economic policy

TV Interview On The IMF and World Bank: International Echoes Of Domestic Banking Policies

Richard Eskow — Sun, 17 Apr 2011 23:44:47 -0400

Did an interview with RT Today on the meeting of the International Monetary Fund, and on the ways that IMF and World Bank policy reflect the same combination of austerity economics and a 'liberalized' financial sector that we're seeing here and in Europe. The video is here:

Obama's Top Priority Must Be Jobs, Not Republican Appeasement

Zach Carter — Wed, 03 Nov 2010 12:08:31 -0400

Economic policy has faced grave challenges over the past two years, hamstrung by obstructionist Republicans in the U.S. Senate and Wall Street-friendly advisers in the Obama administration. With the Republican Party now in control of the House, it seems certain that any major action to create jobs will face tremendous obstacles. This is a global calamity. But the political lesson of the past two years should be clear: all the good PR in the world can't whitewash a terrible economy. For the next two years, President Obama and his Congressional allies must do everything they can to actually improve the job market. Without a better economy for ordinary Americans, Democrats are doomed in 2012.

Ezra Klein presents what he thinks is a rosy view of how policy could proceed after last night. To me, it looks like exactly the sort of empty political gesture that Democrats should be fighting. Ezra envisions Obama and new House Speaker John Boehner, R-Ohio, reaching a grand bargain on economic policy: the payroll tax is lifted for a year, $50 billion in infrastructure spending is approved, the unspent 2009 stimulus money is abandoned, and $400 billion in spending cuts over 10 years are approved.

Ezra calls this the next chapter in an imaginary "universe where the government works." It's more like the next chapter in an imaginary world where the government works, and every policymaker is completely insane. Sure, the deal would convince voters that Democrats and Republicans can pass legislation (if it passed). But the result would be a neutral to negative impact on the job market. Continuing today's avoidable economic suffering is bad enough in its own right, but it's also a political disaster for Democrats.

If Obama heads into 2012 with double-digit unemployment, he will lose. End of story. Voters have a terrible view of Republicans, and they just sent over 60 new Republicans to Washington because Obama didn't bring down the unemployment rate. Those results prove that Democrats' backs are already up against the wall on 2012. Fixing the economy takes time, and we need strong, serious action as soon as possible, or we are headed for political calamity.

Why won't Ezra's policy package work? It has two useful elements—a tax cut to hire more workers, and $50 billion in infrastructure spending. Both of these would help some—if the tax cut was really wildly effective, they might combine to take the unemployment rate down by half a percentage point. But these useful policies would be offset by other spending cuts. And unless we're only cutting $600 hammers in the Pentagon budget, those spending cuts are going to kill jobs. To get $400 billion in cuts, we'd have to find 667 million of those hammers.

Lifting the payroll tax really might help create jobs. We don't know how many, but it surely wouldn't be as effective as simply hiring people outright, and that's what government spending—"stimulus" or otherwise—does. In other words, Ezra has outlined a proposal to kill jobs in order to maybe create some.

Showing that they can work with Republicans won't save Democrats in 2012. Only real economic results will. Aggressive PR about how you really actually did fix things won't convince people who are out of a job or in foreclosure. They know the economy still sucks, and even worse, they know you're not telling the truth.

So Obama also has to get his messaging in order. It may very well prove to be the case that Republicans block all but the most modest of steps to create jobs. Obama can't pretend that these steps are enough, and he cannot hesitate to attack Republicans, holding out hope that maybe, someday they will magically come to their senses and start approving policies that promote growth. He can't keep repeating the Republican talking points Rahm Emmanuel fed him over the past two years—the government can create jobs. Right now, it's the only entity that can.

Getting past "partisanship" doesn't mean cutting whatever crappy deal you can with your political adversaries. It means eschewing political grandstanding for good policy. Without good policy, bipartisanship is a pyrrhic victory.

So Obama has to fight hard for policies that actually bring the unemployment rate down, and he must be willing to defend his policy proposals from Republican attacks, making a clear moral case for why spending to support jobs is a good idea. Republicans know that they can win the White House in 2012 by simply blocking Obama and letting the economy fall apart. They'll do it. They already have. Obama has to hold Republicans rhetorically accountable so they fear the electoral consequences of obstruction enough to vote in favor of policies that actually work.

If Republicans refuse to cooperate, Democrats must at least demonstrate to voters that they are working for voters, not for bigwig bankers. The stimulus package approved in 2009 was too small for a variety of reasons, but one of them was due to the fact that Larry Summers and Timothy Geithner expected the financial system to help revive the economy. It didn't, because the system is dominated by too-big-to-fail behemoths with massive losses embedded in their balance sheets.

It's been very fashionable in D.C. to say that the bank bailouts "worked," even though they were unpopular. But they didn't work—banks aren't lending. And they didn't work because banks are still saddled with hundreds of billions of dollars worth of lousy assets. Regulators are allowing banks to account for those assets at inflated values, which protects the banks from losses. So banks trade securities instead of lending, and slowly recognize losses as they rake in gambling profits. This is why the foreclosure fraud scandal has sent bank stock prices on a downward trend—investors know that enough documentation will spark a new wave of losses, causing big trouble for Wall Street.

So we still need to fix the financial system. Banks must be forced to recognize their losses. Where those losses render a bank insolvent, the bank has to be restructured—shareholders wiped out, creditors taking a hit, and taxpayers putting up money only where doing so prevents a cascade of defaults. This will be painful, but no more painful than watching a recovery without credit.

And if Obama can't get these policies, he needs to at least fight for them. Prosecute the deep fraud in the financial system that is being uncovered every day. Explain to voters that Republicans are blocking job-creation.

These policies will be extremely difficult to secure in the face of anything close to the Republican obstruction we've seen over the past two years. But Democrats simply have no other choice. Without major action on the economy very soon, the White House is already gone.

As Wall Street Cheers Gridlock, We Get Stuck

Isaiah J. Poole — Wed, 27 Oct 2010 12:45:48 -0400

Wall Street, conventional wisdom has it, likes legislative gridlock. Stock prices tend to go up when Election Day results in the two major parties splitting power. As a USA Today story recently noted, “In the words of many Wall Street analysts and economists: Gridlock is good.”

Wall Street, be careful what you wish for.

