Dean Baker discusses the economy

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Quote of the day

It issues from LiberalHitGirl:

I didn't look today, did the free market clean up the oil yet?

Ronny Raygun red-baits national provision of health care

WTO rejects protectionist policies

Surprise, surprise, surprise…

This was the position taken by World Trade Organization Director-General Pascal Lamy during a recent speech given at the Peterson Institute. Lamy was emphatic on the issue:

My point is that retreating from market opening is not a solution to the economic crisis. For countries that depend on trade and have specialized according to comparative advantage, a reversal of openness will impose significant costs on the economy. What is more, setting up new barriers to trade will be seen as protectionism and will risk retaliation from trade partners. One country's exports are another country's imports. Rather than reviving economies, the effect of this will be to worsen the global crisis.

Send us your radioactive waste…

The United States poised to become Italy's nuclear waste dump

How is this possible? Who in the United States would import Italy's nuclear waste? Why would they do so? As for the how, according to an Associated Press report:

The Nuclear Regulatory Commission says it doesn't have the authority to prevent foreign radioactive waste from being imported into the United States.

So:

The NRC says that as long as the material can be imported safely and someone is willing to accept it, the commission can't keep the waste out.

The article provides the who: EnergySolutions. The why is obvious.

Americans, one may hope, are surely learning that globalization (worldwide economic and political integration) does not always work in their favor, as they were led to believe by the market fundamentalists who have lately dominated public discourse over these matters.

Another pundit jumps on the populist bandwagon

E.J. Dionne writes:

We are at the beginning of a great popular rebellion against those who showed no self-restraint when it came to lining their own pockets. Their entitlement mentality arose from an inflated sense of their own value and of how much smarter they were than everyone else.

The sound you are hearing in response to the AIG payoffs — excuse me, bonuses — is the rancorous noise of their arrogance crashing to earth.

Yet there is much hand-wringing that this populist fury is terribly perilous, that the highfliers who could not control their avaricious urges have skills essential to repairing the damage they caused in the first place.

Beware populism, we are told. Honor those AIG contracts. Forget about any moral reckoning and just fix the economy.

This view is wrong on almost every level, especially about populism. Of course not all forms of populism are attractive. But as historian Michael Kazin argued in "The Populist Persuasion," the "language of populism in the United States expressed a kind of idealistic discontent" and "a profound outrage with elites who ignored, corrupted and/or betrayed the core ideal of American democracy."

Is this not an entirely appropriate reaction to elite decisions dating to the 1980s that ultimately ran our economy into the ground?

Panic grips the Street

According to the Washington Post:

The firestorm over bonuses paid by insurance giant American International Group has triggered alarm at other financial firms, threatening federal efforts to draw private investors into economic recovery programs.

…

A senior executive at one of the nation's largest banks said he had heard from several hedge funds that they would not partner with the government for fear that lawmakers would impose retroactive conditions on their participation, such as limits on compensation or disclosure requirements.

Other firms want to bide their time to see how early participants in the rescue programs are treated before they decide whether to sign up, said the executive, who spoke on condition of anonymity.

Briefly put, it appears that America's rentier capitalists will take the government's money when it comes without strings attached. But they will think twice about taking this money when it comes with these strings. I find their reluctance odd, however. Are we to believe that they and their agents would rather have their firms made bankrupt by the crisis than to bind themselves to rules requiring transparency, personal integrity and fiscal probity? I ask because bankruptcy is a probable alternative for some of these companies. If my conjecture is true, if they prefer firm failure to governmental oversight and regulation, then those rentiers staffing companies facing destruction simply do not care how greedy and vicious they appear to the rest of the country while those who work at firms that can survive the crisis seemingly wish to engage the Obama administration in a game of chicken in order to gain an advantageous position from which to exploit the crisis for their personal advantage. Both possibilities are outrageous and ought to draw a firm response from the Obama administration.

Colbert chimes in on Rand

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America’s whining reactionaries

Market fundamentalism as identity politics

Thomas Frank critiques the plutocratic wing of the GOP mostly by describing it in plain English:

Just as the financial crisis has created toxic assets and "zombie" financial institutions, so has it transformed conservatism into a movement of the living dead. Its partisans cling to a now-toxic portfolio of discredited notions, rhetoric, gestures and strategies. They lumber comically on, their only goal being to obstruct efforts to save the economy from catastrophe.

These days the zombie right is rallying around CNBC commentator Rick Santelli, who won fame last month when he railed against a rescue of the economy's "losers."

