Posts Tagged ‘economy’

Why We Should Raise Taxes on the Super-Rich and Lower Them on the Middle Class

Feb 16th, 11 / 2 Comments

Evans Liberal Politics
February 16, 2011

 

Why We Should Raise Taxes
on the Super-Rich and Lower Them
On the Middle Class

Why We Should Raise Taxes on the Super-Rich and Lower Them on the Middle Class, Robert Reich.org, February 15, 2011, by Robert Reich, used with permission, quoted verbatim:

My proposal to raise the marginal tax to 70 percent on incomes over $15 million, to 60 percent on incomes between $5 million and $15 million, and to 50 percent on incomes between $500,000 and $5 million, has generated considerable debate. Some progressives think it’s pie-in-the-sky. Here, for example, is Andrew Leonard, a staff writer for Salon:

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A 70 percent tax bracket for the richest Americans is pure fantasy – even suggesting it represents such a fundamental disconnect with the world as it exists today that it is hard to see why it should be taken seriously. I would be deeply worried about the sanity of a Democratic president who proposed such a thing.

Fantasy? I don’t know Mr. Leonard’s age but perhaps he could be forgiven for not recalling that between the late 1940s and 1980 America’s highest marginal rate averaged above 70 percent. Under Republican President Dwight Eisenhower it was 91 percent. Not until the 1980s did Ronald Reagan slash it to 28 percent. (Many considered Reagan’s own proposal a “fantasy” before it was enacted.)

Incidentally, during these years the nation’s pre-tax income was far less concentrated at the top than it is now. In the mid-1970s, for example, the top 1 percent got around 9 percent of total income. By 2007, they got 23.5 percent. So if anything, the argument for a higher marginal tax should be even more realistic now than it was during the days when it was taken for granted.

A disconnect with the world as it exists today? That’s exactly the point of proposing it. For years progressives have whined that Democratic presidents (Clinton, followed by Obama) compromise with Republicans while Republican presidents (Reagan through W) stand their ground – with the result that the center of political debate has moved steadily rightward. That’s the reason the world exists the way it does today. Isn’t it about time progressives had the courage of our conviction and got behind what we believe in, in the hope of moving the debate back to where it was?

Would a Democratic president be insane to propose such a thing? Not at all. In fact, polls show an increasing portion of the electorate angry with an insider “establishment” – on Wall Street, in corporate suites, and in Washington – that’s been feathering its nest at the public’s expense. The Tea Party is but one manifestation of a widening perception that the game is rigged in favor of the rich and powerful.

More importantly, it will soon become evident to most Americans that the only way to reduce the budget deficit, preserve programs deemed essential by the middle class, and not raise taxes on the middle, is to tax the top.

In fact, a Democratic president should propose a major permanent tax reduction on the middle class and working class. I suspect most of the public would find this attractive. But here again, the only way to accomplish this without busting the bank is to raise taxes on the rich.

Republicans have done a masterful job over the last thirty years convincing the public that any tax increase on the top is equivalent to a tax increase on everyone — selling the snake oil of “trickle down economics” and the patent lie that most middle-class people will eventually become millionaires. A Democratic president would do well to rebut these falsehoods by proposing a truly progressive tax.

Will the rich avoid it? Other critics of my proposal say there’s no way to have a truly progressive tax because the rich will always find ways to avoid it by means of clever accountants and tax attorneys. But this argument proves too much. Regardless of where the highest marginal tax rate is set, the rich will always manage to reduce what they owe. During the 1950s, when it was 91 percent, they exploited loopholes and deductions that as a practical matter reduced the effective top rate 50 to 60 percent. Yet that’s still substantial by today’s standards. The lesson is government should aim high, expecting that well-paid accountants will reduce whatever the rich owe.

Besides, the argument that the nation shouldn’t impose an obligation on the rich because they can wiggle out of it is an odd one. Taken to its logical extreme it would suggest we allow them to do whatever antisocial act they wish – grand larceny, homicide, or plunder – because they can always manage to avoid responsibility for it.

Some critics worry that if the marginal tax is raised too high, the very rich will simply take their money to a more hospitable jurisdiction. That’s surely possible. Some already do. But paying taxes is a central obligation of citizenship. Those who take their money abroad in an effort to avoid paying American taxes should lose their American citizenship.

Finally, there are some who say my proposal doesn’t stand a chance because the rich have too much political power. It’s true that as income and wealth have moved to the top, political clout has risen to the top as well.

But to succumb to cynicism about the possibility of progressive change because of the power of those at the top is to give up the battle before it’s even started. Haven’t we had enough of that?