At a forum Tuesday presented by the New America Foundation, several scholars and economists counted the cost of more than three decades of conservative-dominated economic policy and the federal government’s severely compromised response to the Great Recession. One thing became clear very quickly: The last thing you should want when an economy is gasping for air is gridlock that keeps emergency vehicles from responding.

That’s what’s already been happening, thanks to House Minority Leader John “Hell No You Can’t” Boehner and Senate Obstruction Leader Mitch McConnell. They led the effort that prevented the 2009 economic recovery bill from being sufficient to the need, and then stood in the way of follow-up attempts to aid state and local governments, extend unemployment benefits and move overdue transportation infrastructure funding through Congress.

Heidi Shierholz, economist at the Economic Policy Institute, said a continuation of this kind of policy paralysis—assured if the House switches from Democratic to Republican control after the November 2 elections—would mean a record level of sustained and elevated unemployment for at least the next three years.

“We have unemployment forecast to be 9.9 percent next year, which would actually be higher than the highest annual rate of the early 1980s recession,” she said. “Then, in 2012, it will be higher than the highest annual rate of the early 1990s recession. In 2013, the unemployment rate will be forecast to be over 6 percent, six years after the start of the recession. …

“If we keep going on as we have, we are going to have recessionary unemployment levels through 2013, and elevated beyond that. So that paralysis will have real effects on the ground.”

As it stands now, Shierholz said, the economy is 11 million jobs short of what’s needed to undo the damage of the Great Recession. By 2016, the economy will have to create 19 million new jobs to bring the nation to full employment.

Getting the economy on track to meet that need will require dramatic policy changes that are actively opposed by Republicans and are beyond what many Democrats are willing to embrace in the current political environment. “When you've had a meltdown you can't just throw a switch to get things started again,” said economist James Galbraith at the forum, and you certainly can’t expect the conservative policy prescriptions that have failed to work for 30 years to work in today’s even more challenging economic environment.

Galbraith and Sherle Schwenninger, director of the New America Foundation's Economic Growth Program, said the elements of a response to today’s jobs emergency would have to include, among other things:

A restructuring of the financial services industry, building on the reforms progressives won this year, so that it is more accountable to the public interest, combined with tools such as an infrastructure bank that uses federal dollars to leverage private investment in rebuilding the nation’s infrastructure.
Stabilization of the housing industry, including write-downs of principals on underwater mortgages and a curbing of the foreclosure fraud machine that, having sold mortgages that should never have been written, then sought to put people out of their homes through what amount to robo-foreclosures that flout the law and due process.
Allowing the federal government to take its rightful role in leading the economic recovery, recognizing that it alone, not states and localities, has the capacity and flexibility to take countercyclical actions to stimulate the economy in the absence of private sector demand. That role could include a return to Nixon-era “revenue sharing” with states, federal assumption of state Medicaid programs, and direct job-creation.
Making it easier, not harder, for older people to leave the labor market if they choose. Pushing back the Social Security retirement age to 69 or 70, as being encouraged by politicians in both parties, will mean less room for new entrants to the labor market. We should be working on ways to strengthen Social Security benefits and make Medicare available at least to people 55 and older (a proposal that was blocked by conservatives from the health care reform bill).

“The private sector jobs machine is broken and has been for years,” Galbraith said. The conservative solution, cheered on by Wall Street, is to keep emergency vehicles obstructed so they cannot get to the machine to fix it. Keeping this up will only keep working-class families sliding downward, and at some point Wall Street will find that their dependence on profits without broad prosperity is unsustainable.

Boehner's Half-Baked Economic Plan

Robert Borosage — Tue, 24 Aug 2010 14:52:17 -0400

Rep. John Boehner, the perpetually tanned House Minority leader, unveiled his plan to get the economy going today in a speech before the Cleveland City Club. Hold on to your job; if he becomes speaker, things will get worse.

Understandably, Boehner said not a word about the policies that led to the Great Recession. In fact, he said not a word about the economic collapse. Instead, he argued only that America's economy was in trouble because business was scared to death. It isn't the worst recession since the Great Depression, the lack of demand and customers that is plaguing businesses; it is the fear of tax hikes and regulation.

In response, Boehner detailed a five-point plan to "break the ongoing economic uncertainty." Three of the five points are basically rhetorical. He calls on Obama to pledge to veto any future tax increase. He calls on Obama to fire his economic team. And he promises to eliminate the 1099 tax return mandate that requires small businesses to report any expenditure on goods and services over $600, an aggravation that Democrats are also intent on reversing.

The last two points have greater substance. Boehner would keep tax rates where they are, opposing Obama's plan to let the Bush tax cuts expire for couples making more than $250,000 a year, or the top 2% of Americans. The Center for Budget and Policy Priorities estimates this would add about $1 trillion to the deficit over the next 10 years.

Second, he would impose an immediate cut of about 25% on domestic discretionary spending, returning it back to 2008 levels, repealing any further recovery spending. Later, he suggests that the cut with a "hard cap" (presumably for three years) would save $340 billion, recouping a little more than a third of his proposed top-end tax cut.

That's it. (Later in the speech, Boehner promises to unveil a more complete agenda in the future, and suggests possibilities, including the conservative standards: less spending, more tax cuts, less regulation, and more corporate trade treaties. Details to come later.)

There are some major problems with the Boehner plan.

1. It is a joke. We have over 25 million people unemployed, with an economy that is slowing. The Boehner response is to keep tax rates where they are for the rich, and cut all recovery spending, slashing 25% from domestic discretionary spending. We know two things about this program: It will kill more jobs than it creates; and it will add to, not subtract, from projected deficits.

2. It's half-baked. It is as if Boehner hasn't noticed what is going on in this country over the last decades of conservative domination. Instead he would exacerbate the worst ruinous trends. For example:

We suffer from the worst inequality ever. The top 1% pockets about 20% of all income, and has captured two-thirds of all income growth in the Bush years before the recession. Boehner's extension of the Bush top-end tax cuts will simply add to that in after-tax income.
We suffer a costly and growing public investment deficit—in everything from sewers and roads, to education and training, to research and development—areas vital to sustaining a competitive private economy. Slashing non-defense discretionary spending —which includes spending on education, on energy, on the environment, on everything the government does outside of defense and entitlements like Social Security and Medicare -- will only worsen that.
(And the hints Boehner offers about future plans aren't reassuring: more of the trade treaties that led to the ruinous trade deficits that force us to borrow $2 billion a day, largely from Chinese and Japanese central bankers; less regulation in the face of what deregulation of the big banks did to the economy, to the citizens in the Gulf, in the coal mines, and most recently to egg buyers in grocery stores; turning Medicare into a private insurance voucher, and more.)

