Neville Chamberlain, the Hero

You would think in 70 years the world would "progress" and leaders would have incorporated the lessons of the past and we would have a better world.

But, as Brad DeLong points out, despite Chamberlain's horrible appeasement policy with Hitler, he did get one thing right which leaders today in the UK have got horribly wrong:

Neville Chamberlain is remembered today as the British prime minister who, as an avatar of appeasement of Nazi Germany in the late 1930’s, helped to usher Europe into World War II. But, earlier in that fateful decade, relatively soon after the start of the Great Depression, the British economy was rapidly returning to its previous level of output, thanks to Chancellor of the Exchequer Neville Chamberlain’s reliance on fiscal stimulus to restore the price level to its pre-depression trajectory.

Compare that approach to the expansion-through-austerity policy being pursued nowadays by British Prime Minister David Cameron’s government (with Chancellor of the Exchequer George Osborne leading the cheering squad). The country’s real GDP has flat-lined, and the odds are high that British real GDP is headed down again.

Indeed, in less than a year, if current forecasts are correct, Britain’s Cameron-Osborne Depression will not merely be the worst depression in Britain since the Great Depression, but probably the worst depression in Britain…ever.

America Has a Choice of Victims

Maureen Dowd has a good op-ed in the NY Times in which she looks at the Obamas since of "underappreciation" by the American public. Then she widens it to include Newt Gingerich who feels he is similarly underappreciated and misprepresented by the press:

The Obamas, especially Michelle, have radiated the sense that Americans do not appreciate what they sacrifice by living in a gilded cage. They’ve forgotten Rule No. 1 of politics: No one sheds tears for anyone lucky enough to live at the White House. And after four or eight years of public service, you are assured membership in the 1 percent club.

The Obamas truly feel like victims. But Newt Gingrich, who campaigns by attacking the culture of victimization, plays one on stage. He soared at the Charleston CNN debate by brazenly proclaiming himself the victim of “the elite media protecting Barack Obama” (the same Obama who told Time he was victimized by the press). Newt’s gambit was a calculated way of deflecting attention from a charge by his second wife, Marianne, that the family values he preaches are hypocritical platitudes, given his cheating ways with two wives he divorced when they were ill.

Could 2012, remarkably, be a race between two powerful victims yearning to be lonely at the top?

This is ridiculous. A leader needs to be psychological secure and have a joy in backslapping and glad-handing with people. But the dsyfunctional US political system is giving the American people a choice between flub and flop in the November poll.

Voting in introverts, narcissists, or those who see themselves as victims is asking for perverted politics and a poisoned civil society.

Corruption in High Places

Here is a bit from a post by Matt Taibbi in his Rolling Stone blog:

Obama and Geithner: Government, Enron-Style

Strongly recommend this piece at the Huffington Post by Jeff Connaughton, a former aide to Senator Ted Kaufman. Jeff is one of the smartest guys on the Hill and is particularly strong on issues surrounding Wall Street and the regulatory system. In this piece, he takes apart the oft-stated mantra that what Wall Street firms did during and after the crisis was maybe unethical, but not illegal.

He takes particular aim at Barack Obama, who recently tossed that line out on 60 Minutes in what I thought was one of the real low moments of his presidency. Here’s Jeff’s take:

Speaking in Kansas on December 6, [Obama] said, "Too often, we've seen Wall Street firms violating major anti-fraud laws because the penalties are too weak and there's no price for being a repeat offender." Just five days later on 60 Minutes, he said, "Some of the least ethical behavior on Wall Street wasn't illegal." Which is it? Have there been no prosecutions because Wall Street acted legally (albeit unethically)? Or did Wall Street repeatedly violate major anti-fraud laws (and should thus find itself in the dock)?

The President is confusing "legal" with "difficult to prosecute successfully."

The notion that what Wall Street firms did was merely unethical and not illegal is not just mistaken but preposterous: most everyone who works in the financial services industry understands that fraud right now is not just pervasive but epidemic, with many of the biggest banks committing entire departments to the routine commission of fraud and perjury – every single one of the major banks, for instance, devotes significant manpower to robosigning affidavits for foreclosures and credit card judgments, acts which are openly and inarguably criminal.

Banks and hedge funds routinely withhold derogatory information about the instruments they sell, they routinely trade on insider information or ahead of their own clients’ orders, and corrupt accounting is so rampant now that industry analysts have begun to figure in estimated levels of fraud in their examinations of the public disclosures of major financial companies.

Beyond that, as Jeff points out, Obama is simply not telling the truth about the supposedly insufficient penalties available to regulators. Employing the famous "mistakes were made" use of the passive tense, Obama copped out in his December 6 speech by saying that “penalties are too weak." As Jeff points out, what Obama should have said is that "the penalties my own regulators chose to dish out were too weak":

Moreover, the President is misleading us when he says that Wall Street firms violate anti-fraud law because the penalties are too weak. Repeat financial fraudsters don't pay relatively paltry -- and therefore painless -- penalties because of statutory caps on such penalties. Rather, regulatory officials, appointed by Obama, negotiated these comparatively trifling fines. This week, the F.D.I.C. settled a suit against Washington Mutual officials for just $64 million, an amount that will be covered mostly by insurance policies WaMu took out on behalf of executives, who themselves will pay just $400,000. And recently a federal judge rejected the S.E.C.'s latest settlement with Citigroup, an action even the Wall Street Journal called "a rebuke of the cozy relationship between regulators and the regulated that too often leaves justice as an orphan."

What makes Obama’s statements so dangerous is that they suggest an ongoing strategy of covering up the Wall Street crimewave. There is ample evidence out there that the Obama administration has eased up on prosecutions of Wall Street as part of a conscious strategy to prevent a collapse of confidence in our financial system, with the expected 50-state foreclosure settlement being the landmark effort in the cover-up, intended mainly to bury a generation of fraud. Here’s how Jeff puts it:

In Ron Suskind's book, Confidence Men, he quotes Treasury Secretary Timothy Geithner as saying, "The confidence in the system is so fragile still... a disclosure of a fraud... could result in a run, just like Lehman." The Obama Administration is pushing hard for a 50-state settlement with the major banks for their fraudulent foreclosure practices, even though several state attorneys general have rejected this approach because, in their view, it would shield too much wrongdoing. Regrettably, Obama's top officials and lawyers seem more eager to restore the financial sector to health than establish criminal accountability among the executives who were in charge.

In other words, Geithner and Obama are behaving like Lehman executives before the crash of Lehman, not disclosing the full extent of the internal problem in order to keep investors from fleeing and creditors from calling in their chits. It’s worth noting that this kind of behavior – knowingly hiding the derogatory truth from the outside world in order to prevent a run on the bank – is, itself, fraud!

This is exactly the mindset that led Lehman to the abuses of the "Repo 105" accounting trick, in which loans were disguised as revenues in order to prevent the outside world from knowing the dire state of the bank’s balance sheet.