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Robert Reich was the nation’s 22nd Secretary of Labor under Bill Clinton and is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations. In 2008, Time Magazine named him one of the Ten Most Successful Cabinet Members of the century. He has written eleven books, including “The Work of Nations,” which has been translated into 22 languages. His recent book is “Supercapitalism.” For Professor Reich’s book page for Supercaptialism at Amazon, go here. Reich’s newest book, Aftershock: The Next Economy and America’s Future has been released September 21, and is available for ordering at this link (Amazon.com). The above article is from Reich’s new blog, and can be viewed here.

Robert Reich’s commentaries are available for listening to at Publicradio.com. Watch the video Aftershock: The next economy and America’s future (about his new book). Thanks to Professor Reich for permission to publish his articles on an ongoing basis.

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Robert Reich: Who Says Republicans Have No New Ideas

Feb 12th, 11 / 0 Comments

Evans Liberal Politics
February12, 2011

 

Robert Reich: Who Says
Republicans Have No New Ideas

Who Says Republicans Have No New Ideas, Robert Reich.org, February 11, 2011, by Robert Reich, used with permission, quoted verbatim:

Quiz: Which of the 2012 presidential aspirants delivered the following words at the Conservative Political Action Convention, now underway in Washington?

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We have seen tax-and-tax spend-and-spend reach a fantastic total greater than in all the previous 170 years of our Republic.

Behind this plush curtain of tax and spend, three sinister spooks or ghosts are mixing poison for the American people. They are the shades of Mussolini, with his bureaucratic fascism; of Karl Marx, and his socialism; and of Lord Keynes, with his perpetual government spending, deficits, and inflation. And we added a new ideology of our own. That is government give-away programs….

If you want to see pure socialism mixed with give-away programs, take a look at socialized medicine.

If you guessed Jim DeMint, you could be forgiven. He talks a lot like this. But you’d be wrong. Newt Gingrich didn’t utter these precise words, either, although he uses much the same language and offers the same themes.

You’d also be wrong if you guessed Rick Santorum, Rick Perry, Tom Pawlenty, Ron Paul, Haley Barbour, John Thune, Mitt Romney, or Mitch Daniels. (Sarah Palin isn’t attending.)

But again, your mistake would be understandable because these words sound a lot like theirs. Any of them could have delivered this message – and all of them have, over and over again. It’s the Republican message of 2011.

The perfectly correct answer is Herbert Hoover.

Herbert Hoover didn’t deliver these words at this week’s Conservative Political Action Convention, though. He delivered them at the Republican National Convention in Chicago on July 8, 1952.

That was almost sixty years ago.

Republicans haven’t come up with a single new idea since. They haven’t even come up with a new theme.

Herbert Hoover, you may remember, didn’t have a sterling record when it came to the economy. As president, he presided over the Great Crash of 1929 and ushered in the Great Depression. He had no idea for what to do to help the nation out of the Depression except to balance the federal budget. By the time he was voted out of office in 1932, one out of four Americans was unemployed.

By 1952, Hoover had been proven irrelevant and hidebound.

After Dwight D. Eisenhower won the 1952 Republican nomination and went on to become president, he wisely disregarded everything Hoover had advised.

Under Ike, the marginal income tax on America’s highest earners was 91 percent. Eisenhower also commenced the biggest infrastructure program in the nation’s history – the National Interstate and Defense Highway Act, which replaced America’s meandering two-lane roads with 40,000 miles of straight four and six-lane highways. He signed into law the National Defense Education Act, which trained a whole generation of math and science teachers, and upgraded American classrooms for the future. The Federal Housing Authority subsidized home ownership. The Defense Department spawned future technologies in aerospace and telecommunications.

Did the U.S. suffer fascism, socialism, deficits and inflation, as Hoover predicted? No. The U.S. economy soared. The median wage rose faster than ever before. And the incomes of America’s working class and poor rose at the fastest pace of all.

Robert Reich was the nation’s 22nd Secretary of Labor under Bill Clinton and is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations. In 2008, Time Magazine named him one of the Ten Most Successful Cabinet Members of the century. He has written eleven books, including “The Work of Nations,” which has been translated into 22 languages. His recent book is “Supercapitalism.” For Professor Reich’s book page for Supercaptialism at Amazon, go here. Reich’s newest book, Aftershock: The Next Economy and America’s Future has been released September 21, and is available for ordering at this link (Amazon.com). The above article is from Reich’s new blog, and can be viewed here.

Robert Reich’s commentaries are available for listening to at Publicradio.com. Watch the video Aftershock: The next economy and America’s future (about his new book). Thanks to Professor Reich for permission to publish his articles on an ongoing basis.