Boehner became an instant YouTube celebrity for his "hell-no-you-can't" rant on health care reform. So it is understandable why he would want to offer voters some clue about what Republicans are for, not just what they are against. And no doubt the rhetoric of his speech has been dial-tested and focus-grouped to the last syllable.

But as a plan to get the country going, a plan to put people to work, a plan even to "break the ongoing economic uncertainty," this is just silly. The time would have been better spent working on his tan.

Do Democrats Want Toxic Campaign Cash From Goldman Sachs?

Zach Carter — Tue, 06 Jul 2010 20:46:13 -0400

Heavy-hitting Wall Street political donors are withholding their money from the Democratic Party's campaign coffers, according to a Washington Post report making the rounds on Capitol Hill today. In a political environment in which almost no group is as publicly reviled as a Wall Street executive, Democrats just scored a tremendous public relations coup. Good riddance.

The Post story from this morning reads like a campaign ad for embattled Democrats. After spending more than a year fighting for Wall Street reform, Democrats did such a good job that the bailout barons turned on them—are any Democratic strategists sorry to see that narrative emerge?

For the purposes of this post, set aside the fact that elected officials ought to answer to the public interest, rather than the narrow preferences of entrenched wealthy elites. Politics are still politics, and like it or not, money matters in elections. But the public perception of the current fund-raising situation will play very well for Democrats come election season. No politician likes seeing campaign money walk out the door. But there's one thing they hate even more than losing contributions: Losing elections. Sure, overstuffed campaign coffers make it easier to win in November. But not when the opposition can highlight those contributions as toxic money from corrupt bailouteers.

What are Democrats missing out on? Lloyd Blankfein, CEO of Goldman Sachs, the second-most-hated company in the country, has not contributed his usual $50,000 to the Democratic Party this year. Does anybody in Congress want to pose for a photo-op with Lloyd before November? Maybe give a speech explaining how betting against your own clients is a prime example of doing "God's work"? Of course not. If I were a Democratic strategist, I'd be printing the "Goldman Sachs Hates Democrats" posters right now.

There is, however, a class of politicians from both parties who are sweating bullets as the fund-raising numbers roll in. Everybody who voted against financial reform is starting to realize that they made a big mistake. Wall Street's campaign contributions are weak overall—they're down more for Democrats, but Republicans haven't raised all that much, either. Our economy is still coping with an economic calamity that everyone knows was caused by banker excess and weak regulation. For all but a handful of strident reformists who believe the banking overhaul legislation does not go far enough, all of the bill's opponents were making a naked political bet: The money I get from this vote will matter more to my electoral prospects in November than the damage to my reputation. But now it looks like that bet won't be paying off after all. Politicians who opposed reform not only cast an unpopular vote, they won't be getting their kickbacks, either.

But even if they did get the money, there is only so much they can do. The public outrage against banks is not unique to the progressive left. It's a phenomenon that crosses the ideological spectrum, and has been a major motivation behind much of the Tea Party movement. Sen. Robert Bennett, R-Utah, was a down-the-line conservative who voted in favor of the bank bailout with most of his Senate Republican brethren (and most Senate Democrats). But when primary time came this year, his vote for the banks cost him his seat. Lawmakers from both parties can expect similar treatment from the general electorate this fall.

The activists who turn out the vote during midterm elections are not happy with economic policy that puts bankers and traders first, while leaving jobs and foreclosures out to twist in the wind. That dissatisfaction applies to both traditionally Republican and traditionally Democratic activists. Winning Wall Street cash by capitulating on Wall Street reform is not going to impress voters of any ideological orientation, much less the moderates who are disgusted by the bank bailouts.

Of course, the banking overhaul is unnecessarily weak. It will not prevent another financial meltdown, and it does little to realign the interests of the banking elite with those of society at large. But there's a lesson here, too. The fact that Wall Street is doing its best to punish the Democrats right now shows how silly it is to try and curry favor with corporate interests who wreck the economy.

When you have to reform a broken industry, the executives from that industry are going to cry foul, whatever you do. The trillions of dollars in bailout money that the U.S. government funneled to Wall Street should leave no doubt in anyone's mind that Big Finance is broken—the need for reform is as imperative a policy priority as can be imagined. Watering down the bill, adding loopholes and refusing to consider tough reforms to appease lobbyists ultimately doesn't help much. Top executives will still be angry that you had the audacity to ask them to change something, because they spend their whole lives getting paid a fortune to do whatever they want.

Money is money. It matters in elections, and one would have to be aggressively naïve to believe otherwise. But Wall Street's money only matters to the politicians who made the wrong choice on reform—lawmakers who gambled with the public interest, and deserve to lose. For the rest of the Democrats, Wall Street's reluctance to fork over chests of bailout money should be seen as a political gift, not a setback.

Eight Keys To Addressing The Deficit

Richard Trumka — Wed, 30 Jun 2010 14:57:56 -0400

Mr. Chairman and Members of the Commission, I know my time is short, so I will limit my testimony to eight key points:

First, stabilizing the national debt is a means to an end, not an end in itself.

This is an excerpt of testimony delivered before the White House National Commission on Fiscal Responsibility and Reform on June 30, 2010.

The goal of our national economic policy should be sustainable, broadly shared prosperity. To achieve that goal, there is no question that we need to stabilize the national debt as a share of our economy over the long term. But stabilizing the debt is simply a means to achieve our goal of sustainable, broadly shared prosperity, and we should reject approaches to debt stabilization that take us away from that goal.

Which approaches would help us achieve sustainable, broadly shared prosperity? I can think of a few: providing the economic stimulus necessary to erase our 10.4 million jobs deficit and avoid a double-dip recession; investing in the 21st century infrastructure necessary to support stronger economic growth in the long term; further reducing excess health care cost growth; asking Wall Street and the small minority of Americans who benefited most from the economic policies of the past 30 years to pay their fair share for rebuilding the economy; and avoiding austerity measures that increase economic inequality, which played a key role in precipitating the current economic crisis.

Second, let’s be honest about what the problem is.