Mr. Santelli claimed he was backed in his outrage by "the silent majority" — meaning a floor full of traders at the Chicago Board of Trade — and he called for a "Chicago tea party" to protest the administration's mortgage plan.

Next thing you knew, there were "tea parties" all over the land. When I showed up for one last Friday in Washington's Lafayette Park, however, my suspicions were immediately raised. A fellow in an expensive-looking pinstriped suit came hustling into the gathering knot of the discontented, handing out pink pig balloons. This had to be a put-on, I thought, one of the "Billionaires for Bush" pranksters in his capitalist costume, preparing to lead us in a chant of "Four More Wars."

But no, this was for real: the pigs symbolized "pork," the stuff of which President Barack Obama's stimulus package was supposedly made. Suits were common among the protesters. And the slogans on the signs made their undead politics impossible to misinterpret: "Liberalism Socialism Communism," read a typical one, "What's the Difference?"

Lending proletarian authenticity to the proceedings was the famous Joe the Plumber, who took up the bullhorn to deliver a dose of working-class cynicism that would have been convincing in, say, 1978. "Our politicians up on the hill, Republicans or Democrats, don't give a rip about you, and that's the bottom line right there," Joe Wurzelbacher declared.

Banks are insolvent, asset prices are falling, GDP has taken a nose dive, but what exercised this bunch was the possibility that government — understood as a force of pure evil — might get too big.

Frank gets it wrong when he claims that the market fundamentalists consider the government a "force of pure evil." These folk mostly were not troubled by Bush's police state methods, his deficit, his wars, his torture regime, etc. They merely wish to maintain the class and identity asymmetries promoted during the Reagan Era.

Jon Stewart rips Santelli and CNBC

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A link, article and discussion of the broadcast can be found at the Washington Post.

The market fundamentalist school of falsification

This is the implied accusation leveled by Michael Perelman at EconoSpeak:

Right now in some of the most important right-wing think tanks of the country, well-paid hacks are churning out definitive histories of the current crash. Obviously, market forces are part of the solution rather than the problem. We can agree with many of them that the Federal Reserve played a role.

The rent-seeker ideology

Dean Baker wonders: "What Ideology Says That the Purpose of the Government is to Subsidize Insurance and Pharmaceutical Companies?"

The rent seeker ideology?

One could look in vain for an ideology which promotes this view, as Baker points out. The effort would turn up nothing because ideologies typically work by providing legitimation for the unequal distribution of a nation's wealth. They usually do not merely denote the institution which realizes the confiscation of that wealth. An ideology in this instance would seek to convince America's citizens that they would benefit in some way by the loss of their wealth to the insurance and pharmaceutical companies or even by doing nothing to rectify the loss! But who among most Americans today save for the willfully naïve or dedicated masochists would believe that enriching the already wealthy would benefit the common folk?

America’s ‘false’ dilemma

Having described the current economic situation and the path that led the country to this crisis point, Paul Craig Roberts then stated the problem Americans now confront, doing so in especially blunt terms:

The bald fact is that the combination of ignorance, negligence, and ideology that permitted the crisis to happen still prevails and is blocking any remedy. Either the people in power in Washington and the financial community are total dimwits or they are manipulating an opportunity to redistribute wealth from taxpayers, equity owners and pension funds to the financial sector.

If Roberts has accurately characterized America's current plight, then it seems likely that its citizens will face and, hopefully, manage-well the fact that they and their descendents will be ruined because those holding decisive political and economic power are incompetent or viciously greedy.

Market populism vs. grassroots populism

David Sirota's take on the Santelli meltdown

The rhetoric of American class conflict grows hotter by the day. Sirota's recent article directly addresses this conflict when it gives his take on Rick Santelli's now famous if not infamous CNBC-Chicago Mercantile Exchange piece and on Lansing, MI mayor Virg Bernero's response to — actually, his beat down of — a Fox News talking head.

While Santelli's "let them eat cake" moment may turn out to be another spectacle which merely diverts attention from the real problems now confronting the country, the event may gain greater significance than that. For instance, as Sirota rightly points out, the mass media in America routinely treat market populism as populism per se; it also deems grassroots populism as a kind of political irrationalism which expresses mass resentment, ignorance and fear. This bias becomes a problem when the difference between the market populist ideology and common lived experience of most Americans grows starker and more disturbing every day. Such has been the case since 2007 for many Americans. Many Americans may now reasonably wonder whether good, hard work and honest intentions matter for much. They may doubt that these "goods" count at all since the discrepancy between ideology and reality reflects the dissolution of the "American way of life" that has proceeded apace since 1968. Given the secular decline of the American economic system, I suspect that the Reaganite consensus founded on this social disintegration has now reached its limit point and appears for what it always was: A commitment to extend and secure the national and global powers of American finance capital. Santelli's belligerence, his crude manner and sub-rational thinking, may reflect the sense of entitlement embedded within the market fundamentalist ideology.