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Why the Republican Attack on “Job-Killing Regulations” is Dumb

Feb 11th, 11 / 0 Comments

Evans Liberal Politics
February 11, 2011

 

Why the Republican Attack
On “Job-Killing Regulations” is Dumb

Why the Republican Attack on “Job-Killing Regulations” is Dumb, Robert Reich.org, February 9, 2011, by Robert Reich, used with permission, quoted verbatim:

Republicans aim to end all “job-killing regulations” — especially those that, according to House Speaker John Boehner, are “strangling” business with detailed requirements over health, safety, the environment, corporate governance and finance.

Here’s another instance of where the White House’s attempt to preempt Republican rhetoric (the President said last week his administration would root out all nonsensical and inefficient regulation) ends up legitimizing it — and reframing the public debate around an issue that’s hardly central to what ails America.

The reason we have continued sky-high unemployment has nothing to do with excessive regulation. There was no sudden outpouring of federal regulation in 2007 before the economy tanked and millions lost their jobs.

If anything, the economy unraveled because of too little regulation. Wall Street went on a binge, remember? The Street could get almost free money from the Fed (which had reduced interest rates to near zero) and do just about whatever it wanted with it. Thirty years of deregulation, culminating with the dismantling of Glass-Steagall and the abject failure of regulators at the Fed and the SEC to use the authority they still had, enabled the Street to make bundles of money and expose the rest of the economy to unprecedented levels of risk.

The Fed had slashed interest rates in the early 2000s, by the way, because the corporate looting scandals at Enron, Worldcom, Sunbeam, and other major corporations had sapped investor confidence. Those scandals themselves wouldn’t have happened had securities regulations been stronger and better enforced.

No one wants unnecessary regulation. And rules ought to be clear and simple. But let’s be real. Most of the complexity and verbiage that finds its way into the Code of Federal Regulations is the result of industry lawyers and lobbyists who exploit every potential ambiguity to avoid doing what lawmakers intend — thereby necessitating ever-more detailed and picayune rules to close the loopholes. It’s an endless cat-and-mouse game that runs from regulatory agencies through the courts and then back again. And it’s occurring right now, as regulations are being drawn up to put the healthcare and financial laws into effect.

There’s no necessary tradeoff between regulations and jobs. Regulations that are designed well — that tell industry what to achieve by a certain date but don’t dictate exactly how (such as fuel economy standards) — can generate innovation as companies compete to find the most efficient solutions. And innovations can lead to more jobs as they spawn new products and industries.

Even where there is a tradeoff — where regulations are costly and those costs result in fewer jobs — it still makes sense to opt for regulation when the public benefits exceed the costs to industry. We could have millions more jobs tomorrow if we eviscerated all health and safety regulations and allowed our air to turn yellow and our rivers and lakes to become fetid stinkholes. But that would be dumb.

“Job-killing regulations” is a silly phrase that substitutes for real thought. And it’s a distraction from the hard work of creating more jobs in America.

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Robert Reich was the nation’s 22nd Secretary of Labor under Bill Clinton and is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations. In 2008, Time Magazine named him one of the Ten Most Successful Cabinet Members of the century. He has written eleven books, including “The Work of Nations,” which has been translated into 22 languages. His recent book is “Supercapitalism.” For Professor Reich’s book page for Supercaptialism at Amazon, go here. Reich’s newest book, Aftershock: The Next Economy and America’s Future has been released September 21, and is available for ordering at this link (Amazon.com). The above article is from Reich’s new blog, and can be viewed here.

Robert Reich’s commentaries are available for listening to at Publicradio.com. Watch the video Aftershock: The next economy and America’s future (about his new book). Thanks to Professor Reich for permission to publish his articles on an ongoing basis.

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Robert Reich: Obama’s Deal with the U.S. Chamber of Commerce

Feb 9th, 11 / 1 Comment

Evans Liberal Politics
February 9, 2011

 

Robert Reich: Obama’s Deal
with the U.S. Chamber of Commerce

Obama’s Deal with the U.S. Chamber of Commerce, Robert Reich.org, February 8, 2011, by Robert Reich, used with permission, quoted verbatim:

“We can, and we must, work together,” the President told the U.S. Chamber of Commerce today. “Whatever differences we may have, I know that all of us share a deep, abiding belief in this country, a belief in our people, a belief in the principles that have made America’s economy the envy of the world.”

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Really? I’ve been watching (and occasionally trying to deal with) the Chamber for years, and all I know is it has a deep, abiding belief in cutting taxes on the wealthy, eroding regulations that constrain Wall Street, cutting back on rules that promote worker health and safety, getting rid of the minimum wage, repealing the new health-care law, fighting unions, cutting back Medicare and Social Security, reducing or eliminating corporate taxes, and, in general, taking the nation back to the days before the New Deal.