Now Obama and Geithner are engaged in the same sort of activity, only they’re trying to prevent a run not on an individual bank, but the entire American financial services sector. Geithner seems really to believe that if fraud were aggressively policed, and the world made aware of the incredible extent of the illegality in our markets, that international confidence in the American financial sector would plummet and our economy would suffer – and suffer, incidentally, on Barack Obama’s watch.

I was a big fan of Obama in 2008. I had read his books and followed the campaign. I was sucked into deeply believing in his "change you can believe in" and "hope" themes. I'm especially bitter by how he has proven himself to be a liar. He stole the vote because he knowingly promised one thing and did another. He is better than the Republican idiot, but Obama is an abomination and doesn't deserve the presidency. But, sadly, people better vote for him rather than the horse pucky that the Republicans will nominate.

It is criminal that the US political system throws up such crappy candidates... and allows them to lie their into power. There is no "representative" democracy if voters have to take a pig in a poke.

Dowd on Newt Gingrich

Here is a bit from an opinion piece in the NY Times by Maureen Dowd:

Gingrich agreed in 1995 that we might have to “rethink our Constitution” — something that wouldn’t go over well with originalists.

The man who wishes to be our leader implementing Lean Six Sigma might shy away from Toffler’s main thesis, that we were moving toward a basically leaderless society where information was available to everyone, so everyone could make their own decisions. “Someday,” Toffler wrote, “future historians may look back on voting and the search for majorities as an archaic ritual engaged in by communicational primitives.”

And what about Toffler’s prediction that those (like Gingrich) who resist the end of the nuclear family and the spread of gay parenting, gay rights, women’s rights and abortion access as variegated families set up shop in “electronic cottages” would just add to the pain of inevitable transition to a “de-massified society”?

Torn between the virtual and the virtue-crats, Gingrich this week endorsed the “marriage pledge” of an evangelical group in Iowa opposing same-sex marriage and abortion and vowed fidelity to Callista. Hasn’t he taken that vow and broken it twice before?

Sometimes you go with “Future Shock.” Sometimes you go with present schlock.

It is absolutely pathetic that this wretch from the past is considered by 40% of the Republicans to be the "leader" of the future. I think back to America of the 1960s and wonder how that country has gone so badly off track. In the 1960s the US was rising to challenges with hopeful policies like breaking Jim Crow racism and setting a mission to the moon. Sure, there had been bumpy stretches like McCarthyism in the 1950s and the idiocy of the Vietnam war in the 1960s, but generally the US was a positive force for good in the world. Now it is the last remaining of the two evil empires of the Cold War and it is in fast decline. It is like a muttering senile relative puttering around making of mess of everything. Tragic.

Speaking the Truth

Here is a post by Dean Baker on his Beat The Press blog:

President Obama Wants Credit for Avoiding a Great Depression: Where Is the Ridicule?

In its top of the hour news segment NPR reported that President Obama hoped that voters would give him credit for avoiding a second Great Depression. If this is an accurate representation of what President Obama said then it should have devoted a segment to economists ridiculing the president for trying to set an unbelievably low bar for measuring the success of his economic policy.

The first Great Depression was the result of a decade of inadequate policy responses. The massive spending associated with World War II that eventually got us out of the Great Depression could have been undertaken a decade sooner, if there had been political will.

There was nothing about the financial crisis at the beginning of President Obama's term that could have condemned the country to decade of double-digit unemployment. This only could have happened if Congress failed to respond adequately to a financial collapse.

The above should be supplemented by reading Paul Krugman's comments on the fate of democracy given the current depression.

Krugman Calls the Depression

Here is a bit from an excellent op-ed by Paul Krugman in the NY Times:

It’s time to start calling the current situation what it is: a depression. True, it’s not a full replay of the Great Depression, but that’s cold comfort. Unemployment in both America and Europe remains disastrously high. Leaders and institutions are increasingly discredited. And democratic values are under siege.

On that last point, I am not being alarmist. On the political as on the economic front it’s important not to fall into the “not as bad as” trap. High unemployment isn’t O.K. just because it hasn’t hit 1933 levels; ominous political trends shouldn’t be dismissed just because there’s no Hitler in sight.

Let’s talk, in particular, about what’s happening in Europe — not because all is well with America, but because the gravity of European political developments isn’t widely understood.

Go read the whole article. It will give you a picture of Europe that you are not getting from the mainstream media.

The 1930s should be an object lesson for those who think they can write off 10% or 20% of the population during a financial downturn. Letting the government turn its back and refuse to aid these people and, worse, to refuse to stimulate the economy into a robust recovery condemns that country to a rise of right wing demagogues.

Krugman is sending out a clarion call for a change of course by democracies to save themselves from their own funeral:

Nobody familiar with Europe’s history can look at this resurgence of hostility without feeling a shiver. Yet there may be worse things happening.

Right-wing populists are on the rise from Austria, where the Freedom Party (whose leader used to have neo-Nazi connections) runs neck-and-neck in the polls with established parties, to Finland, where the anti-immigrant True Finns party had a strong electoral showing last April. And these are rich countries whose economies have held up fairly well. Matters look even more ominous in the poorer nations of Central and Eastern Europe.

Last month the European Bank for Reconstruction and Development documented a sharp drop in public support for democracy in the “new E.U.” countries, the nations that joined the European Union after the fall of the Berlin Wall. Not surprisingly, the loss of faith in democracy has been greatest in the countries that suffered the deepest economic slumps.

And in at least one nation, Hungary, democratic institutions are being undermined as we speak.

One of Hungary’s major parties, Jobbik, is a nightmare out of the 1930s: it’s anti-Roma (Gypsy), it’s anti-Semitic, and it even had a paramilitary arm. But the immediate threat comes from Fidesz, the governing center-right party.

...

Kim Lane Scheppele, who is the director of Princeton’s Law and Public Affairs program — and has been following the Hungarian situation closely — tells me that Fidesz is relying on overlapping measures to suppress opposition. A proposed election law creates gerrymandered districts designed to make it almost impossible for other parties to form a government; judicial independence has been compromised, and the courts packed with party loyalists; state-run media have been converted into party organs, and there’s a crackdown on independent media; and a proposed constitutional addendum would effectively criminalize the leading leftist party.

Taken together, all this amounts to the re-establishment of authoritarian rule, under a paper-thin veneer of democracy, in the heart of Europe. And it’s a sample of what may happen much more widely if this depression continues.

...

The European Union missed the chance to head off the power grab at the start — in part because the new Constitution was rammed through while Hungary held the Union’s rotating presidency. It will be much harder to reverse the slide now. Yet Europe’s leaders had better try, or risk losing everything they stand for.

And they also need to rethink their failing economic policies. If they don’t, there will be more backsliding on democracy — and the breakup of the euro may be the least of their worries.

I thought political leaders were "too smart" to let another depression occur. I was wrong. I didn't even consider that the democracies would reprise the horror of the 1930s and allow fascist dictatorships to rise yet again. But it looks like I was far too naive. The idiocy of political leaders plumbs a depth that I stupidly just couldn't believe was possible. Incredible!

