petitions to deliver to congress and the media.)

I know, I know, many of us thought that by electing Obama, it would all change (and what, Paul Krugman would be economic Czar?). But it's never that easy. Nothing much of substance will happen unless we organize a mass debate around a common agenda and a definition of the common good.

Two things are certain: If we actually talk with our neighbors all over the country, our alternative agenda will become much, much stronger. And if we don't, we'll be stuck inside of the billionaire bailout society for decades to come.

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.

Krugman: "Centrists" Should Admit It If They Want To Kill Reform

2009-10-30T08:52:00Z

I won't try to psychoanalyze the "naysayers," as Mr. Orszag describes them. I'd just urge them to take a good hard look in the mirror. If they really want to align themselves with the hard-line conservatives, if they just want to kill health reform, so be it. But they shouldn't hide behind claims that they really, truly would support health care reform if only it were better designed.

For this is the moment of truth. The political environment is as favorable for reform as it's likely to get. The legislation on the table isn't perfect, but it's as good as anyone could reasonably have expected. History is about to be made -- and everyone has to decide which side they're on.

Andrew Winston: Missing the SuperFreaking Point (and Ignoring the Business Case for Green)

2009-10-28T13:50:17Z

Stephen Dubner and Steven Levitt's SuperFreakonomics has certainly gotten a lot of people worked up in short order. The point of contention is a chapter about global warming which makes the case that Al Gore and others are too worried about the climate problem because the only way to solve it is to convince people to "put aside their self interest and do the right thing even if it's personally costly."

The authors go on to explain their solution -- geoengineering -- which purportedly isn't going to require us to cut back on our energy use or rethink the way we do business. But what they have completely failed to address -- and what the (ahem) lively discussions on the topic have missed as well -- is what the benefits of tackling climate change might be, instead of just the costs.

The authors have missed a major economic issue: the process of shifting to a low-carbon economy has enormous upsides completely aside from the benefits to climate balance.

I'm not going to try and take apart their arguments or judge the soundness of their climate science as a whole; there are some others who are already doing a detailed job of that. If you like your climate discussions hot and sarcastic (which can be entertaining), see Joe Romm's posts on his Climate Progress blog. Or if you like the cool, dispassionate analysis, I'd recommend the Union of Concerned Scientists or the well-respected journalist Eric Pooley's take on how the authors -- who he says are friends of his -- "flunk" the science.

There's also been a fascinating back and forth which includes the authors and Nobel laureate economist Paul Krugman. In short, Krugman is not pleased and he lays out some devastating concerns about the mental exercise the authors have undertaken ("We're not talking about the ethics of sumo wrestling here; we're talking, quite possibly, about the fate of civilization. It's not a place to play snarky, contrarian games").

The brouhaha is truly unfortunate on many levels. It's not that having a discussion of geo-engineering is a bad thing -- we should explore and assess many options. But the real problem is that the authors of SuperFreakonomics -- and even the big critics who have gotten sucked into it -- seem to have taken too narrow a view of the problem. Although the authors clearly believe that there is too much climate-change hype, they seem to agree that there's a warming problem (or why propose a solution -- the main point of the chapter -- at all?). But the focus of the discussion is entirely on a way to counteract the effects of greenhouse gases, as if there are no other issues related to our reliance on fossil fuels.

Instead, let's just think about the business benefits of changing our products and processes to reduce carbon emissions, regardless of the atmospheric benefits. How will changing to a lower-carbon economy help companies? Well, there's real money involved here -- energy and other resources are getting fundamentally more expensive over time as demand around the world rises and supply gets harder to find. Oddly, the SuperFreakonomics authors acknowledge this Econ 101 supply problem in passing with the statement: "In just a few centuries, we will have burned up most of the fossil fuel that took 300 million years...to make." So why wouldn't we want to move away from a declining resource?

Put really simply, it saves money to reduce greenhouse emissions. It makes businesses more competitive to use less energy and to help customers do the same. It also creates jobs in a wide range of industries that help build a low-carbon economy -- from the obvious solar panel builders and installers to the less sexy home weatherizers, electric vehicle manufacturers and mechanics, and building efficiency consultants and experts.

The countries and companies that decouple themselves from fossil fuels will slash their costs and increase profits mightily. In fact, as Robert Kennedy, Jr. pointed out in a speech recently, the countries that have already reduced their reliance on fossil fuels -- such as Iceland, with its geothermal energy, and Sweden, with a carbon tax driving down energy use as the country grew -- have made their economies richer and more stable. (Yes, Iceland then bet its wealth on bad investments at the heart of the financial crisis in 2008 and bankrupted itself, but that's another story.)