So what, exactly, is the deal Obama is pitching to the Chamber?

He said his administration will “help lay the foundation for you to grow and innovate,” by eliminating “barriers that make it harder for you to compete – from the tax code to the regulatory system,” and by completing more trade deals.

In return, the President said he wants businesses to hire more Americans. “Many of your own economists and salespeople are now forecasting a healthy increase in demand. So I want to encourage you to get in the game,” he said. “And as you hire, you know that more Americans working means more sales, greater demand and higher profits for your companies. We can create a virtuous cycle.”

Virtuous cycle? American businesses are doing quite nicely as it is. Their profits are soaring. And one reason they’re doing so well is they’re holding down costs, especially payrolls. So why would they ever agree to add more workers now?

From the standpoint of the nation as a whole more Americans working may mean even higher profits overall. But publicly-traded companies aren’t in the business of spending money to help other companies. To the contrary, they’re competing with one another to show high quarterly earnings in order to boost their share prices. They’ll “get in the game” and begin to hire large numbers of Americans only when it helps their own bottom lines.

And when will that be? Not long ago I debated a conservative economist who argued American workers had priced themselves out of the global labor market and would therefore have to settle for lower real wages and benefits before they’d be hired back in large numbers. By his logic, many health and safety regulations would also have to be compromised or abandoned, since they also make American workers more expensive.

If this is the tacit bargain the President is offering business, it’s not a good deal for American workers.

There’s no secret to creating lots of jobs by reducing the median wage, slashing benefits, compromising health and safety at the workplace, and, effectively, reducing the standard of living of millions of Americans. We’ve been doing it for years.

And it doesn’t lead to a “virtuous cycle.” It leads to the kind of economy we’ve had for years – including, right now, the most anemic recovery from a deep trough since the mid-1930s. Indeed, when the debt bubble popped in 2008, we discovered how many Americans no longer had the ability to buy enough to keep the economy going. In this and other ways, 2008 bore an uncomfortable resemblance to 1929.

The alternative is to create lots of jobs with high disposable incomes.

In the short term, this means expanding the Earned Income Tax Credit wage subsidy right up through the middle class, and cutting income and payroll taxes for everyone earning less than $80,000 a year – making up the lost revenues by raising the ceiling on Social Security payroll taxes and hiking marginal taxes on the rich.

In the longer term, this means investing in a world-class education for all the nation’s kids, including college or high-quality technical education beyond high school. Here again, we’d have to rely on the top 1 percent (who now take home more than 20 percent of all income) to foot the bill.

Might the CEOs and top executives who comprise the U.S. Chamber of Commerce go along with this? After all, they profess to be patriotic. As the President said, they “share a deep, abiding belief in this country, a belief in our people, a belief in the principles that have made America’s economy the envy of the world.”

I don’t mean to sound cynical but I doubt it.

Robert Reich was the nation’s 22nd Secretary of Labor under Bill Clinton and is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations. In 2008, Time Magazine named him one of the Ten Most Successful Cabinet Members of the century. He has written eleven books, including “The Work of Nations,” which has been translated into 22 languages. His recent book is “Supercapitalism.” For Professor Reich’s book page for Supercaptialism at Amazon, go here. Reich’s newest book, Aftershock: The Next Economy and America’s Future has been released September 21, and is available for ordering at this link (Amazon.com). The above article is from Reich’s new blog, and can be viewed here.

Robert Reich’s commentaries are available for listening to at Publicradio.com. Watch the video Aftershock: The next economy and America’s future (about his new book). Thanks to Professor Reich for permission to publish his articles on an ongoing basis.

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The Time Has Come Today: Democrats, Liberals & Progressives – Let’s Get to Work!

Jan 29th, 11 / 1 Comment

Evans Liberal Politics
January 29, 2011

 

The Time Has Come Today
Democrats, Liberals & Progressives
Let’s Get to Work!

Evans Liberal Politics, January 29, 2011, by Paul Evans:

We worked hard to elect Barack Obama, but we can see before our eyes that the banks and insurance industry and corporate interests largely control congress, that they controlled the bailout legislation, control the Fed, and that the bailouts seem to have turned out (certainly in part) to be just be further giveaways to the rich.

Here is a concrete example for you – may be you’ll believe this: Goldman Sachs lost $53 billion in 2008. They changed their legal status from an “investment bank” into a “bank holding company” to be eligible for the bailout, received $10 billion in Federal (accounted for) bailouts, and then proceeded to set aside “roughtly $6.8 billion” for bonuses to their executives. Now, Goldman Sachs owns Burger King. They were cited 179 times for failure to pay their workers even the minimum wage.