We need to be clear that President Obama is not to blame for getting us into this mess. Two weeks before he took office, the Congressional Budget Office (CBO) projected a budget deficit of $1.4 trillion for 2009—and annual deficits averaging well over $1 trillion for the coming decade.

We should be honest about what’s causing deficits over the next ten years. According to the Center on Budget and Policy Priorities, “The tax cuts enacted under President George W. Bush, the wars in Afghanistan and Iraq, and the economic downturn together explain virtually the entire deficit over the next ten years.” And “without the economic downturn and the fiscal policies of the previous administration, the budget would be roughly in balance over the next decade.”

Although more than half of the 2009 deficit is due to the recession, Council of Economic Advisers Chair Christina Romer points out that “in the absence of [Bush administration policies that we failed to pay for], we could have had an economic downturn as severe as the current one and responded to it as aggressively as we have, all while keeping the budget roughly balanced over the next ten years [2010-2019].”

We should also be honest about what’s causing projected deficits over the long term. We do not face a crisis of entitlement spending generally, caused by the retirement of the Baby Boomers. In the long term, we face a crisis of public and private health care costs growing faster than GDP, especially after 2035. Social Security has its own source of dedicated funding and is not responsible for our unsustainable long-term debt, and spending on other entitlements is projected to fall as a share of the economy over the long term.

Third, premature withdrawal of economic stimulus threatens to throw the global economy into a double-dip recession, or worse.

Already we can see how exaggerated fears and misinformation about deficits are leading to premature withdrawal of the economic stimulus that so far has prevented another Great Depression.

The Recovery Act was necessary because of a massive shortfall of aggregate demand, which resulted from high levels of unemployment and the loss of $12 trillion in wealth from the collapse of the real estate and stock market bubbles.

The Recovery Act did exactly what it was supposed to do. It increased the number of people employed by up to 2.8 million in the first quarter of 2010, increased the number of full-time jobs by up to 4.1 million, and increased real GDP by up to 4.2%. But it wasn’t big enough to restore all the jobs that were lost or to make up for the massive shortfall of aggregate demand.

Without a significant reduction in the trade deficit, only economic stimulus in the form of deficit spending can make up for the remaining shortfall of aggregate demand until private sector demand regains its footing.

But instead, we are heading in the opposite direction. We are prematurely withdrawing economic stimulus, allowing the Recovery Act to phase out and standing by passively as state and local governments plan budget cuts that will cost us 900,000 jobs.

Last month’s jobs report sends a strong signal that private sector job growth remains exceedingly weak and may fall further as the stimulus provided by the Recovery Act tapers off this year.

By withdrawing economic stimulus, we run the risk not only of prolonging the jobs crisis for several more years, but also of bringing about a “double-dip” recession—or even what Nobel Laureate Paul Krugman calls “a third Depression.”

This is a monumental blunder of global economic policy that bears an uncomfortable similarity to mistakes made by the U.S. in 1937, when premature fiscal contraction deepened and prolonged the Great Depression, and by Japan in the 1990s, when premature fiscal contraction led to a lost decade of economic stagnation.

There is no good economic policy reason that requires fiscal contraction at this time—neither concerns about inflation (which is practically non-existent), nor about long-term interest rates (which are extremely low by historical standards), nor about the crowding out of private investment (because so much labor and capital is unemployed), nor about the long-term debt (on which short-term stimulus has a small impact).

In other words, we can do something about the jobs crisis if we choose to. But we do have to choose—between providing more stimulus, on the one hand; or causing more joblessness, more wage cuts, more poverty, more inequality, more foreclosures, more waste of human potential, and more suffering, on the other.

Fourth, stronger economic growth, job growth, and wage growth are needed to stabilize the debt.

Just as the economic crisis itself bears much of the blame for projected deficits over the next ten years, a double-dip recession—or several more years of meager job growth—would have a similarly harmful impact on future deficits.

According to Paul Krugman, “Both textbook economics and experience say that slashing spending when you’re still suffering from high unemployment is a really bad idea. Not only does it deepen the slump, but it does little to improve the budget outlook, because much of what governments save by spending less they lose as a weaker economy depresses tax receipts.”

To a great extent, the size of the deficit depends on employment and growth. When employment and growth are weak, tax revenues are low and social assistance expenditures are high. When employment and growth are strong, the reverse is true.

Moreover, as Christina Romer has pointed out, failure to bring down unemployment quickly enough in the short term can result in permanently higher rates of unemployment, which would reduce federal tax revenues and increase federal expenditures. In other words, failure to provide additional stimulus in the short term threatens our fiscal sustainability in the medium and long term.

These are some of the reasons why President Obama said last weekend that “our fiscal health tomorrow will rest in no small measure on our ability to create jobs and growth today.”

And these are some of the reasons why White House economic adviser Larry Summers said recently that “spurring growth, if we can achieve it, is by far the best way to improve our fiscal position” because "it is not possible to imagine sound budgets in the absence of economic growth and solid economic performance”; and therefore “it would be penny-wise and pound-foolish not to take advantage of our capacity to encourage near-term job creation.”

Strong economic growth is equally important in the long term. Long-term deficit projections are based on assumptions about U.S. economic growth. If we achieve higher than expected growth, then projected deficits will not loom quite so large and stabilizing the debt will be a less daunting challenge.

In short, we must have a job-centered approach to stabilizing the national debt, which would bring us closer to our goal of sustainable, broadly shared prosperity.

Fifth, Wall Street should pay to build a 21st century infrastructure that will lead to long-term economic growth.

To achieve higher levels of economic growth, we have no choice but to abandon the failed economic policies of the past.

For decades the U.S. has pursued an economic growth strategy based on low wages and debt-fueled consumption that was financed by asset bubbles (first stocks, then real estate). We no longer have the option of perpetuating this obsolete strategy, whose failures have been exposed by the economic crisis.

We must identify new sources of economic growth for the future. One thing economists can agree on is that a modern, well-developed infrastructure is key to productivity growth in the private sector, to U.S. competitiveness in the global economy, and therefore to long-term economic growth.

Yet today we face a $2.2 trillion deficit in 20th century infrastructure that is crumbling and in disrepair, and a broad array of 21st century infrastructure—especially in transportation, communications, and clean energy—that is waiting to be built. Failure to invest in rebuilding our infrastructure for the 21st century will result in lower rates of economic growth—and therefore lower tax revenues.