As many have repeatedly argued, we also place ourselves at great risk globally by continuing to pour money into oil markets. We send hundreds of billions of dollars a year to parts of the world that tend to include our enemies (and is a waste of money no matter whom it goes to). And we place ourselves at personal risk -- the National Academy of Sciences just estimated, conservatively, that fossil fuels cost $120 billion per year in health costs and cause 20,000 premature deaths (that's more than six 9/11s if you're counting).

So while we find new ways to pour attention on "contrarians" and have a debate that most of the rest of the world has already stopped having, we risk our health, fall further and further behind the countries we compete with (China and Germany, for example, in renewables), and become more indebted to countries that may not be friends.

Solving climate change is not really about asking people to hold hands and sing "Kumbaya," but about political will and making it easier for business to create the low-carbon solutions we all need. Regardless of the climate science, the benefits of action and the costs of inaction for business are astronomical -- and worth superfreaking out about.

[This post first appeared on Harvard Business Online]

Robert Creamer: Why Growing Income Inequality Is Bad for America

2009-10-27T08:51:57Z

The recent controversy over the huge bonuses at financial firms like AIG and J.P. Morgan Chase have served to highlight both the disproportionate growth of the financial sector, and the perverse incentives that led traders and executives to take reckless risks with their companies and our economy.

But they have also shined the spotlight once again on the grave threat posed to our society by the growing income inequality that was the trademark of the last thirty years of our economic history.

Some facts:

* The CEO of the average company in the Standard and Poor's Index makes $10.5 million. That means that before lunch, on the first workday of the year, he (sometimes she) has made more than the minimum wage workers in his company will make all year. That translates to $5,048 per hour -- or about 344 times that pay of the typical American worker.

* Most people would consider a salary of $100,000 per year reasonably good pay. But the average CEO makes that much in the first half-week of the year.

* And that's nothing compared to some of the kings of Wall Street. In 2007, the top 50 hedge and private equity fund managers averaged $588 million in compensation each -- more than 19,000 times as much as the average U.S. worker. And by the way, the hedge fund managers paid a tax rate on their income of only 15% -- far lower than the rate paid by their secretaries.

There is simply no moral or economic justification for this kind of greed. Just as important, growing income inequality is a cancer that is attacking both the economy, and the social and political fabric of our society. A look at economic history makes several things clear.

1) Growth of income inequality does not result from "natural economic laws," as conservatives would like us to believe. It is the result of systems set up by human beings that differentially benefit different groups in the society.

At the beginning of the Great Depression, income inequality, and inequality in the control of wealth, was very high. Then came the "the great compression" between 1929 and 1947. Real wages for workers in manufacturing rose 67% while real income for the richest 1% of Americans fell 17%. This period marked the birth of the American middle class. Two major forces drove these trends -- unionization of major manufacturing sectors, and the public policies of the New Deal that were sparked by the Great Depression.

The growing spending power of everyday Americans spurred the postwar boom of 1947 to 1973. Real wages rose 81% and the income of the richest 1% rose 38%. Growth was widely shared, but income inequality continued to drop.

From 1973 to 1980, everyone lost ground. Real wages fell 3% and income for the richest 1% fell 4%. The oil shocks, and the dramatic slowdown in economic growth in developing nations, took their toll on America and the world economy.

Then came what Paul Krugman calls "the New Gilded Age." Beginning in 1980, there were big gains at the very top. The tax policies of the Reagan administration magnified income redistribution. Between 1980 and 2004, real wages in manufacturing fell 1%, while real income of the richest one percent rose 135%.

Much as they like to tout the magic "natural" effects of the market on levels of wages, conservatives have not been shy about using the power of government to affect the distribution of the fruits of the US economy. They have slashed taxes for the rich and for corporations, and increased the relative tax burden on working people. And by cutting taxes for the rich, they have transferred wealth to the most affluent people in America from all of our children by increasing the federal debt.

2). Increased income inequality is completely unrelated to the relative contribution of various groups in the population to the nation's economic prosperity.

Who could argue that the executives and traders of the Wall Street financial firms, whose reckless speculating ultimately sent our economy into a tailspin, made any meaningful contribution to our economic welfare? Yet they often made hundreds of millions of dollars.

Remember, much of the financial sector does not produce anything. The principal missions of the financial sector are to take on risk and allocate capital effectively. Some in the industry -- especially many community and regional banks -- do just that. But in the last year, the financial sector as a whole didn't "take on risk," it shifted risk to ordinary Americans through gigantic taxpayer bailouts. Many Wall Streeters themselves escaped the recent economic debacle, having salted away hundreds of billions of dollars.

Fundamentally the financial sector is made up of middlemen, who spend their time creating schemes that allow them to funnel society's money through their bank accounts so they can take a sliver of every dollar off of the top.

Right now, the private health insurance industry is busy trying to defend its turf against a public health insurance option. It wants to maintain its "right" to take that tribute off the top of as many health care dollars as possible. Remember, the private health insurance industry doesn't deliver any actual health care.