Remember, too, that $19.2 billion of the AIG bailout was money they owed to Goldman.

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That’s right – Goldman Sachs gave their executives an average of $210,000 in bonuses in 2008, ($5.6 billion at the time my source went out, money that, was given to them to “rescue” their failing banks), yet they refuse to pay their hourly Burger King workers even the shameful minimum wages they fought so hard to prevent and work hard to keep from being raised to a level one can live on in America. Burger King workers routinely work 70 to 90 hours a week and make an average of $14, 414 a year, but this is for 70 to 90 hours a week, and they do NOT pay them overtime. The Federal poverty line for a family of three is $17,600.

In Goldman Sachs 2009 bonuses to double 2008’s; $23 billion could send 460,000 to Harvard, buy insurance for 1.7 million families, The Raw Story, October 13, 2009, by John Byrne, it is revealed that Goldman Sachs’ bonuses for 2009 are $23 billion, more than twice what 2008′s were.

This is not the America I love. These are not my values, are they yours?

According to a survey cited by Michael Moore, which was a 2001 Fed survey, the top 1 percent owned 39.7 percent of the financial wealth, while the bottom 95 percent owned 32.5 percent. Did you know that (according to Paul Krugman) the highest paid hedge fund manager makes more than all 80,000 New York City school teachers make in three years? Did you know that the official unemployment rate for those making more than $200,000 a year is a very livable 3.2 percent, but for those of us making less than $20,000, the official unemployment rate (not counting the underemployed, those working part time who want to work full time, and those who have just plain given up) is 31 percent. Maybe it’s time to ask: Is America for the top 2 percent in wealth, or is it for the ordinary people comprising the lower 90 percent in income, the regular folks who make the money for the rich fat cats? People, if we want our country back, we’re going to have to take it. It’s up to us.

We saw the health care legislative process being carried forward so there was no representative advocating a single payer insurance option in the negotiations for our legislation to “fix” health care for the people. And the bill Obama put forth and was voted on never gave the public option a chance. As it is proceeded through Congress it largely turned into just another giveway to the health insurance industry and to big Pharma. We should however keep in mind that Obama basically just didn’t have the votes for a pure single payer option to pass in Congress, knew it, couldn’t afford not to have a health care bill pass, and so did what it takes – including making compromises he did not want to, to succeed in passing a decent health care bill. At least (bitterly) that was the official story. Obama really should have put a public option in the finbal version that got voted on. To have not done so was wrong.

Evans Politics is asking its viewers, did we work so hard, and have such faith in Obama and the Democrats, only to sit by and just “sort of hope things might get better now”? The only way things will really get better is if we “get crazy” and light up the phones in Washington, deluge them with emails, and KEEP working to make them write fair legislation and to get truly progressive candidates nominated. Without continuing to fight, and fight hard, everything we worked for and fought for is just an ephemeral dream.

I refuse to accept America the way it is today. These are not my values and they are not yours. No. People, take your country back.

Yes, Obama is “better.” But if you love our America, if you love humanity, if you love progressive ideas — IF you want a better future, let’s get to work! — ~ Paul

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The State of the Union: What the President Should Say

Jan 24th, 11 / 18 Comments

Evans Liberal Politics
January 24, 2011

 

The State of the Union:
What the President Should Say

The State of the Union: What the President Should Say, Robert Reich.org, January 23, 2011, by Robert Reich, used with permission, quoted verbatim:

The President will have to devote a big part of his speech to the economy, but which economy? Corporate profits are up but jobs and wages remain in the doldrums. People with lots of financial assets, or who are deemed “talent” by large corporations, are enjoying a solid recovery. But most Americans continue to struggle.

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In order for the public to understand what must be done, the President has to be clear about what has happened and why. Corporations are profiting from sales of their foreign operations, especially in China and India. Here at home, they’re catering to rich Americans. But an important key to their profits is their reduced costs, especially payrolls. The result has been fewer jobs and lower pay.

The Great Recession accelerated trends starting three decades ago — outsourcing abroad, automating work, converting full-time jobs to temps and contracts, undermining unions, and getting wage and benefit concessions from remaining workers. The Internet and software have made all this easier.

He should point out that the U.S. economy is now twice as large as it was in 1980 but the real median wage has barely budged. Most of the benefits of economic growth have gone to the top. In the late 1970s, the richest 1 percent of Americans got about 9 percent of total income. By the start of the Great Recession they received more than 23 percent. Wealth is even more concentrated.

This is the heart of our problem. Most Americans no longer have the purchasing power to get the economy moving again. Once the debt bubble burst, they were stranded.