Washington Post columnist Steven Pearlstein agrees that this is the ideal time to “invest heavily in public infrastructure that has been badly neglected over the past 30 years. I'm referring not only to roads and bridges but also to airports and air traffic control systems, urban transit, high-speed rail, schools and university facilities, national laboratories, national parks, ‘smart’ electric grids, broadband networks, green generating plants, and health information networks. Properly chosen, these projects can have huge long-run economic payoffs while tangibly improving the lives of all Americans. They're the kind of government spending today's voters can get excited about while also leaving a valuable legacy for future generations -- along with the debt that was used to finance them. And if they wind up creating some jobs at a time when millions of people are unemployed, so much the better…It's time to settle up and get on with the more exciting challenge of shaping our long-term economic future.”

Of course, rebuilding our infrastructure for the 21st century will require higher levels of public investment. The example of the postwar boom—when an economic strategy of broadly shared prosperity with strong unions and shrinking inequality paid off enormous dividends—shows us the way forward. High levels of public investment fueled robust GDP and job growth in the postwar period that reduced the debt-to-GDP ratio from over 100% after the war to less than 30% in the 1970s.

After the jobs crisis is behind us and economic stimulus is no longer needed, higher levels of public investment in infrastructure will need to be paid for. This will require new sources of federal tax revenue. Federal revenues are now at their lowest share of GDP (14.4%) since 1950, and effective tax rates applicable to high-income taxpayers (earning over $250,000 in 2009 dollars) reached their lowest level in at least half a century in 2008.

The question we now have to answer is who should pay for the urgent task of rebuilding our economy for the 21st century—the small minority of Americans who benefited from the economic policies of the past 30 years, or the vast majority of Americans who have seen little reward for their hard work.

We believe it is only fitting to ask Wall Street to pay to rebuild the economy it helped destroy. One way to do that would be through a Financial Speculation Tax (FST)—a tiny 0.05% tax on transactions of stocks, options, futures, credit default swaps, and other derivative instruments. The $100 to $300 billion in additional tax revenue per year that this tax would generate could be used to fund higher levels of public investment, and the tax itself would curb unproductive speculation that is harmful to the economy.

It would also be fitting to ask the wealthiest Americans who benefited most from the failed economic policies of the past 30 years to pay their fair share for rebuilding the 21st century economy and stabilizing the national debt. For example, a surtax of 1%-5.4% on earnings over $350,000 would raise close to $600 billion over 10 years. Other proposals to make the tax code more progressive enjoy broad public support.

Sixth, efforts to stabilize the national debt should not increase income inequality.

The alarming growth of economic inequality was a contributing factor to the economic crisis. Faced with stagnating wages, many workers responded by incurring more and more personal debt, often based on their home equity. At the same time, the shift of income to top earners contributed to excessive speculation and asset bubbles.

While a jobs-centered approach to debt stabilization would help reverse income inequality and bring us closer to sustainable, broadly shared prosperity, several approaches now under discussion in the debate over deficit reduction would take us in the opposite direction.

These approaches include prolonged unemployment, which would permanently cripple the earnings potential of millions of workers, exert downward pressure on workers’ wages, and condemn millions of children to poverty unnecessarily; cuts to Social Security benefits; and cuts to Medicare benefits.

Seventh, we must reduce health care costs even further—without cutting benefits or compromising the quality of care.

Before health reform was enacted, it was widely recognized that long-term deficits were driven by health care cost growth in excess of GDP growth. The economist Henry J. Aaron wrote, “over the next four decades, growth of health care expenditures accounts for more than all” of the increase in [CBO’s] projected long-term deficits.”

According to Christina Romer, “Some of this is the result of the aging of the population. But the far greater source is the fact that health care costs, both public and private, are rising much faster than GDP.”

Health reform is expected to reduce excess health care cost growth, but not eliminate it entirely. Additional reforms will be necessary.

Reducing excess cost growth can and should be accomplished without cutting benefits. Approaches that should be considered include (1) Medicare drug price negotiation; (2) easing restrictions on imports of prescription drugs; (3) expanding proven Medicare payment and delivery reforms; and (4) offering the choice of a public health insurance plan option that would offer premiums 10% below private insurance and would reportedly reduce the federal deficit by $110 billion over 10 years.

So we face a choice between reducing health care cost growth in ways that cut benefits for working people and compromise the quality of their care; or in ways that challenge the pharmaceutical companies, the insurance companies, and other powerful economic interests. Only the latter approach is consistent with sustainable, broadly shared prosperity.

Eighth, Social Security benefits are not the problem and must not be cut.

Social Security has its own dedicated source of funding and is not responsible for our long-term debt problem. The Social Security trust fund is projected to grow from $2.5 trillion in 2009 to $3.8 trillion in 2020, and its surpluses are invested in government bonds that have to be repaid just like any other government bonds. Social Security has no borrowing authority and cannot pay benefits if its trust funds are empty.

Creating the false impression that Social Security is a principal contributor to the growth of budget deficits, or lumping Social Security together with Medicare as part of a general “entitlements crisis”—is a sleight-of-hand designed to build public support for the unpopular Wall Street agenda of cutting Social Security benefits and/or privatizing the program. We cannot allow deficit reduction to be used as an excuse for either.

It is especially inappropriate to cut benefits for near retirees who have suffered the most from the recent loss of their retirement savings in the collapse of the stock market and real estate bubbles.

In fact, Social Security should be strengthened to compensate for the decline of traditional pensions and for the stock market losses of retirement savings plans. Social Security benefits are about one third lower than the average of 30 OECD countries.

We need to remember that Social Security functions as a powerful counter-cyclical stabilizer during recessions. Every month, millions of Social Security checks are quickly cashed to pay for goods and services, flowing through communities and fueling the economy.

The modest 75-year shortfall in Social Security’s finances can be easily addressed and does not require benefit cuts (such as reducing adjustments for inflation or reducing starting benefits) or raising the retirement age. One proposal to bolster Social Security’s finances that would be consistent with sustainable, broadly shared prosperity is raising the cap on taxable wages to 90% of earnings, or lifting the cap altogether.

♦ ♦ ♦

In the short term, we have a jobs crisis—not a debt crisis. The best way to improve our fiscal situation is through stronger job growth. However, given the massive shortfall of aggregate demand, additional deficit spending is necessary in the short term to bring down unemployment and avert a double dip recession, which would only make deficits worse.