For a peek at Krugman's premonitions about the United States, read this.

Dowd on Obama vs. Gingrich

Here is Maureen Dowd in a NY Times op-ed giving her usual lyrical treatment of the two main contenders to run America:

A match between Gingrich and Obama would be fascinating: two men who grew up without their hot-tempered, hard-drinking fathers, vying to be the nation’s patriarch.

The Drama Queen versus No Drama Obama. The apocalyptic prophet versus the ambiguous president.

One hot, one cold. One struggles to stop setting fires as the other struggles to get fiery. One who’s always veering out of control, one who’s too tightly controlled. One reining it in, one letting it rip. One tamping down his pugilistic side, the other ramping it up. One channeling Ronald Reagan to seem more genial; the other channeling Harry Truman to have more spine.

One pretending to be a populist when he can’t drag himself out of Tiffany’s; the other pretending to be a populist when he’d like to be at Davos with Jamie Dimon.

Obama is a foul-weather populist and Gingrich is a fair-weather normal guy. Neither is a convincing populist for the 99 percent who crave one, but it would be fun to watch the Hand Grenade take on Cool Hand Luke.

Whereas Obama usually faded away on stage during his primary debates in 2008, Gingrich revived a fading campaign this fall with his confident debate performances against pitiful foes.

Where Gingrich is vesuvian, Obama is spartan. Gingrich spewed a lot of ideas but often lacked the discipline to see them through. Obama has plenty of discipline, but some plans come a cropper because he gives away too much too early to the other side and delegates too much to Congress.

Like Obama, Gingrich loves to give seminars. But Gingrich, unlike Obama, has a talent for the visceral. Often, however, his rhetoric goes off a cliff.

It is tragic that America will be given a choice between two incompetents. There is need for real leadership with a grand vision to pull America out of the muck of the Great Recession. But these two clowns aren't even worthy to kiss the feet of the leader that America needs. Tragic!

Where is the Economic Crisis?

The current fear roiling financial markets is the "debt problem" in Europe. But I have a hard time finding the problem. Look at this graph:

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Supposedly Greece, Italy, Spain, and Ireland are "hopeless debtors". But their debt isn't all that different from the debt of Germany or the United States.

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I'm suspicious that all the teeth gnashing and the howls of "we are all doomed!" are simply fear stirred up by financial ghouls who want to stampede markets so they can pick off the weak.

Governments should stand up to them. They should have a united policy of supporting their bonds to stop these financial attacks. Right now the only "winners" are those who feast of the fearful. The fact that governments around the world are letting fear stampede financial markets adds fuel to the flames. It only makes things worse. I simply don't understand why governments can't realize there is strength in numbers. The old Ben Franklin saying is relevant: "Yes, we must, indeed, all hang together, or most assuredly we shall all hang separately."

Sadly, the world does not have leaders worthy of it. Instead, spineless sold-out fools have maneuvered into power on the hopes of money and glory when in fact, the world needs leaders of principle who can make tough choices, tell the people the truth, and in fact lead them out of this mess.

Obama's "Hopey Changey" Leadership

Obama campaigned in 2008 to change politics in America. He promised "hope" and "change you can believe in" and "transparency". Sarah Palin nailed him when she mocked him for his "hopey changey" thing.

What you are getting today under Obama is a people being beaten by police baton sticks and pepper sprayed as they attempt to give voice to their political will in a supposedly democratic 1st Amendment right. The Occupy Movement is growing and Obama is "missing in action". He fails to lead. He is a politician who loves to make promises, but he has done precious little during 3 years to help the bottom 99% in America...


The reality is that he hasn't stopped American military torture, he hasn't closed Guantanamo, he allows American citizens to be assassinated without any judicial process, he has paid hundreds of billions to his buddies on Wall Street and half a billion to his buddy in the "green" industry of now bankrupt Solyndra. He promise of "transparency" in government has instead produced the harshest anti-whistle-blower law ever on US books. He fiddles for 3 years during the greatest recession since the Great Depression then announces that he is Mr. Jobs, Jobs, Jobs and announces a program to produce 1.2 million jobs when in fact there are 25 million unemployed/underemployed people, in short, he makes a political gesture but no effective political act. He is a farce. A joke.

The US has two parties to represent the 1% and no political parties that represent the 99%. Tragic.

America's Great Recession

The failure of Bush and now Obama to seriously engage in stimulating a failing economy has created a "lost decade". From Calculated Risk, here is a graph that shows the great chasm of lost jobs compared to other post-WWII recessions:

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The inability of America's political leadership to break the bonds of servitude to Wall Street and big corporate interests means that the bottom 99% will pay and continue to pay for the sins of the political leadership and the rich elite in the US. Tragic.

The Depth of the US Housing Depression

Here are some facts from a story in Vegas Inc:

“In less than four years, more than 100,000 homes in Las Vegas have been lost through foreclosure. That’s 18 percent of our privately owned housing stock: that’s nearly one home in five. And we’re nowhere near finished with foreclosures. In all likelihood, we have another 100,000 yet to go, and at the current rate, that’s another four years,” Murphy said.

And this has hit house prices hard. Just in the last year:

In a market hit by high unemployment (13.6 percent) and an elevated foreclosure rate, the Realtors said the median price of single-family homes sold in October was $121,000. That’s down 1.9 percent from $123,400 in September and down 9 percent from $133,000 a year ago.

From the Calculated Risk site, the price of homes in Las Vegas is down 60% since the beginning of 2007:

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What is tragic is that the Republicans caused this Great Recession during the Bush administration and are doing everything they can to make it worse in order to win in 2012. And the salt in the wound is that Barack Obama had a chance to come in and really push hard to save Main Street after the failure of Wall Street, but he played "political games" and undersized the stimulus in early 2009 and then claimed it was "just right" in size when it was clearly too small and dithered for two and a half years before he got serious about attacking unemployment and the crushed economy... just in time to win another 4 years for his "do nothing" administration. Tragic.

Good News

From the Calculated Risk blog:

According to the Bureau of Economic Analysis (BEA), real GDP is finally just above the pre-recession peak. The estimate for real GDP in Q3 (2005 dollars) was $13,352.8 billion, 0.2% above the $13,326.0 billion in Q4 2007. Nominal GDP was reported as $15,198.6 billion in Q3 2011.

After nearly four years, the economy is finally back to where it was in late 2007. Sadly, the population is larger, the number of potential workers is larger, but the actual number of workers is smaller. While the total income of the whole population has recovered, the amount going to the bottom 99% is still less than what it was in 2007. The top 1% keep hoovering up any loose dollars and pocketing them which they, in their role of "job creators", then use increase their bank accounts and not create new jobs despite all the propaganda of the Republican ideologues.