The President should make it clear corporations aren’t to blame. After all, they’re designed to make profits. Nor is it the fault of the rich who have played by the rules. The problem is the rules need fixing. He should stress that a future with no jobs or lousy jobs for most Americans is not sustainable – not even for American corporations, whose long-term profitability depends on the revival of broad-based domestic demand. (Watch out for the upcoming “correction.”)

The solution is to give average Americans a better economic deal.

For starters, he should propose to expand the Earned Income Tax Credit (essentially, a wage subsidy) all the way up through the middle class. And he should make the tax system more progressive: The rate on the first $50,000 to $90,000 of income should be cut to 10 percent; the next $90,000 to $150,000, 20 percent; and the next $150,000 to $250,000, 30 percent. Make up the revenue by increasing taxes on the next $250,000 to $500,000, to 40 percent; from $500,000 to $5 million, to 50 percent; and anything over $5 million, 60 percent. Tax capital gains the same as ordinary income.

In addition, he should call for strengthening unions by increasing penalties on employers who illegally deter them.

He will have to call for reducing the long-term budget deficit, but must make sure to distinguish between public investments that build future productivity (education, infrastructure, and basic R&D) and expenditures that improve our lives or keep us safe today. The former — essentially the nation’s “capital expenditures” — shouldn’t be cut at all. Indeed, they should be substantially increased. A “capital budget” separate from the regular federal budget would help draw this fundamental distinction.

Finally, he should recommend that Congress make college affordable by allowing federal loans to be repaid as 10 percent of earnings for the first 10 years of full-time employment.

Importantly, he should make it clear this isn’t redistribution. These measures would be good for everyone. Rich Americans will do better with smaller share of a rapidly-growing economy than a large share of one that remains in a deep hole.

Robert Reich was the nation’s 22nd Secretary of Labor under Bill Clinton and is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations. In 2008, Time Magazine named him one of the Ten Most Successful Cabinet Members of the century. He has written eleven books, including “The Work of Nations,” which has been translated into 22 languages. His recent book is “Supercapitalism.” For Professor Reich’s book page for Supercaptialism at Amazon, go here. Reich’s newest book, Aftershock: The Next Economy and America’s Future has been released September 21, and is available for ordering at this link (Amazon.com). The above article is from Reich’s new blog, and can be viewed here.

Robert Reich’s commentaries are available for listening to at Publicradio.com. Watch the video Aftershock: The next economy and America’s future (about his new book). Thanks to Professor Reich for permission to publish his articles on an ongoing basis.

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The United Bankrupt States of Twisted Economic Priorities

Jan 21st, 11 / 15 Comments

a blocky golden dollar sign highlights this article by noted Daily Kos writer Bob Swern on the economic realities facing the statesa blocky golden dollar sign highlights this article by noted Daily Kos writer Bob Swern on the economic realities facing the states

Evans Liberal Politics
January 21, 2011

 

 

The United Bankrupt States
of Twisted Economic Priorities

The United Bankrupt States of Twisted Economic Priorities, Daily Kos, January 20, 2011, by Bob Swern, used with permission, quoted verbatim:

Let me get this right. According to the lead story in tomorrow’s NY Times, “Path Is Sought for States to Escape Debt Burdens,” it may soon become official government policy that it is more important to our nation’s well-being to financially backstop and bailout insolvent too-big-to-fail banks, such as Citigroup and Bank of America, than it is to similarly support state budgets in California, Illinois and New York?

R.E.M. Everybody Hurts

Alrighty then.

Up until now, the concept of states filing bankruptcy has been a moot point. According to various legal precedents, basic definitions of sovereign law, and the U.S. Constitution, it simply couldn’t happen. Up until now…

Path Is Sought for States to Escape Debt Burdens
By MARY WILLIAMS WALSH
New York Times
January 21, 2011   Page A1Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.

Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.

But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid…

Zero Hedge has already weighed-in on this article, rather succinctly, I might add:  ”NYT Reports States Looking For Ways To File Bankruptcy, Muni Bondholders To Be GMed.”  (Diarist’s Note: If Naked Capitalism Publisher Yves Smith posts anything on this over the next couple of hours, I’ll provide an update.)