Does the CEO of CIGNA who is going to retire this year with a $73 million golden parachute contribute more to our well-being than a nurse who actually delivers health care?

The same is true of most of the financial sector, many of whom are essentially professional gamblers. It is the farmers, manufacturing firms, the health care providers, the transportation companies, the guys who sweep up buildings, the cops and firefighters, the people who teach our kids -- those are the people who produce the goods and services that we consume in our economy. The real incomes of these Americans have dropped by $2,197 per year since 2000, while the "bonus party" on Wall Street continues even though these Americas were asked to reach into their jeans and pony up hundreds of billions to bail out Wall Street's catastrophic mistakes.

3). As political scientists Nolan McCarty, Kevin T. Poole and Howard Rosenthal show in their book Polarized America: The Dance of Ideology and Unequal Riches, inequality in income distribution causes political polarization. It divides our society. Their study found that there is a direct relationship between economic inequality and polarization in American politics.

McCarty, Poole and Rosenthal measured political polarization in congressional votes over the last century, and found a direct correlation with the percentage of income received by the top 1% of the electorate.

They also compared the Gini Index of Income Inequality with congressional vote polarization of the last half-century and found a comparable relationship.

Want less political polarization? What a more bi-partisan spirit? Want America to be unified? Want less hatred and violence in our society? History shows that you start by once again compressing the difference in incomes between the very richest and the rest of America.

4). Finally, increased income inequality is completely undemocratic. It is a betrayal of our most fundamental democratic values. And it is dangerous to our prospects for long-term survival.

The increasing inequality of income leads inexorably to increasing inequality in the distribution of wealth. Power in the society is more and more concentrated in the hands of a few. It becomes more and more likely that some of our most powerful citizens came to that station not because of their merit, but because they got it the "old fashion way" -- they inherited it. That is directly contrary to our shared belief in a more democratic society -- where power and opportunity are broadly shared -- where no one's power or station in life are determined by accident of birth.

The earliest Americans came to this continent to escape tyranny, aristocracy and plutocracy.

Progressives who stand up against the increasing concentration of economic power in the hands of a few are standing for one of the proudest traditions of our democracy. And our commitment to the democratic distribution of power is not simply an expression of utopian idealism.

In his brilliant study of why societies in the past have failed, called Collapse: How Societies Choose to Fail or Succeed , Pulitzer Prize-winning physiologist and ethno-geographer Jared Diamond concluded that one of the most common factors was "rational behavior" by actors -- and decision-making elites -- that benefited some individual or private self-interest but was harmful to the prospects of the entire society.

He found that this was often complicated because the benefits to a small group that profited from the action were great in the short run, and the resulting damage to everyone else was not very palpable or immediate, except over time.

This problem became especially acute when elites thought they could insulate themselves from the consequences of communal disaster. Then, they were even less prone to make decisions in the public interest.

The increased inequality in the distribution of wealth and income makes this kind of decision-making more and more likely. We see when the interests of the wealthy stand in the way of solutions to the problems of climate change and environmental destruction -- or when we fail to raise enough money for the public education that benefits all children because the few who can afford private schools refuse to pay "higher taxes."

The creation of a democratic society, built on egalitarian principles, is the only real systematic means of assuring that the interests of the entire society are not sacrificed to those of powerful elites. Most stories of decisions leading to catastrophic collapse involve decision-making elites whose interests diverge from the society at large. Democracy is the only real antidote.

The undemocratic increase in the distribution of wealth and income is not only wrong. It is also dangerous to our future survival.

Robert Creamer is a long time political organizer and strategist, and author of the recent book: "Stand Up Straight: How Progressives Can Win," available on Amazon.com.

Zachary Karabell: Krugman Is Wrong: Why China Won't Revalue

2009-10-23T13:09:16Z

For years, Americans have been fulminating about China and its policy toward currency. While many of the debates are technical and laden with econo-speak, they boil down to the simple conviction that China is unfairly manipulating its currency to keep it undervalued against the dollar. The result is to give China unfair advantages in trade - flooding the US with cheap goods, hurting labor wages world-wide, and accumulating massive surpluses in the process.

That view is again articulated by Paul Krugman in today's New York Times, which ends with the firm statement: "Something must be done about China's currency."

But what exactly must be done? And more to the point, what can be? Declaiming that something must be done assumes that the United States or some other world power can coerce or force the Chinese government to change their approach to currency in particular and economic policy in general. Before the crisis of the past year, Chinese authorities had actually begun a slow, quiet revaluation of the currency, but only after American politicians and officials stopped using the currency question as a cudgel against China. The recent decision of Timothy Geithner and the Obama Administration not to label China a currency manipulator marked a welcome change in tactics. Compare that choice to the much-publicized Schumer-Graham tariff of 27.5%. It never went into effect, but it hovered as a threat that if China didn't immediately revalue its currency, dire things would follow.