As you can see, it is investment in equipment & software that is the engine of the recovery, not construction:

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Here is the bad news and the reason why the OWS movement is growing:

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Among his many shortcomings, the fact that Obama has failed to seriously address the housing crisis has made this Great Recession linger longer and deeper than it needed to have been. A great deal of needless suffering has been shouldered by the 99% because Obama refused to force the banks to swallow the costs of their bad decisions. Instead the bankers got to keep their big bonuses and nearly a trillion dollars of taxpayer dollars has gone to prop up the big Wall Street banks while 25 million are unemployed and 10 million have lost their homes. That is "economic justice" for the 1% but not for the 99%.

A Day Late and a Dollar Short

The "poltics" in America is pathetic. Nobody is addressing the real needs. The major parties are playing a three card monte game with posturing and distractions. This day late and a dollar short politics has got to end.

Here's a bit from a relevant Robert Reich post:

Republicans are debating again tomorrow night. And once again, Americans will hear the standard regressive litany: government is bad, Medicare and Medicaid should be cut, “Obamacare” is killing the economy, undocumented immigrants are taking our jobs, the military should get more money, taxes should be lowered on corporations and the rich, and regulations should be gutted.

Four years ago the most widely-watched TV debate among Republican aspirants attracted 3.2 million viewers. This year it’s almost twice that number. And for every viewer assume a multiplier effect as he or she shares what’s heard with friends and family.

Americans are listening more intently this time around because they’re hurting and they want answers. But the answers they’re getting from Republican candidates – tripping over themselves trying to appeal to hard-core regressives – are the wrong ones.

The correct ones aren’t being aired.

That’s partly because there’s no primary contest in the Democratic party. So Republicans automatically get loads of free broadcast time to air their regressive nonsense while the Democrats get none.

But even if the President had equal time, the debate about what to do about the crisis would still be frighteningly narrow.

That’s because the President’s answers don’t nearly match up to the magnitude of the crisis.

Without bold alternatives, Americans desperate for big solutions are attracted to bold crackpot ideas like Herman Cain’s “9-9-9” proposal, which would raise taxes on the poor and cut them for the rich.

This is where the inchoate Occupy Wall Street movement could come in. What’s needed isn’t just big ideas. It’s people fulminating for them – making enough of a ruckus that the ideas can’t be ignored. They become part of the debate because the public demands it.

The biggest thing the President has proposed is a plan to create 2 million jobs. But that’s not nearly big enough. Today, 14 million Americans are out of work, and 11 million more are working part-time who’d rather be working full time.

The nation needs a real jobs plan, one of sufficient size and scope to do the job – including a WPA and a Civilian Conservation Corps, to put the millions of long-term unemployed and young unemployed to work rebuilding America.

I'm reading material from the 1930s and we've been down this path before. The politics is a distraction. We know how to fix the economy. It takes a big jolt of spending to fix the huge number of people caught in a credit squeeze. Pussyfooting around only stretches out the pain. Most politicians know this, but they aren't honest with the public. They would rather play their games and go for personal gain rather than do their duty and build a better tomorrow.

America's War of 1% Against the 99%

Here is a bit from a Bloomberg News report:

A widening gap between rich and poor is reshaping the U.S. economy, leaving it more vulnerable to recurring financial crises and less likely to generate enduring expansions.

Left unchecked, the decades-long trend toward increasing inequality may condemn Wall Street to a generation of unimpressive returns and even shake social stability, economists and financial-industry executives say.

“Income inequality in this country is just getting worse and worse and worse,” James Chanos, president and founder of New York-based Kynikos Associates Ltd., told Bloomberg Radio this week. “And that is not a recipe for stable economic growth when the rich are getting richer and everybody else is being left behind.”

Since 1980, about 5 percent of annual national income has shifted from the middle class to the nation’s richest households. That means the wealthiest 5,934 households last year enjoyed an additional $650 billion -- about $109 million apiece -- beyond what they would have had if the economic pie had been divided as it was in 1980, according to Census Bureau data.

Disputes over what constitutes economic fairness are moving to center stage amid a near-stagnant U.S. economy saddled with 9.1 percent unemployment yet boasting record corporate profits. President Barack Obama last month targeted “the wealthiest taxpayers and biggest corporations” for higher taxes, saying they should pay “their fair share.” That drew charges of “class warfare” from House Speaker John Boehner of Ohio.

The legacy or right wing politics, starting with Nixon in 1968 are obvious:

Since 1968, incomes in the U.S. have become steadily less equally distributed, according to the standard statistical measure of inequality known as the Gini coefficient. The U.S. Gini score rose from .39 in 1968 to .47 in 2010, meaning that incomes were becoming increasingly unequal.

And:

The typical American household, meanwhile, has yet to regain the ground it lost during the recession. The median income of $49,445 at the end of 2010 remained below the level reached in 1997.

And:

Raghuram Rajan, the IMF’s former chief economist, says countries with high levels of inequality tend to produce ineffective economic policies. Political systems in economically divided countries grow polarized and immobilized by the sort of zero-sum politics now gripping Washington, he said.

And:

The government’s response to the financial crisis may also have exacerbated the rich-poor gap by shifting liabilities from private banks to taxpayers. Households and businesses have trimmed their debts since the 2008 peak while government borrowing -- to recapitalize the nation’s banks and battle the recession -- has exploded.

As a result, total domestic nonfinancial sector debt topped $36.5 trillion at mid-year, compared with $32.4 trillion in mid- 2008. And that massive load leaves the economy vulnerable to future shocks.

“In the current climate, if nothing is done about income inequality there may be recurring crises,” says Kumhof, adding: “Leverage has not significantly improved. In terms of the danger of another crisis, we’re right back where we started.”

The problem is obvious and the people are in the street. Tragically the White House is occupied by an aloof, distant, non-politician more interested in "compromise" than in "solutions". It is looking like a situation where nothing will happen until enough blood runs in the streets to force the dithering politicians to "do their duty" and address the economic woes and return the American dream to people. Sad. An activist leader would be out in front of the mobs and defusing the situation. But Obama will dither until things boil over.

The Bloomberg article is excellent. Go read the whole thing.

Krugman Ticks Off a List of Obama's Mistakes

Paul Krugman has a post on his NY Times blog that responds to a blog post by Ezra Klein that lets Obama off the hook for mistakes in handling the economy. This is an excellent list of Obama's failings:

Yet I think he lets Obama and company off the hook too much. A few specific points:

1. I think too much is being made of the fact that subsequent revisions have shown that the economy was in even worse shape in early 2009 than we knew at the time. There was already plenty of evidence that it was in terrible shape and needed a much bigger boost than the administration proposed. And as regular readers know, this isn’t 20-20 hindsight: I was frantic about this at the time.

2. The forecast that assumed rapid recovery even without stimulus has been a deep source of embarrassment, and remains inexplicable to me. We had lots of reason to believe that this was going to be a prolonged slump — not just Reinhart Rogoff, but also the evidence of the last two US business cycles. Again, I was warning about this at the time.

3. This in turn means that the focus on fast-acting policies was misplaced. Shovel-ready wasn’t as important as it was made out to be. And the stimulus would have been a lot closer to adequate if more of it had consisted of infrastructure spending rather than tax cuts.