After the jobs crisis is behind us, we will need more tax revenues to pay for the higher levels of public investment in 21st century infrastructure that are necessary to create good jobs, ensure long-term economic growth, and improve our global competitiveness. Additional health reforms will also be necessary to further reduce excess health care cost growth.

Stabilizing the national debt over the long term can be a means of achieving sustainable, broadly shared prosperity. But exaggerated fears of deficits and the debt should not be used as a pretext to increase inequality and thereby repeat the mistakes of the past that brought us to the precipice of global depression.

America Cowed: Are We Too Frightened to Forge Our Future?

Robert Borosage — Wed, 23 Jun 2010 13:57:15 -0400

Americans have grown fearful. Most believe, not surprisingly, that the country is headed in the wrong direction. For the first time ever, most Americans believe their children may not fare as well as they have. We spend nearly as much as the rest of the world combined on our military, chasing phantoms across the world. Conservatives in both parties rail about debt and deficits. They line up to support adding another $33 billion in emergency spending for the misbegotten war in Afghanistan, while blocking the $23 billion needed to forestall the layoff of a staggering 275,000 teachers across the country.

Washington is crazed about debt and deficits, but the real deficit is in fortitude, not finances. Consider the contrast between this country emerging from the Great Depression and World War II and now.

Then our debt was a far greater burden than now—over 120 percent of gross domestic product. The country had suffered a decade long Great Depression and a global war. The troops were coming home, but the entire economy was mobilized for war. Europe and Japan were devastated. And America was led by Harry S. Truman, a former haberdasher, product of the corrupt Pendergast machine in Kansas City.

But, having won the War, America had the confidence to face its future. Despite the massive debt, Congress passed the GI Bill, educating a generation of veterans. We financed the transformation of military factories to civilian production, investing in the industries—from aerospace to automobiles—that would transform the country. Congress passed subsidies to aid the purchase of homes, stimulating the growth of the suburbs. We passed the Marshall Plan to spur the rebuilding of Europe. A Republican president, Dwight D. Eisenhower, a hero of the war, put a lid on military spending, while building the Interstate Highway System.

With rare exceptions the country continued to run annual deficits and the accumulated debt continued to rise. But the country grew faster, the broad middle class—the triumph of American democracy—was forged, and the debt as a percentage of GDP declined steadily down to less than 32 percent when Ronald Reagan took office.

None of this was easy or smooth. There were strikes and upheavals. Inflation and unemployment plagued the post-war transition. The Korean War divided the country. Conservatives at the time were as timorous and noisome as they are now. Led by Ohio Senator Bob Taft, they opposed the creation of NATO. They railed about deficit spending. They waged war on labor unions. They hunted communists at home and abroad, trampling basic liberties in the process. They conjured up preposterous conspiracy theories about treachery within. American politics were even more poisonous than now. And black GIs returning from the war found that their service did not exempt them from the legalized apartheid that still scarred the country.

But a confident America didn't let the frightened and the crazed get in the way of doing what was necessary to forge a prosperous future. Eisenhower reaffirmed the New Deal reforms. Social Security was preserved; finance remained shackled; top end tax rates stayed at 90 percent; labor's right to organize was weakened but not gutted. A confident and broad middle class replaced the extreme inequality that contributed to the Great Depression. We all grew together.

The contrast with the present day is stark. Now as we remain mired in two costly and endless wars, and emerge from the Great Recession, the timorous have taken control. Our national debt—about 90% of GDP—is far lower a burden than it was after World War II, but our deficit in confidence is far higher.

Instead of forging the new economy needed to revive a broad and prosperous middle class, we are focused on balancing our accounts. With states and localities facing crippling budget crises, with school districts shutting down summer school, eliminating after school programs from athletics to tutorials, laying off teachers and increasing class size, the Congress blocks vitally needed bills to provide aid to states, and to put people to work. The president acknowledges a staggering public investment deficit in the foundations of a new economy —in education and training, modern infrastructure, research and development—and then calls for a three-year hard freeze on domestic spending, while the military budget continues to rise. Republicans and conservative Democrats join with the banking lobby to weaken financial reform, with Big Oil to frustrate the transition to new energy, with the insurance and drug companies to sustain an unaffordable health care system.

Wall Street billionaire Pete Peterson enlists major foundations to rouse fears about debt, with "entitlements"— meaning Social Security and Medicare—as his major targets. The president sets up a deficit commission tasked with balancing the budget, not with defining the foundations of a new economy that would enable us to grow our way out of debt and rebuild a prosperous middle class.

President Obama is far better prepared for this moment than Harry S. Truman was. He has been clear about the need to build a new economy out of the ruins of the old. He has detailed core elements of that task—public investments in areas vital to our future, making the transition to new energy, balancing our trade and making things in America once more, shrinking finance and curbing the casino, empowering workers to gain a fair share of the profits and productivity they help produce, fixing our broken health care system -- the source of those terrifying long-term deficits that Peterson brandishes and distorts.

But the president is now in retreat. His call to action has been muddled by pollsters and positioning. Conservatives peddle fear and conspiracies as they did after World War II, but this time America's leaders are cowed, letting the frightened block the bold measures needed to forge our future.

Needless to say, our current circumstances are far different than those at the end of World War II. Then we were victorious; now we are losing in Afghanistan. Then we were unified; the entire nation had sacrificed in the Depression and the war. Now we are divided, more unequal than ever; and the wars are fought by professionals out of the public consciousness. Then we had pent-up private savings from years of wartime rationing; now household debt remains near record levels. Then the rest of the world was devastated; now America faces a surging and mercantilist Asia, and an export-addicted Germany.

But these are circumstances, not fate. The real contrast is in our confidence. Americans have grown fearful. We doubt our ability to pursue a common purpose. For good reason, we lack faith in our institutions—whether government or business or the banks. But instead of steeling our spine, we are daunted by the obstacles. Bluster substitutes for courage. We focus on balancing our accounts, not forging our future. That is a recipe for decline.

Borosage on ABC: Obama Should Lay Down The Gauntlet

Isaiah J. Poole — Mon, 25 Jan 2010 17:26:19 -0500

On ABCNews.com's "Top Line" political podcast, Robert Borosage today counsels the Democratic Party to "put down the gauntlet" on a progressive policy direction for the country, with President Obama using his State of the Union address to signal his rejection of suggestions to tack to the center.