If this characterization of the situation is accurate, then the issue of the day becomes: Which one among America's many possible futures will the country select, a future which includes American militarism and Wall Street-led globalization or a future which respects the ecological limits imposed upon humanity as well as the dignity that necessarily inheres within the world's diverse assortment of human ways of life?

Update (2.22.2009)

Glen Greenwald's latest reflects upon the Santelli outburst by comparing it to a noteworthy forerunner, namely, the resentment-laden, tribalist militia movement which opposed Bill Clinton's presidency, "fought" the culture wars and brought about the Contract with America Congressional class of 1994. Greenwald continues by considering the civil war mongering that has begun to take hold of the rightwing dead-enders who seemingly cannot accept that the world will never again mirror their vainglorious imaginings. It is in cases like this where one can see the paranoid political style generate fearsome dangers for everyone involved, especially since this hard core has access to the mass media. Greenwald then rightly asks: "…I wonder what would happen if MSNBC broadcast a similar discussion of leftists plotting and planning the imminent, violent Socialist Revolution against the U.S. Government."

Paul Krugman takes Senate obstructionists and the President to task

Krugman's critique focuses on the miserable fate of the Obama stimulus and those responsible for this possibility. A few highlights:

What do you call someone who eliminates hundreds of thousands of American jobs, deprives millions of adequate health care and nutrition, undermines schools, but offers a $15,000 bonus to affluent people who flip their houses?

A proud centrist. For that is what the senators who ended up calling the tune on the stimulus bill just accomplished.

And:

All in all, the centrists' insistence on comforting the comfortable while afflicting the afflicted will, if reflected in the final bill, lead to substantially lower employment and substantially more suffering.

But how did this happen? I blame President Obama's belief that he can transcend the partisan divide — a belief that warped his economic strategy.

After all, many people expected Mr. Obama to come out with a really strong stimulus plan, reflecting both the economy's dire straits and his own electoral mandate.

Instead, however, he offered a plan that was clearly both too small and too heavily reliant on tax cuts. Why? Because he wanted the plan to have broad bipartisan support, and believed that it would. Not long ago administration strategists were talking about getting 80 or more votes in the Senate.

George Bush blundered, in part, because his administration was made up of fools who ruthlessly pursued their 'golden' policies and refused to heed wise counsel. Obama now blunders because he wishes the fools remaining in power would bring their kind of foolishness to his consensus! Who, I must ask, is more foolish: Obama and his people or the GOP dead-enders? I would say the greater fool is he who makes common cause with his enemies….

Protesting market fundamentalism

It has become evident since last summer that the economic crisis of the moment is not just an American disease. It is, rather, systemic in nature and global in scope. There is, therefore, more than enough pain to go around. Naomi Kline's recent article pointed to the many protests that have menaced governments around the world. The object of the protesters' ire: The market fundamentalist policies now in favor among the world's political elite. Unlike the majority of Americans, who refuse to employ most forms of political action, the citizens of other countries are attempting to impose their collective will on their states. They are motivated to do so by the fact that their governments still turn to an economic orthodoxy discredited by the crisis the orthodoxy is meant to resolve. It appears the protesters fail to see a future worth having in this policy choice. Kline concludes by addressing this very point:

The pattern is clear: governments that respond to a crisis created by free-market ideology with an acceleration of that same discredited agenda will not survive to tell the tale. As Italy's students have taken to shouting in the streets: "We won't pay for your crisis!"

Masters of the Universe whine for all to hear

It was only a matter of time before the crying game appeared

The New York Times reports that

…there is a lot of wincing [among Wall Streeters] about the [financial] profession's catastrophic loss of cultural cachet. Wall Street has become a target of populist rage, raw material for talk-show tirades, the occasional street protest and a lot of punch lines.

'Shit happens' even to the chosen few strong enough to push the world over the ledge. Of course, the culpable can manage the situation somewhat by relying upon denial:

Financiers tell their not-for-attribution account of the mortgage crisis like this: Americans undersaved and overspent for decades, relying on rising property values to bankroll their lifestyles. But nobody on Wall Street forced United States homeowners to take out loans on houses they couldn't afford, or refinance mortgages to spend money on cars they shouldn't have bought.