4. Politically, the administration was wildly naive in believing that it could easily come back for more if the initial stimulus proved inadequate. Again, this isn’t hindsight; I was frantic about this too, right from the beginning. If they thought this likely — as they should have — they should have laid the legislative groundwork for a second round, through reconciliation if necessary, right at the start.

5. Even without that groundwork, my sense is that there was a window for additional action in the fall of 2009, and that the administration sheered off from even trying.

6. Relatedly, the insistence of the administration that the stimulus was just right, long after it was obvious that it had been too small, did a lot of political damage. Remember the “summer of recovery”?

7. The political response to the new jobs bill has been pretty good — which in turn strongly suggests that the “pivot” from jobs to deficit reduction in early 2010 was a big mistake. Maybe — probably — nothing could have passed; but the White House might have been able to make a better case by accusing Republicans of blocking job creation rather than adopting their rhetoric.

Now, Ezra may be right that none of this would have made much difference. But the White House was weak and confused in the face of a political and economic debacle, when it should have gone all out.

And you know what? It should still go all out. The chances of success are lower than they would have been if it had taken a strong position two years ago, but it ain’t over until it’s over.

To really appreciate the above, you need to read Ron Suskind's book Confidence Men that spells out in gory detail just how Obama failed to lead his administration, failed to make the necessary decisions, and failed to live up to his campaign rhetoric about "change" and "hope". It ends up that Obama is really a centre-right politician who managed to win as a centre-left Democratic campaigner but once in office dropped the pretense and moved to the right. Even today when Obama is running for "fair taxation" of the rich, he is lined up with Reagan and not on the left. Obama is not willing to strongly go after the corruption of the American political system. He isn't willing to lead in a legislative agenda to turn around the Lesser Depression of 2008-??.

Update: Here is the Dean Baker reaction to the Ezra Klein article:

Ezra Klein on the Stimulus and After

Ezra Klein has a seriously researched piece in the Post on why the stimulus was inadequate and what else could have been done. The major item missing in my book is any discussion of the overselling of the stimulus after its passage.

By all accounts, Obama's economic team knew that the stimulus they got through Congress was inadequate for the task. They needed a stimulus that was at least twice as large as what Congress passed and quite possibly three or four times as large. Nonetheless, President Obama was quickly running around touting the "green shoots of recovery" and talking about the need to focus on deficit reduction.

By overselling the stimulus and putting deficit reduction at the top of the agenda, Obama was virtually shutting the door on the possibility of getting further stimulus. Since they knew that additional stimulus would almost certainly be necessary, why did they dig themselves into this hole?

It would be interesting to some explanation of this situation. Nonetheless, the piece is well worth reading. The Post deserves some credit for running it.

Baker points out the same thing as Krugman: Obama believed his stimulus was "adequate" and ran around selling this idea even when it was utterly obvious that it was too small. Rather than correct for this mistake and go for a second stimulus, Obama turned his attention to the Republican theme of deficits and the debt, i.e. he turned towards austerity in the midst of the 2008 Lesser Depression. A horrible, horrible mistake! A mistake that to this very day he hasn't admitted to making. That is the very definition of "bad leadership".

Update: Click here to see commentary by Paul Krugman and Randy Steve Waldman.

How Obama Misjudged the Great Recession

Ezra Klein has a post in his blog at The Washington Post detailing how Obama's administration got the size of the 2008 recession/depression wrong:

By that point, the shape of the crisis was clear: The housing bubble had burst, and it was taking the banks that held the loans, and the households that did the borrowing, down with it. Romer estimated that the damage would be about $2 trillion over the next two years and recommended a $1.2 trillion stimulus plan. The political team balked at that price tag, but with the support of Larry Summers, the former Treasury secretary who would soon lead the National Economic Council, she persuaded the administration to support an $800 billion plan.

The next challenge was to persuade Congress. There had never been a stimulus that big, and there hadn’t been many financial crises this severe. So how to estimate precisely what a dollar of infrastructure spending or small-business relief would do when let loose into the economy under these unusual conditions? Romer was asked to calculate how many jobs a stimulus might create. Jared Bernstein, a labor economist who would be working out of Vice President Biden’s office, was assigned to join the effort.

Romer and Bernstein gathered data from the Federal Reserve, from Mark Zandi at Moody’s, from anywhere they could think of. The incoming administration loved their report and wanted to release it publicly. Romer took it home over Christmas to double-check, rewrite and pick over. At 6 a.m. Jan. 10, just days before Obama would be sworn in as president, his transition team lifted the embargo on “The Job Impact of the American Recovery and Reinvestment Act.” It was a smash hit.

“It will be a joy to argue policy with an administration that provides comprehensible, honest reports,” enthused columnist Paul Krugman in the New York Times.

There was only one problem: It was wrong.

The issue is the graph on Page 1. It shows two blue lines sloping gently upward and then drifting back down. The darker line — “With recovery plan” — forecasts unemployment peaking at 8 percent in 2009 and falling back below 7 percent in late 2010.

Three years later, with the economy still in tatters, that line has formed the core of the case against the Obama administration’s economic policies. That line lets Republicans talk about “the failed stimulus.” That line that has discredited the White House’s economic policy.

But the other line — “Without recovery plan” — is more instructive. It shows unemployment peaking at 9 percent in 2010 and falling below 7 percent by the end of this year. That’s the line the administration used to scare Congress into passing the single largest economic recovery package in American history. That line is the nightmare scenario.

And yet this is the cold, hard fact of the past three years: The reality has been worse than the administration’s nightmare scenario. Even with the stimulus, unemployment shot past 10 percent in 2009. (See the updated graph here.)

Click to Enlarge
To understand how the administration got it so wrong, we need to look at the data it was looking at.

The Bureau of Economic Analysis, the agency charged with measuring the size and growth of the U.S. economy, initially projected that the economy shrank at an annual rate of 3.8 percent in the last quarter of 2008. Months later, the bureau almost doubled that estimate, saying the number was 6.2 percent. Then it was revised to 6.3 percent. But it wasn’t until this year that the actual number was revealed: 8.9 percent. That makes it one of the worst quarters in American history. Bernstein and Romer knew in 2008 that the economy had sustained a tough blow; they didn’t know that it had been run over by a truck.

Go read the whole post.

Ezra Klein goes on to paint a determined effort by the Obama administration to get on top of this "bigger than expected" recession. But I just don't buy Klein's story. I've read Ron Suskind's Confidence Men. That paints a picture of confusion and temerity on the part of Obama, a slowness to react. This agrees with what I saw. From March 2009 until early 2011 Obama kept putting on the front that his stimulus had been "just right". But as the above shows, even when the stimulus was passed in March 2009 it was obvious that it was going to be far too small! Rather than react and go bigger, Obama remained passive and pretended he had done "just enough". This created the political poison of today where the Republican poke at him saying his "stimulus didn't work".

Here's what Obama never faced up to:

The stimulus was a bet that we could get out of this recession through the one path everyone can agree on: growth. The bet was pretty much all-in, and it failed. Reinhart and Rogoff are not particularly surprised. It’s hard to get through a debt-driven crisis without doing anything about, well, debt.