NYT Reports States Looking For Ways To File Bankruptcy, Muni Bondholders To Be GMed
Zero Hedge.
01/20/2011 22:34 -0500A few days ago we reported that Newt Gingrich was pushing for legislation to allow states to file for bankruptcy, “allowing Them To Renege On Pension And Benefit Obligations.” As we speculated back then “obviously what this means for equity investors in assorted muni investments is that a complete wipe out is becoming a possibility, as Meredith Whitney’s prediction, which everyone was quick to mock and ridicule, is about to come back with a vengeance.” Sure enough, this most recent development in the states’ path to insolvency was quickly ignored as it was not a dipping mushroom cloud that could be bought. Until tonight: the NYT has just rehashed the post in an article that would not only validate the Whitney thesis if true, but make a Cramer-Bove out of everyone who has been caught on tape in the past two weeks kicking and screaming that there is no chance in hell the carnage predicted by the scourge of Citigroup (and yes, back in 2007 everyone said that Citi could never fail either). From the NYT: “Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.” Which means that up to $3 trillion in muni debt has a high probability of being GMed, precisely as we predicted: “proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.” Oh, and since all this constitutes an EOD, readers are strongly urged to re-read the primer on what pervasive state bankruptcies will mean for muni CDS (hint: the MCDX is cheap).

I’ve been posting diaries on this subject for quite awhile, and as recently as this past Saturday:  ”So Much For So Few, Yet So Little For So Many.”

We also received a slew of brutally negative pieces of information concerning the many ways by which state and municipal budgets are being nothing less than eviscerated, all but insuring even more draconian funding cuts at the local level for the foreseeable future: “Crushing State Budget Cuts Wiping Out Stimulative Effects of Tax Deal.”On top of the “crushing” state budget cuts, however, we’re just now learning that, thanks to our new Republican House of Representatives: “States Will Soon Have To Start Paying Interest on Their Massive Unemployment Borrowing,” David Dayen, FireDogLake, 1/10/11.

It doesn’t stop there folks; you see, the municipal bond sector is getting brutally hammered in the marketplace, in general: “Illinois Seeks To Issue $8.75 Billion Bond To Pay Overdue Bills As Muni Issuance Market On Verge Of Shutdown,” Zero Hedge, 1/13/11.

As I noted in my diary from December 8th, 2010, respected pundits are telling us that: G.O.P. Is Executing Plan To ‘Bankrupt’ States, 12/8/10

The truth is, many U.S. states and municipalities are currently posting everything in red ink. And, the Federal Reserve could step in and help, but apparently, Ben Bernanke won’t give Main Street the the time of day nor the steam off of his piss, let alone a real bailout.

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And, here’s an excerpt from another post, from just eight days ago: Is Our “Recovery” Becoming A “More Insidious Social Crisis?”

ALTERED STATES…Here’s DDay, over at FireDogLake on Monday, telling it like it is in state budget hell: “Crushing State Budget Cuts Wiping Out Stimulative Effects of Tax Deal”

Crushing State Budget Cuts Wiping Out Stimulative Effects of Tax Deal
By: David Dayen
FireDogLake
Monday January 10, 2011 11:01 am…In a state where the budget woes have, by some estimates, grown more dire than even those in California, it seems that months of inaction might at last be overtaken by some combination of timing (elections are far away) and fear (the state’s national reputation and bond ratings seem to be sinking as fast as its debts are mounting).

In a moment when states around the country are wrestling with withered revenues, Illinois faces a deficit of at least $13 billion; more than $6 billion in unpaid bills to social service agencies, schools and funeral homes; the most underfinanced state pension system; and growing signs of concern from bond investors.

Between California and Illinois, you’re looking at about $45-48 billion dollars to balance budgets, between tax hikes and program cuts. The anti-stimulative effect of that almost totally wipes out the $55-60 billion in stimulative measures that aren’t just extensions of current law in the tax cut deal.

That’s not a commentary on how the tax cut deal could have ended state budget crises (although an innovative policy solution could have at least put that in motion and at lesat begun to set up some counter-cyclical fund so states don’t have to contract during recessions). It’s more a commentary on how economic forecasters assumed major growth from this tax cut deal, even though it’s almost entirely composed of poor stimulus and would be overwhelmed by budget cuts at the state and probably federal level. Austan Goolsbee likes to talk up the stimulative power of that tax cut deal, but he’s looking at it in a vacuum. Fiscal policy in 2011 and 2012 is still very likely to be contractionary, and nobody in Washington is arguing for that to change. Vain hopes of “stimulus” seem very odd, in this context.

More on this from Zero Hedge: “More Bad News For States: State Revenue Plunges By 31% In 2009 To $1.1 Trillion As Spending Increases,” 1/5/11

Meanwhile, Newt Gingrich is jumping into this fray HERE in, “Newt Gingrich Pushing Bill To Allow States To File Bankruptcy Allowing Them To Renege On Pension And Benefit Obligations,” Zero Hedge, 1/10/11

Some unpleasant news for pensioned workers who believe that their insolvent state will be able to afford ridiculous legacy pensions in perpetuity. According to Pensions and Investment magazine, Newt Gingrich is pushing for legislation that will allow insolvent states to be taken off bailout support and file bankruptcy, in the process allowing them to renege on pension and other benefit obligations promises to state workers. And if there is anything that will get government workers’ blood pressure to critical levels, it is the threat that money they had taken for granted is about to be lifted, courtesy of living in an insolvent state (pretty much all of them). And obviously what this means for equity investors in assorted muni investments is that a complete wipe out is becoming a possibility, as Meredith Whitney’s prediction, which everyone was quick to mock and ridicule, is about to come back with a vengeance.