The esoteric securities underneath the current mess are, to the people who invented and marketed them, analogous to pharmaceutical drugs. Used correctly, they can enhance your life. Abused, they are lethal.

Some points:

First, while it may be true that the banksters and their kin never forced common Americans to undersave, overspend and take out loans they could not afford, as the Times article tells its readers, it is equally true that no one forced the banksters to loan money to individuals and families that could not repay these debts. Why did they do this? What motivated them to take make these dubious loans? Where, for that matter, was the system-wide commitment to due diligence when these loan-making practices were common?

Likewise, no one forced the banksters to securitize these dangerous loans, to trust the judgments made by the credit ratings agencies or to rely upon the politically compromised regulatory agencies which supervised the financial sector. In the end, not only are the banksters responsible for their deeds, it is evident they adopted these practices because of the incentives they faced and the goals they pursued. The opportunities for profit-taking sat before them and the banksters did not pass over these chances to make money. Finally, it is worth mentioning that the banksters as a whole and economic sector they occupy had the wherewithal and the motives to identify the systemic risks that were conspicuous features of these loan-making and loan-manipulation practices. Yet they refused to heed the warnings entailed by this available knowledge. Why? I ask because their refusal, when considered in hindsight, appears to be a form of collective insanity. The answer is obvious: They refused to take sufficient care because they wanted more than anything else to take massive profits and incomes from their activities.

In their superficial rationalizations the banksters stand tall with the pimps and drug pushers of the world, groups with whom they share a sense of ethical integrity and justice. Tony Soprano, for instance, would merely call the loan-takers "degenerate gamblers" or "stupid-greedy-fucks." The banksters, we have learned, snidely point to their myopia and naïveté. Both the gangsters and banksters feel superior to their victims and both wish to profit off of human frailty and myopia. I believe they receive the recognition they have earned.

But not every bankster is afflicted by the moral idiocy depicted above. Some do see the problem which arises when one denies the obvious and refuses to accept the responsibility entailed by one's humanity:

"People say 'Well, the Fed is to blame because there was all this loose money,'" said Luis E. Rinaldini, a former partner at the investment banking firm Lazard Frères, now at the merchant bank Groton Partners. "But guys who run banks are paid to be cautious when there's loose money around."

"I mean, if you had a bus driver who went 100 miles an hour on an icy road, you'd think he was crazy," he adds. "But if his boss said, 'It's our policy to drive faster as the roads get icier,' you wouldn't be surprised if the boss ended up in jail."

Will many of the blameworthy banksters spend their days in jail? Most likely will not.

Second, one might wonder if those banksters prone to bouts of self-pity also suffer from a loss of memory? It seems that they do since the relatively autonomous finance capital which first emerged in the 1970s undoubtedly fomented these recent systemic crises: The Latin American debt crisis of the late 1970s and early 1980s; the Savings and Loan crisis of the late 1980s; the 1987 Black Monday Stock Market Crash; and the Long-Term Capital Management crisis of the late 1990s. Each event foreshadowed the disaster we now confront. Each was dangerous. So, given the magnitude of the current crisis and the role Wall Street had in generating the crisis, outsiders like myself cannot help but to wonder what the banksters learned from the earlier crises? Anything? Or, did they fixate on the well-founded belief that Washington would eventually throw a golden lifeline to the reckless but well-placed financial capitalists?

Third, who actually abused the esoteric securities which are known to be the major proximate cause of the current crisis? The hapless and now ruined spendthrifts who took on debt they could not afford and did not completely understand? Or, perhaps, did the abuse issue from the overcompensated, overindulged and overvalued finance capitalists who allegedly knew what they were doing? I would lay the majority of the blame on those individuals and institutions with the means and the motives to prudently manage the risks given along with the use of these financial tools. To be sure, the federal government also shares in this blame, especially for enabling Wall Street to drag the world into this crisis. After all, with power comes responsibility. And most of the relevant powers responsible for the crisis can be located in Washington, DC and on Wall Street.

Bluntly put: These powers broke the economy, they own the subsequent crisis.

The House passed the stimulus bill

Not a single Republican Congressman or woman voted for the bill, according to reports (see this, this, this and this), presumably because the Democrat's plan lacked, among other things, the deep and regressive tax cuts which excite the Republicans so much.