In our crisis, the “debt” in question is housing debt. Home prices have fallen almost 33 percent since the beginning of the crisis. All together, the nation’s housing stock is worth $8 trillion less than it was in 2006. And we’re not done. Morgan Stanley estimates there are more than 2.2 million homes sitting vacant, and 7.5 million more facing foreclosure. It is housing debt that has weakened the banks, and mortgage debt that is keeping consumers from spending.

...

The Obama administration, perhaps cognizant of the politics, was not nearly so bold. It focused on stimulus rather than housing debt. The idea was that if people could keep their jobs and pay their bills, they could pay their mortgages. But today, few on the Obama team will mount much of a defense of its housing policy.

Its efforts to heal the troubled market at the core of the financial crisis are widely considered weak and ineffective. The Home Affordable Modification Program, which proposed to pay mortgage servicers to renegotiate with financially stressed homeowners, couldn’t persuade the servicers to play ball and so has left most of its $75 billion unspent. The Home Affordable Refinance Program was projected to help 5 million underwater homeowners. It has reached fewer than 1 million.

Even so, the administration rejects the more radical solutions that are occasionally floated. The problem, it says, is that the choices are mostly between timid and unworkable.

What Klein doesn't face up to is the fact that Obama came in "green" and simply doesn't have good "management skills" and failed to understand the economics of the situation. He mismanaged the problem. He failed as a leader. FDR would admit his mistakes and try and try until he got something right. Obama dithered, acted late, and then failed to accept that his attempt had fizzled and instead stonewalled any attempt to recognize the failure and try something else. That is pathetic in a leader.

I criticize Obama for getting stuck in the ditch instead of rescuing the economy. The Republicans would have (and if elected will) drive the economy over a cliff and destroy it. So America has no future worth getting excited about. The 2012 election will be between an ineffective leader and an absolutely incompetent leader. Hopefully Americans choose ineffective and not the "nuclear option" of an incompetent Republican leader.

Update 2011oct09: I've posted some reaction by Paul Krugman and Dean Baker here.

The following is a bit from a blog post by Steve Randy Waldman in his Interfluidity blog:

Ezra Klein is a wonderful writer, but I don’t love his retrospective on the financial crisis. (Kevin Drum and Brad DeLong do.) The account is far too sympathetic. The Obama administration’s response to the crisis was visibly poor in real time. Klein shrugs off the error as though it were inevitable, predestined. It was not. The administration screwed up, and they screwed up in a deeply toxic way. They defined “politically possible” to mean acceptable to powerful incumbents, and then restricted their policy advocacy to the realm of that possible. The administration could have chosen to fight for policies that would have been effective and fair rather than placate groups whose interests were opposed to good policy. They might not have succeeded, but even so, as Mike Koncazal puts it, they would have lost well. We would be better off with good policy options untried but still on the table than where we are now, with policy itself — monetary, fiscal, whatever — discredited as both ineffective and faintly corrupt.

There is a lot in Klein’s piece that I could react to, but I want to highlight one point that is particularly misguided:

But when talking about what might have worked on a massive, economy-wide scale — that is to say, what might have made this time different — you’re talking about something more drastic. You’re talking about getting rid of the debt. To do that, somebody has to pay it, or somebody has to take the loss on it.

The most politically appealing plans are the ones that force the banks to eat the debt, or at least appear to do so. “Cramdown,” in which judges simply reduce the principal owed by underwater homeowners, works this way. But any plan that leads to massive debt forgiveness would blow a massive hole in the banks. The worry would move from “What do we do about all this housing debt?” to “What do we do about all these failing banks?” And we know what we do about failing banks amid a recession: We bail them out to keep the credit markets from freezing up. There was no appetite for a second Lehman Brothers in late 2009.

Which means that the ultimate question was how much housing debt the American taxpayer was willing to shoulder. Whether that debt came in the form of nationalizing the banks and taking the bad assets off their books — a policy the administration estimated could cost taxpayers a trillion dollars — or simply paying off the debt directly was more of a political question than an economic one. And it wasn’t a political question anyone really knew how to answer.

On first blush, there are few groups more sympathetic than underwater homeowners or foreclosed families. They remain so until about two seconds after their neighbors are asked to pay their mortgages. Recall that Rick Santelli’s famous CNBC rant wasn’t about big government or high taxes or creeping socialism. It was about a modest program the White House was proposing to help certain homeowners restructure their mortgages. It had Santelli screaming bloody murder… If you believe Santelli’s rant kicked off the tea party, then that’s what the tea party was originally about: forgiving housing debt.

This all sounds very hard-nosed. There were debts. There were economic losses, such that the debts could not be serviced at initially agreed terms. The consequences of leaving those unserviceable debts in place — frozen household spending, bankruptcy courts and litigation, blown up banks — were intolerable. Therefore, the losses were going to have to be socialized, borne by taxpayers, one way or another. Ultimately, in this view, it is all a matter of dollars and cents. The taxpayer is going to eat the loss, so what’s the best sugar to make the medicine go down?

But human affairs are not about dollars and cents. Santelli’s rant and the tea party it kind-of inspired were not borne of a financial calculation — “Oh my God! My tax bill is going to be $600 higher if we refinance underwater mortgages!” Santelli’s rant, quite legitimately, reflected a fairness concern. The core political issue has never been the quantity of debt the government would incur to mitigate the crisis. It was and remains the fairness of the transfers all that debt would finance. A fact of human affairs that proved unfortunately consequential during the crisis is that people perceive injustice more powerfully on a personal scale than at an institutional level. Bailing out the dude next door who cashed out home equity to build a Jacuzzi is a crime. Bailing out the “financial system” is just a statistic. So the anger Santelli channeled led to economically stupid bail-outs of intermediaries rather than end-debtors.

Once you understand that the problem is a fairness issue rather than a dollars-and-cents issue, the policy space grows wider. Holding constant the level of expenditure, one can make bail-outs more or less fair by the degree to which you demand sacrifice from the people you are bailing out. TARP was deeply stupid not because it meant socializing risks and costs created by bankers. TARP was terrible public policy because it socialized risks and costs while demanding almost no sacrifice at all from the people most responsible for those risks. The alternative to TARP was never “let the banks fail, and see how the bankruptcy system deals with it.” The alternative would have been to inject public capital (socialize risks and costs!) while also haircutting creditors, writing-off equityholders, firing management, and aggressively investigating past behavior. It was not the money that made TARP unpopular. It was the unfairness. And the unfairness was not at all necessary to resolve the financial problem.

If the Obama administration, or any administration, decided to encourage principal writedowns by having the government simply cover half the loss, that would be unfair. The Rick Santellis of the world might object more than I would, but that would be to my discredit more than theirs. Fairness should never be a policy afterthought. Widely adhered norms of fair play are among the most valuable public goods a society can hold. A large part of why the financial crisis has been so corrosive is that people understand that major financial institutions violated these norms and got away with it, which leaves all of us uncertain about what our own standards of behavior should be and what we can reasonably expect from others. When policy wonks, however well meaning, treat fairness as a public relations matter, they are corroding social infrastructure that is more important than the particular problems they mean to fix.