But with China now accounting for nearly $1 trillion of American debt, and with the two economies in a symbiotic relationship that neither loves but that neither can escape, the U.S. can't simply insist that China do something about its currency and expect action. These economies are now fused (see my new book Superfusion). Much like the United States for last half of the 20th century, China is becoming a global economic behemoth. It isn't supplanting the United States anytime soon, but it is rapidly joining the U.S. as the other most important engine of the global system. It remains much poorer and less developed, but it is generating a substantial share of global activity and its cascade can be felt from Rio to Melbourne.

Given that, why would China decide to disrupt the system simply because it causes consternation in America or Europe? Its economy is booming and its policies, however unorthodox, are working. China will again allow its currency to appreciate when it feels that doing so won't cause a crisis of disrupt growth. Its massive accumulation of reserves is an issue. As the crisis eases, it's likely that Beijing will return to its pre-2008 policy of gradual appreciation, especially now that it is focusing on generating domestic demand and wants greater purchasing power for Chinese citizens. But Secretary Geithner - contrary to the criticisms of Krugman and others - has been exactly right in not publicly calling out China. Such an act would be both arrogant and foolish. In the world today, the United States can afford to be neither. Let's hope we remember that.

Dave Johnson: Palin vs. Krugman on the Dollar -- Who Is Right?

2009-10-23T12:14:30Z

The other day I wrote about how the dollar is falling - but not against the Chinese Yuan. A falling, or "weak," dollar is great for American manufacturers and therefore American jobs, because it makes American goods cost less everywhere else. This means our exports should rise, reducing our trade deficit and helping us pay off the huge amounts that decades of conservative budget policies forced us to borrow from other countries.

Conservatives, though, are trying to use the complexities of the relative value of the dollar in currency markets as an anti-Obama political issue. They must have polling that shows people reacting to way the words "strong" and "weak" are used. This misunderstanding of "strong" and "weak" reminds me of how I used to be confused by "debit" and "credit" when I learned double-entry accounting. (Sorry, I probably shouldn't mix corporate finance humor with blog posts.)

For example, earlier this month Sarah Palin (or someone) wrote on her Facebook page that a falling dollar makes us "vulnerable." This is a brilliant play on the "weak" theme, and is used to further scare people. (Republicans like to scare people - remember how Iraq was going to spread smallpox?) She earns her Exxon check, writing that we need to "Drill, baby, drill" for energy independence to solve this. She writes nothing about conservation, alternative energy sources like wind or solar, or about smart grids, or developing a 21st century economy -- Exxon wouldn't like that.

Palin's ghostwriter confuses several issues at the same time. This is brilliant agitprop but terrible, terrible policy.

Paul Krugman, America's other master economist, writes in the New York Times today that the problem is China, not Obama. China "pegs" their currency to the dollar so when the dollar drops the Yuan drops along with it. This keeps goods made in China at a nice, low price relative to everyone else, reducing any advantage we might gain from market forces. Krugman writes:

If supply and demand had been allowed to prevail, the value of China's currency would have risen sharply. But Chinese authorities didn't let it rise. They kept it down by selling vast quantities of the currency, acquiring in return an enormous hoard of foreign assets, mostly in dollars, currently worth about $2.1 trillion.

Many economists, myself included, believe that China's asset-buying spree helped inflate the housing bubble, setting the stage for the global financial crisis. But China's insistence on keeping the yuan/dollar rate fixed, even when the dollar declines, may be doing even more harm now.

Krugman says it is no time to be timid. We have to confront China on this manipulation.

The thing is, right now this caution makes little sense. Suppose the Chinese were to do what Wall Street and Washington seem to fear and start selling some of their dollar hoard. Under current conditions, this would actually help the U.S. economy by making our exports more competitive.

A a Bloomberg story demonstrates why we need to bring the dollar down relative to the Yuan,

"The stable yuan helped us increase sales by about 20 percent this year," Cody Hu, a sales manager at the Yongkang- based company, said at the China Sourcing Fair in Hong Kong. ...

"Competitors in China are doing good," said Suresh Sranavasan, a distribution manager at the company. "They have pricing advantages from the government's stable yuan policy."

I'm with Paul, not Palin. A lower dollar means jobs.

Take a look at the agenda for the Building the New Economy conference, Thursday, October 29, 2009 -- 9:30 a.m.-3:30 p.m. at the Washington Court Hotel in Washington, D.C.
This conference sounds the call for the new economy we must build out of the ruins of the old. It focuses on the need for a new agenda to revive manufacturing in America. It's free. But you have to RSVP.

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.