Yet that the Republican Party has adopted this strategy is nearly awe-inspiring because of its paranoia and utter craziness. For, in the midst of the most personally and collectively dangerous economic crisis since the Great Depression, a crisis that can be directly and easily blamed on policies that characterize Reaganomics and the orthodoxy that emerged from it, what else can one say about the Congressional Republicans when they stubbornly try to reimpose their Party's line on a staggering economy. Do they mean to pursue this goal? Yes, according to this Christian Science Monitor report:

"We're going to continue to try to encourage the majority here in the Congress to incorporate a number of our ideas," said Senate minority leader Mitch McConnell (R) of Kentucky at a briefing on Tuesday.

Digby nicely depicts a few of the more annoying feature of this Republican posturing (a link to this article can be found here):

Can someone explain to me why I'm seeing Republican after Republican on television advising Americans on the right way to run the economy? Is there any reason why we should listen to them sanctimoniously lecturing us on "what's worked in the past" and telling us that the only way to cure the problems they themselves created are to do more of the same? They've always been known for chutzpah, but this takes the cake.

If a few Democrats could bother themselves to challenge their standing to make these assertions, that might be helpful. Or maybe one gasbag or spokesmodel could ask them why no matter whether the country is economically doing well or doing badly, their advice is always tax cuts. It would really be great if somebody, somewhere, could ask them why they think anyone should take them seriously on these issues considering the mess we are in today. I know that's a lot to ask during this time of reconciliation but honestly, it's infuriating to see them swarm the television and have to watch the media listen to their "analysis" and swallow it whole. If I didn't follow politics closely, I would think these people are the ones who won the election.

Surely, one might ask, the Democratic Party is now setting the Republicans straight about what the United States will do about its problems and the reasons they have for taking their actions? Well, no. The Democrats have refused to take the path of autonomous political action. Rather, the Party is instead seeking to generate a bipartisan decision on the economic question confronting the country. Compromise is their method. Yet, given America's current circumstances, I would say that the pursuit of this secondary goal is nearly as daft as the Republican adherence to their defunct political economics. It is foolish because the Republicans could not be expected to participate in the Democrat's consensus politics. Lacking a capacity to learn has long been a signature feature of modern Republicanism.

Nevertheless, the obstructionism of the Republican Party is edifying in one respect according to Glen Greenwald. From it we can learn that:

…Beltway "bipartisanship "means that Democrats adopt as many GOP beliefs as possible so what ultimately is done resembles Republican policies as much as possible (anyone doubting that should simply review these "bipartisan" votes of the last eight years).

Accordingly, then, Greenwald is

…glad that the stimulus package yesterday — which Democrats watered down and comprised on as much as possible to please Republicans — did not attract even a single Republican vote in the House: not one
[emphasis in the original].

I suspect Greenwald finds the Republican's obstinacy refreshing because their dogmatism negatively reflects the complete uselessness of a spinelessly conformist Democratic Party:

Republicans aren't interested in "bipartisanship" except to the extent that they can force Democrats to enact their policies even though they have only a small minority thanks to being so forcefully rejected by the citizenry. And why should they be interested in bipartisanship? Why should they vote for a stimulus package that they don't support and that is anathema to what their most ardent supporters believe?

If only the Democratic Party were so inspired….

But the Democrats — having committed to memory the 'hard lessons' of 1968, 1972 and 1980 — reject the rather sensible idea that "Partisanship [means] advocating…your own beliefs and discrediting the beliefs that you reject and believe are harmful," in Greenwald's words. They instinctively reject partisanship because they lack a distinct and enduring identity. They lack this identity because they are like the Republicans, a party that reflects the prerogatives of capital and defends America's empire.

Have the Democrats ever wondered why the Republicans mocked them for lacking ideas? They would know the reasons for this ill-treatment if they were honest. The abuse was and remains apt because the Democratic Party has been and remains the junior partner in the ruling consensus.

Will it be effective?

The New York Times wonders if Obama's stimulus will work as a remedy to the depression given the President-elect's clear desire to achieve duopoly-wide support for his program.

The looming question, however, is: Does Washington have the stomach and the resources to design and implement a feasible recovery program which gives pride of place to a reindustrialization strategy, developing eco-friendly forms of production, distribution and consumption as well as restructuring the economy in general.

A few of Barack Obama’s budget priorities during the economic crisis

Money for empire (see this, but also see this).

Money for finance capital (see this).

Less money for Social Security and Medicare (see this, this, this).