"If you take the Evan Bayh strategy (referring to centrist Democrat Sen. Evan Bayh) and you retreat, and you let health care go by the boards and you produce nothing, then you are going to see a lot of people stay home or stay on their hands in the fall. I think if you draw the lines and you give people a choice, that will stoke the base. If you take on the banks and you start pushing for jobs—and let Republicans argue about deficits and against regulation—you’ll see people come out in the fall."

Borosage says that Obama should point out in his State of the Union address that we've inherited the worst catastrophe since the Great Depression, and that we have to continue the progressive policy solutions that have begun to dig the nation out. He should put forward a forceful jobs agenda and challenge Congress to pass it within two months. And he should assert that "the banks can't keep getting away with what they're doing" and that Congress must act to break up the banks so that they can never again compel a taxpayer bailout.

Borosage says he sees no political upside in Obama and Democrats shunning progressives to win over Republicans in Congress because "Republicans have made it clear they’re not cooperating. They’re not in the bipartisan game -- they are in an obstruction game, and it’s working for them."

Besides, "Democrats have the majority; it’s time to produce. We’re going to be held accountable for it and ... you’ve got to let people know the choice. The fact is we had a set of policies that drove us off the cliff, that created the worst economic condition since the Great Depression and we have a Republican Party that wants to go back to those. You’ve got to draw the line and draw the distinction.”

The Clintonites Were Wrong

Isaiah J. Poole — Thu, 07 Jan 2010 10:32:57 -0500

Progressive Breakfast: The Net Domestic Product

Isaiah J. Poole — Fri, 30 Oct 2009 09:30:34 -0400

The daily Progressive Breakfast serves up what progressive movement members need to know to start their day. Bill Scher is traveling; he will return Monday.

Thursday's news that the nation's gross domestic product grew at an annual rate of 3.5 percent in the third quarter comes with a lot of asterisks. A few of them:

*The Wall Street Journal reports that the White House recovery plan will claim responsibility today for creating or saving 650,000 jobs with a bit less than half of the $339 billion in recovery funds spent through September 30. "The White House sees the data as proof that its $787 billion American Reinvestment and Recovery Act of 2009 will meet its goal of creating or saving at least 1 million jobs," the WSJ writes.

*John Authers of the Financial Times critiques what helped drive the GDP increase:

Household disposable incomes actually fell during the quarter, by 3.4 per cent, but consumer spending rose, also by 3.4 per cent. This is not a pattern that can be sustained for long, and it is inconsistent with the need for US families to pay down their debts.

Consumption rose largely because of a huge increase in expenditure on durable items, led by motor cars. Government subsidies through the “cash for clunkers” programme, removed before the quarter had ended, largely explain this.

Meanwhile, tax credits for homebuyers, which helped revive activity in the housing market, are due to be withdrawn later this year. The question now is whether higher consumption can be sustained without government support.

... Thursday’s new data on initial claims for unemployment insurance confirmed that the rate of the rise in joblessness has slowed significantly – but the jobless rolls are still rising faster than at any time this decade, before the financial crisis took hold.

*At BusinessWeek, Michael Mandel sees in the numbers evidence "that companies are robbing the future to pay for short-term profits," and if we measured economic growth to take into account the impact of these business decisions, we'd find GDP growth to be significantly lower:

...[T]he official statistics are not designed to pick up cutbacks in "intangible investments" such as business spending on research and development, product design, and worker training. There's ample evidence to suggest that companies, to reduce costs and boost short-term profits, are slashing this kind of spending, which is essential for innovation. Without investment in intangibles, the U.S. can't compete in a knowledge-based global economy. Yet you won't see that plunge reflected in the GDP and productivity statistics, which are still too focused on more traditional sectors, such as motor vehicles and construction.

... Over the past year, U.S. employment of scientists and engineers—the people who create the next generation of products and make the U.S. more competitive over the long term—has fallen by 6.3%, according to a BusinessWeek tabulation of unpublished data. Yet overall employment has fallen only 4.1%. "There are really bright people who are struggling to find a job," says Josh Albert, managing director at Klein Hersh International, an executive search firm for life scientists.

*Bloomberg News reminds us that the future prognosis is for anemic growth:

The economy will likely grow at a 2.4 percent annual rate from October through December, the median forecast in a survey

earlier this month showed. GDP will also grow 2.4 percent next year and 2.8 percent in 2011, the survey showed, compared with an average of 3.4 percent growth over the past six decades.

*In Olathe, Kansas, a suburb of Kansas City, a side effect of the economic downturn is playing out that is happening around the country. From The Olathe News:

The Olathe Salvation Army Food Pantry continues to see an increase in people needing help during these difficult times. The need, however, has changed in recent months.

“We’re seeing people we normally don’t serve,” said Mindia McManness, volunteer coordinator for the Olathe Salvation Army. “They call us not knowing even how to get help because they’ve never needed it before. They don’t know where to begin.”

They’ve lost their jobs or are experiencing other difficulties because of the floundering financial markets.

“They’ve run out savings or maxed out credit cards, something that usually helped them through short-term difficulties in the past,” McManness said.

This recession has gone on much longer than expected, and the impending recovery will take even longer, leading to a new pool of people needing assistance.

Shelves once filled with canned corn, spaghetti noodles, chili, pork and beans or peanut butter and jelly are empty more frequently, and tight food supplies have become the rule, not the exception, all around the metro area.

Health Care: House Moves Ahead

House Democrats unveiled the long-awaited health care reform legislation Thursday that will be up for debate on the House floor, and the best that can be said about it, at least according to a headline this morning on Politico, is that "liberals don't bolt" from it:

...[T]he bill [House Speaker Nancy Pelosi unveiled Thursday includes big pieces of what the most liberal members of her party wanted — most likely setting up a serious battle when negotiators try to merge it with the far more moderate Senate legislation.

The public option stays, even if it’s not the same one the House speaker preferred. So, too, does the so-called millionaire’s tax to help offset the $894 billion price tag. Individuals will be required to own insurance. Most employers will be legally mandated to offer it.

And in return, the House speaker won assent — if not complete agreement — from the liberals in her caucus, as well as a surprising amount of support from Democratic moderates who have long railed against some of these provisions.