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As Nicole Bullock just noted in the Financial Times, millions of Americans would be brutally affected (and/or are already being brutally affected), via cutbacks and funding deficiencies in pension funds and Medicaid programs due to any action bearing any semblance to a state bankruptcy: “States warned of $2,500bn pensions shortfall.”

US public pensions face a shortfall of $2,500bn that will force state and local governments to sell assets and make deep cuts to services, according to the former chairman of New Jersey’s pension fund.The severe US economic recession has cast a spotlight on years of fiscal mismanagement, including chronic underfunding of retirement promises.

“States face cost pressure, most prominently from retirement benefits and Medicaid [the health programme for the poor],” Orin Kramer told the Financial Times. “One consequence is that asset sales and privatisation will pick up. The very unfortunate consequence is that various safety nets for the most vulnerable citizens will be cut back.”

And, as today’s New York Times’ lead also informs us: “Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions…”

The article does note: “It would be difficult to get a bill through Congress, not only because of the constitutional questions and the complexities of bankruptcy law, but also because of fears that even talk of such a law could make the states’ problems worse.”

And, it’s possible that our federal  “lawmakers might decide to stop short of a full-blown bankruptcy proposal,” opting for something along the lines of what was established to guide New York City through its fiscal crisis in 1975, which was the Municipal Assistance Corporation.

But, call it what you wish for political purposes, there are many synonyms for the word: “bankruptcy.”

As the article also points out, if governors are seeking “more leverage in bargaining with unionized public workers,” a GM-style bankruptcy would certainly fit the bill.

And, much like the aftermath of the GM bankruptcy, and it’s devastating impact upon the United Auto Workers, today’s Times’ article notes these words from AFSCME’s legislative director…

“They are readying a massive assault on us,” said Charles M. Loveless, legislative director of the American Federation of State, County and Municipal Employees. “We’re taking this very seriously.”

Meanwhile, the folks over at Citigroup and Bank of America aren’t exactly missing a meal, now are they?

“Twisted economic priorities,” indeed!

#            #            #

I can already read the diary comments in coming months where the DKos audience is told how Main Street will benefit from state bankruptcies…and, of how many jobs this will save.

IMHO, the problem with all of that kabuki is this: We have twisted economic priorities which are sold via a twisted narrative in the MSM, and then parrotted throughout the blogosphere as such, too.

The real question, IMHO, is this: Since when did Bank of America and Citigroup become more important to our nation than California, Illinois and New York?

I must’ve missed that memo. But, thanks to the folks over at the NY Times today, they’re being quite community-minded as they reprint it.

See Also: Poll Finds Wariness About Cutting Entitlements, The New York Times, January 20, 2011, by Jackie Calmes and Dalia Sussman, excerpt quoted verbatim:

As President Obama and Congress brace to battle over how to reduce chronic annual budget deficits, Americans overwhelmingly say that in general they prefer cutting government spending to paying higher taxes, according to the latest New York Times/CBS News poll.

Yet their preference for spending cuts, even in programs that benefit them, dissolves when they are presented with specific options related to Medicare and Social Security, the programs that directly touch the most people and also are the biggest drivers of the government’s projected long-term debt.

Nearly two-thirds of Americans choose higher payroll taxes for Medicare and Social Security over reduced benefits in either program. And asked to choose among cuts to Medicare, Social Security or the nation’s third-largest spending program — the military — a majority by a large margin said cut the Pentagon.

See Also: Don’t Cry for Me, America, The New York Times, January 18, 2011, by Paul Krugman.

From Paul Evans: It’s a miracle that I am still able to bring you Evans Liberal Politics. I am in severe poverty and CenturyLink, my phone company and DSL provider, was kind enough to give me a short extension on bill payment. Folks, this won’t go on forever. We need your donations, ASAP. Please send checks OR money orders to Paul Evans, 5396 Overton Road, Wooster, OH 44691. Help keep free journalism alive and help my family have gas for my car and something to eat. Thank you and Bless you all.

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Video: Obama on US economy & China

Jan 19th, 11 / 0 Comments

Evans Liberal Politics
January 19, 2011

 

Obama on US economy & China

See Also: U.S.–Sino
Currency Rap Battle

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