The good news is that there are lots of ways to craft good economic policy without doing violence to widely shared norms of fairness. See, for example, Ashwin Parameswaran’s “simple policy program“. On a less grand-scale, you’ll find that very few fairness concerns arise if underwater borrowers enjoy principal writedowns in the context of bankruptcy. Such “cramdowns” are consistent with a widely shared social norm, that society will grant (and creditors must fund) some relief from past poor choices to individuals who go through a costly and somewhat shameful legal process. Including mortgages and student loans in that uncontroversial bargain will piss-off bankers who wish to avoid responsibility for bad credit decisions. But it won’t provoke a revolution in Peoria.

The Obama administration campaigned on “cramdowns”, but ultimately decided not to push them. I wonder why? Perhaps Ezra Klein will explain how research by Reinhart and Rogoff shows that this too was inevitable.

Go read the original Waldman post to get the embedded links.

Ron Suskind's "Confidence Men: Wall Street, Washington, and the Education of a President"

I enjoyed this book. Usually I get bogged down and bored with these "behind the scenes" exposés. Too many details, too much in-fighting, no grand theme, no insight. But this book held my attention. It had a clear theme: Barack Obama failed. It appends a closing few chapters about the house cleaning in late 2010 and the idea that Obama had learned his lesson, was more humble, and would now be a "take charge leader". Well, we've had eight months since writer laid down pen to consider this "happy ending". Anybody living through the debt ceiling debacle knows that the last few chapters of Suskind paint a rosy fiction. Obama has not changed.

I've read quibbles over the "accuracy" of this book. That is surprising. Yeah, the book may get a quote a bit wrong here or there. I noticed some sloppiness in editing. The book was rushed and it is clear that it is stitched together from a large set of notes. But the theme of the book is solid: Obama failed.

What makes the book very interesting is "why did Obama fail?". He had a solid mandate, he became leader in a crucial time, he claimed to want to be the new Lincoln to lead his country out of a modern day "civil war" between right and left through deft compromise and "let us all sit down and reason together".

Suskind blames many people around Obama for the failure, but doesn't flinch for the core truth: ultimately it was Obama who failed. Obama chose the wrong people, he listened and debated with himself and equivocated when he should have acted. He allowed subordinates to derail policy. He fostered a White House where the mandate for action got lost, where egos bruised each other, and the needs of the nation got lost in petty politicking.

I would recommend this book to everyone. It confirms my view that Obama is "the new Carter", a nice guy who simply isn't cut out to lead. He is a smart guy, he gives a great speech, he has good intentions, but he isn't a leader. Worse, he carefully deceived the voting public with his "hope" and "change you can believe in" slogans and his life story. These led voters to believe that they were voting in "one of their own", somebody who understood the plight of the bottom 90%, and somebody who would go to bat for them. Instead, Obama is a centre-right politician more concerned with balancing the budget and keeping the Wall Street bankers happy than in reversing a 40 year drift toward the rich getting richer and the bottom 90% slowly getting poorer.

Here are some quotes from the book to give you a taste of it:

Just a month and a half into his presidency, Barack Obama's White House was slipping into a kind of dysfunction. In a way, it was not all that surprising that a president who had never managed anything beyond his own personal journey had responded to wild expectations, at a time of crisis, by grabbing hold of every intractable dilemma in sight. But the improvisational ebullience, and energy, Obama mustered in the first few weeks wasn't being turned into concrete actions or strategies. As the president tried to rise to the demands of his job, the White House was increasingly being directed by a back-channel union between two forceful men: Rahm Emanuel and Larry Summers.

And:

By late March those choices were the stuff of fierce debate. The administration's domestic policy was fast becoming a debate society run by Larry Summers. Obama would sit on high, trying to judge if there was any shared ground between the competing debate teams that might coalesce into a policy. The larger question simmering beneath each busy day was whether his growing inclination to seek consensus in these debate tournaments was a model for sound decision making, a crutch to delay, or avoid, the decisions only a president can make, or a recipe for producing half-measures -- a pinch of this matched up with a scoop of that -- masquerading as solutions. After all, if the breadth of perspectives is wide enough to represent the fullest range of views, consensus i unlikely. If consensus is swiftly achieved, it probably means too few voices have been heard.

And:

Presidents are among the few mortals who are sometimes graced with chances to change a culture. Throughout a windswept March, the country had been working to dislodge some of the era's prevailing certainties about markets being efficient, about people -- economically, at least -- getting what they deserve, along with the concomitant belief that financial barons are brilliant and indispensable, and manufacturing executives are dinosaurs.

With the eyes of the country on him, Barack Obama ended the month by shielding Wall Street executives against these winds of cultural change, while he fired a man who had effectively managed four hundred thousand workers in their making of seven million cars a year -- without ever bothering to meet him. At the same time, he agreed to try to bail out Chrysler, and eventually GM, by adopting the practices and principles of private equity in the use of government funds.

Improbable combinations, blended solutions, the integrating of opposites.

This was the Obama method, in his life and in his work. But he hadn't gotten elected simply to search for this clever version of the middle ground. He's been elected at a time of peril to change the country's course.

I must admit I was hostile toward Rick Wagoner of GM, but Suskind's tale has turned me to see him in a more sympathetic way. I still feel he was an incompetent executive, but I do think he was brutally treated by Obama while the Wall Street fraudsters were coddled by Obama. GM and Wall Street were greedy. But Wagoner wasn't a manipulative fraudster. Wagoner got treated like a criminal while the real criminals get feted by Obama, protected, and paid handsomely. Life is more bizarre than one can imagine.

One of the guys presented as an evil manipulator was Rahm Emanuel. Here's a bit of a taste:

After listening to an hour of debate on the matter or what the outlines of reform should look like -- just like hour after hour of debates involving the president -- Emanuel took control of matters. "Okay, Time, what the fuck do you need here?"

Geithner, a bit stunned, paused for a moment.

"Well, a systemic risk regulator [someone to watch the landscape for systemic risk inside institutions], resolution authority [the statutory power to take down a problematic institution], and leverage [higher capital requirements to ensure that banks don't over-leverage themselves], Those three things."

Emanuel nodded, "Okay, let's throw in the consumer financial agency, and everything else can be flushed."

So it was decided. Everyone kind of shrugged. One participant in the deliberations thought about whether Emanuel had, in fact, simply made this decision, or whether he was just carrying out the wishes of the president, then concluded that "the president couldn't have decided those things and told Rahm what to do. At the start of the meeting, there were too many variables to choose from. You would have needed some sort of decision-making algorithm."

That isn't the vision of deliberation and wisdom one expects from high council in government. Suskind gives you a front row seat into the ugly reality. What is really scary is that it shows Obama as adrift and the underlings take over and run policy making for him.

This is where Suskind makes this point most emphatically:

"You know, Peter [Orszag], we're really home alone."