Liberals expressed frustration that the speaker bowed to political reality by allowing doctors and hospitals participating in the public option to negotiate payments directly with the Department of Health and Human Services, and some promised to request an amendment that would allow them to scrap the current plan for one tied to Medicare. But few pledged to vote against the bill.

Adele Stan at AlterNet says that at least the House bill is "almost (dare we say it?) progressive" when compared to what's pending in the Senate:

So, okay, it isn't the "robust" public option promised to AlterNet readers by Ways and Means Committee Chairman Charles Rangel, D-N.Y., this summer, but it doesn't include that silly opt-out plan. Unlike the lonely Harry Reid, who stood alone to face reporters on Monday, Pelosi was surrounded by members of her caucus, all smiles. Implicit in her timing was a message to the Senate: Keep noodling all you want, but here's a bill, a decent bill -- the bill we're gonna pit against yours in a conference committee if you ever get around to passing one. So, you might want to hop to it. And the more yours looks like ours, the easier it's gonna be for all of us.

As for the compromises in the House bill...

The deficit neutrality of the House bill presumably wins the support of the White House, while the less-than-robust public option seems to have passed muster with the big labor unions, who are surely influenced by another important distinction between the House and Senate bills: the House bill helps pay for itself through a new tax on the nation's most well-off citizens, while the yet-to-be-finalized Senate bill will likely pay for part of its cost by taxing high-priced, fully-loaded health-care plans -- like the plans many unions have negotiated in lieu of salary increases (and even as trade-offs for give-backs) by their members. Within hours of Pelosi's unveiling, both the AFL-CIO and the Service Employees International Union (SEIU) released statements praising the House bill.

Some ConservaDems are still refusing to get behind the House bill, reports McClatchy's David Lightman, claiming they need to hear from constituents:

"The plan on the table has some good points and some bad points. I want to look at it," said Rep. Lincoln Davis, D-Tenn.

Blue Dogs wanted to hear from constituents, many of whom are more conservative than those represented by most Democrats. "I have both sides of the health care debate well-represented in my district," said Rep. Allen Boyd, D-Fla.

... Blue Dogs and some party moderates have been concerned about the plan's cost, as well as its impact on small business and expansion of government. Those concerns remain.

But Pelosi thinks that there's already been so much debate on the merits and impact of all aspects of the legislation that she wants the nearly 2,000-page bill to face an up-or-down House vote without a lengthy amendment process. Ryan Grim at The Huffington Post:

House Speaker Nancy Pelosi said Thursday that there's been plenty of time for amendments already, so neither her caucus nor members of the minority party should expect a chance to amend the health care bill when it gets to the House floor.

"I've considered all of that input as our amendment process," Pelosi said on a conference call with bloggers, citing "probably 78 caucuses on this subject where we've listened to members [and] 2,000 town meeting on this subject."

A stinging rebuke of one feature of the House health-care bill comes from FireDogLake's Jane Hamsher, who says as a breast-cancer survivor she felt "tremendous disappointment" that the bill places higher hurdles the marketing of generic versions of biologic anti-cancer drugs:

Nancy Pelosi made a choice with regard to the lifesaving biologic drugs I took when I was in chemotherapy that will cost many of my fellow breast cancer survivors everything they own, and quite possibly their lives. ... Thanks to Representatives Anna Eshoo and Joe Barton, there will be no generic versions of these drugs. At least not for 12 years, if the House health care bill announced today passes. And because of an “evergreening” clause that grants drug companies a continued monopoly if they make slight changes to the drug (like creating a once-a-day dose where the original product was three times per day), they will never become generics. Instead of the Waxman-Deal amendment that granted much more reasonable terms to biologic patent holders, Speaker Pelosi chose the Eshoo-Barton amendment. And we could all be paying for that choice for the rest of our lives.

Hamsher is helping to organize with Public Option Please "treat, not trick" Halloween-themed protests at 3 p.m. at the Russell Senate Office Building, the Baltimore office of Maryland Sen. Barbara Mikulski and the offices of Rep. Sen. Kay Hagan and Rep. Anna Eshoo.

'Too Big To Fail' Reform Too Bad To Work?

The Obama administration's plan to change the rules for so-called too-big-to-fail financial institutions so that taxpayers will not be compelled again to prop them up when they engage in reckless gambles is receiving significant criticism on Capitol Hill. The Washington Post:

Under legislation unveiled this week by the committee chairman, Rep. Barney Frank (D-Mass.), in close coordination with the Obama administration, an oversight council of regulators would act as a monitor of systemic risk throughout the financial system and impose tougher regulatory standards on the largest companies. Compared to an earlier draft put forward by President Obama's team, the current bill expands the role of the council, entrusting it to identify risks to the system. The Fed would be the enforcer of the council's recommendations.

But that structure came under fire from Sheila C. Bair, chairman of the Federal Deposit Insurance Corp., who argued the new council should be headed by an independent chairman rather than by the Treasury secretary, and that the council should have greater authority.

Bair also joined both Republican and Democratic lawmakers in questioning the government's plan to pay for the cost of winding down large, failing financial firms. The plan calls for companies with more than $10 billion in assets to be assessed fees only after a large collapse, rather than contributing ahead of time into an insurance-like fund. [Treasury Secretary Timothy F.] Geithner and Frank have said the intent is to shift the burden of such failures from taxpayers to the financial industry itself, but Bair argued for the insurance approach.

The Washington Independent also details the objections that Treasury Secretary Timothy Geithner faced when he testified before the House Financial Services Committee:

“Mr. Secretary, I’m not a man that fears this administration or you,” Rep. Paul Kanjorski (D-Penn.) told Geithner. “But I do fear the accumulation of power exercised by someone in the future that can be extraordinary.”

Rep. Brad Sherman (D-Calif.) echoed those concerns, arguing that the bill represents “the most unprecedented transfer of power to the executive branch to make decisions about both spending and taxes in history — all without congressional approval.”

... [S]ome lawmakers are attacking the proposed bailout tax on large institutions, arguing that it should be collected beforehand as a type of insurance fund, rather than imposed after a competitor went under.

“No more TARP. No more bailouts,” said Rep. Luis Gutierrez (D-Ill.). “Let them [the companies] create the fund, the systemic risk fund, that will guarantee that the American taxpayer will no longer have to be involved should they cause such a crisis ever again.”