Over the past few months, Summers had said this, in a stage whisper, to Orszag and others as they left the morning economic briefings in the Oval Office. The topics varied: taxes, deficits, the economy, economics in general.

"I mean it," Summers stressed. "We're home alone. There's no adult in charge. Clinton would never have made these mistakes."

No "adult in charge" of the world's mightiest nation at its time of peril? It bespeaks a crisis -- of a president overmatched, unable to fulfill the duties of his office, and a nightmare no one wants to acknowledge in daylight.

While Orszag wouldn't publicly affirm Summers's critique of the president's abilities -- saying later, "I don't want to go there" -- he wouldn't disagree, either. He sat in meeting after meeting where the president would cover the same issue, or controversy, or policy dilemma, and "relitigate" it, in the president's parlance, over and over. Decisions were left unmade; policies drifted without direction. It wasn't a matter of intellectual framing. The president seemed to grasp the nautreof key policy dilemmas, like a journalist, or narrator, or skilled observer. The problem was in guiding the analysis toward what a president is paid, and elected, to do: make tough decisions.

The book is a very long series of details about the Obama presidency and it is an indictment. He's a smart guy but he isn't a leader. Funny, George W. Bush was a "pretend" leader (he called himself "the Decider") but in fact was manipulated an cajoled into the "right decisions" by his éminence grise, Dick Cheney. Obama has no consigliere who manipulated strings to get things done. Consequently the Obama administration has drifted.

What does this say about the US political system? They put presidential candidates through a grueling multi-year contest to win office. This eliminates many who refuse to give up two years of their life to a quixotic quest for power. It also means that elections are over media savvy and endurance more than over any "leadership quality". In the background money is buying and selling "positions" which are invisible to the electorate. Is it surprising that America is electing "leaders" who come up short, very short, on real "leadership" qualities? Read the book and think about this issue.

Wisdom from the Great Depression

Here are words from Mariner Eccles, appointed Chairman of the Federal Reserve by FDR. His words then are applicable today:

It is utterly impossible, as this country has demonstrated again and again, for the rich to save as much as they have been trying to save, and save anything that is worth saving. They can save idle factories and useless railroad coaches; they can save empty office buildings and closed banks; they can save paper evidences of foreign loans; but as a class they can not save anything that is worth saving, above and beyond the amount that is made profitable by the increase of consumer buying. It is for the interests of the well to do – to protect them from the results of their own folly – that we should take from them a sufficient amount of their surplus to enable consumers to consume and business to operate at a profit. This is not “soaking the rich”; it is saving the rich. Incidentally, it is the only way to assure them the serenity and security which they do not have at the present moment.

The right wing Republican nuts of today are as hidebound and foolish as the right wing Republican nuts of the 1930s. In both cases they scream bloody murder about "class war" and want to protect the excessive incomes of the rich. But the rich have squeeze society to the point where the spending of the bottom 90% can't keep the economy afloat. Mariner Eccles made that point 80 years ago and it needs to be made again today.

Here is the wisdom that must be re-learned:

Before effective action can be taken to stop the devastating effects of the depression, it must be recognised that the breakdown of our present economic system is due to the failure of our political and financial leadership to intelligently deal with the money problem. In the real world there is no cause nor reason for the unemployment with its resultant dsestitution and suffering of fully one-third of our entire population. We have all and more of the material wealth which we had at the peak of our prosperity in the year 1929. Our people need and want everything which our abundant facilities and resources are able to provide for them. The problem of production has been solved, and we need no further capital accumulation for the present, which could only be utilised in further increasing our productive facilities or extending further foreign credits. We have a complete economic plant able to supply a superabundance of not only all the necessities of our people, but the comforts and luxuries as well. Our problem, then, becomes one purely of distribution. This can only be brought about by providing purchasing power sufficiently adequate to enable the people to obtain the consumption goods which we, as a nation, are able to produce. The economic system can serve no other purpose and expect to survive.

Obama has in power for nearly 3 years and still hasn't learned this lesson. Throw out Obama! The Democrats need a new leader. Somebody who understands that the purpose of government is to help people have hope ("change you can believe in") and a better, more prosperous future. Obama has failed to deliver. A new guy needs to be put forward in the hopes that they have the guts, the courage, the cojones, the intelligence, and the leadership to make the changes needed to bring about a better tomorrow.

Brad DeLong has a Plan to Reflate the US Economy

From a post on UC Berkely professor economics Brad DeLong's blog Grasping Reality with Both Hands:

Helicopter Drops: Does the Treasury Have Authority to Lend $10,000 Interest-Free to Every 2011 Taxpayer?

by J. Bradford DeLong

Mint ten $1,000 platinum coins for each 2011 taxpayer. Lend them to each 2011 taxpayer--at zero percent nominal interest for a hundred year term, so that each taxpayer or their heirs and assigns will be liable for paying the money back in 2111.

Does the Treasury have authority to do this right now? I think it might--or that the same lawyers who say that what we did in Libya was not "hostilities" would be able to claim that the Treasury has such authority.

And if the Treasury doesn't, I am pretty confident that the Federal Reserve does. (Every taxpayer might have to first fill out a form incorporating him or herself as a bank holding company, however.)

I agree that the above would work. I agree that is is fully as legal an action as the Bush legal team's assertion that "enhanced interrogation" techniques like waterboarding were legal because they are not torture. I wish Ben Bernanke would act immediately on this. This is even better than John Maynard Keynes' prescription to cure the Great Depression:

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

If only Bernanke of Obama had the guts to make a dramatic move like this to rescue the world from 10 years of a Japan-style "lost decade"...

Then and Now

Back when the US was a heathy country under a good leader with a real vision for the future, here's what he had to say about high unemployment:

To those who say that our expenditures for Public Works and other means for recovery are a waste that we cannot afford, I answer that no country, however rich, can afford the waste of its human resources. Demoralization caused by vast unemployment is our greatest extravagance. Morally, it is the greatest menace to our social order. Some people try to tell me that we must make up our minds that for the future we shall permanently have millions of unemployed just as other countries have had them for over a decade. What may be necessary for those countries is not my responsibility to determine. But as for this country, I stand or fall by my refusal to accept as a necessary condition of our future a permanent army of unemployed. On the contrary, we must make it a national principle that we will not tolerate a large army of unemployed and that we will arrange our national economy to end our present unemployment as soon as we can and then to take wise measures against its return. I do not want to think that it is the destiny of any American to remain permanently on relief rolls.

That is a from a fireside chat by FDR on September 30, 1934. Compare that to the right wing Republicans who are happy to wreck the economy, leave unemployment high, allow home foreclosures to continue while they give ever more tax cuts to the ultra-rich. Or compare that to the timid and feeble actions of Obama and the Democrats.

How the mighty have fallen. Given the state of incompetence among the political class in America and given the supine acceptance of the lousy situation by the American public, I see no future recovery for the US. I see a lost decade or two for America just like the Japanese have suffered since 1991.

Here is the foreseeable future for the US: