Sanctimonious NYT Op-Ed piece

Very sanctimonious op-ed piece in the NYT indicting the GOP for tough times for state and local governments. This is the kind of thing that drives economic conservatives crazy.

Source: New York Times: A Growing Gloom for States and Cities

Washington should have been trying to find a way to help states avoid the layoffs and cutbacks that have contributed heavily to the high unemployment rate.”

The Republicans who produced this artificial crisis, and are responsible for its effects, say they would like nothing more than to see a reduction in state as well as federal spending. That is where government hits closest to home, affecting the size of classrooms, the bulbs in streetlights, the asphalt in potholes, and the lines in emergency rooms.”

I have two problems with this.

First, here and elsewhere liberals lament the loss of any amount of gov’t jobs even as the job losses in the private sector are many, many times larger – at least 10:1 if not a lot higher.

Here is a chart showing North Carolina data. It shows that in the state during the period of the Great Recession, 311,400 private sector jobs were lost (8.90% loss) while public sector has actually added 500 jobs (0.07% gain).

Source: Carolina Journal: Government Jobs Untouched by the Great Recession

I have seen this type of data before at the national level, but not having any luck finding it just now.

Ah, here’s something recent that shows percentage change in employment in private sector vs. state and local governments (still looking for Federal).

Source: Nelson A. Rockefeller Institute of Government, at the University at Albany: State and Local Government Employment Shows Broad, Continuing Declines

So we see that after initially rising during the heart of the recession, state and local governments have now been contracting for some months. Sure, this is an issue, but even after recovering from the deepest trough, private employment is still down over 5% whereas public employment is down by only 2%. Is that really so unfair given the severity of what we are going thru?

And here’s some reasonably current data showing federal employment: it’s up!! 98,000 more federal government jobs at the end of 2010 than at the outset of the recession. Yikes. That’s totally ridiculous. Even worse, most of those jobs are probably new regulatory positions to implement rules to clamp down on the private sector. Ugh.

Source: George Mason University: Even Accounting for Census, Federal Employment Grows During Recession

Then my second problem is the unquestioned assumption that the federal gov’t has the obligation to subsidize states so heavily even as many of them have grossly overspent just like the Feds. States need to be figuring out how to tighten their belts just like everybody else. If they don’t have enough money, they should figure out how to deliver more with less – businesses have been doing for decades. It is a skill set government needs to learn – and fast.

12 thoughts on “Sanctimonious NYT Op-Ed piece”

  1. John,
    I understand that conservatives do not like government and therefore if government jobs are lost, as John Boehner said “so be it”. But let me see if I can give you the other side of the arguement. I think that both sides agree that we are a consumer driven economy, correct? In late 2008 into early 2009 we were seeing massive layoffs in the private sector and the economy was in deep recession. State and local governments were facing big shortfalls in their budgets because of the implosion of the housing market which reduced property taxes and other revenue sources that they depend upon. So far I think we are still in agreement, correct? The stimulus bill that passed in Feb 2009 was 1/3 tax cuts, 1/3 grants to states and local governments to fill budget gaps, and 1/3 infrastucture related projects and investments. Had the states and local governments not recieved these funds over the last couple of years you would have seen the public sector unemployement numbers rising along with the private sector. I know the conservative response is, good the government should cut back too. But if 600,000 to 700,000 people per month were losing jobs at the end 2008, how would adding more government employees (teachers, cops, EMT’s fire fighters etc) to the unemployment rolls and further weakening demand help bring you out of a recession? It won’t, it will only push you deeper and maybe into depression. Something has to break the downward spiral and the private sector will not step in to do that when the economy is contracting. That only leaves government. Today we are now facing a weak recovery. The private sector is adding some jobs, and has been for 16-17 months, but they are not enough for a strong recovery. The overall job growth numbers are being pulled down by the increase in public sector layoffs, which reduces potential GDP growth by 0.5 to 1 % according to most economist. If the public sector continues to shrink consumer demand will drop as people reduce their spending and the private sector will follow behind shortly and start a new round of layoffs because they are losing customers.
    Something that conservatives never seem to consider in their analysis is how the money supply is created in the first place. I put up a post back in June called “Not Enough Real Money”, take a look at it. The vast majortity of the money supply is created by the fractional reserve banking system (not the government) when they create credit. During the early 2000’s (but starting back in the 1980’s) there was a huge explosion in credit in both the public and private sectors, but the biggest being in the financial sector. This new credit created money supply was the basis for all of the CDO’s (toxic paper) and credit default swaps that were created by Wall Street and sold all over the world. These CDO’s backed by the sub-prime mortgages are what explodes and put us into the economic mess. With the bank’s inability or unwillingness to make new loan (expand credit) then the economy must go into a deflationary and deleveraging process. This will push you into a recession or if you are already in one it will push it into a depresssion. The Federal government was and is the only entity big enough to step in and borrow a large enough amount to put the brakes on the downward pressure. States and local governments cannot borrow money to fund operations, which is why it had to come through the Federal government. The other thing to consider is, that the only portion of the money supply that remains as a permanant part is the principal amount (national debt) borrowed by the government. That is because all other credit expansion issued, to individuals and businesses will eventually zero out when the loans are paid off or defaulted on. Because the Federal government only pays the interest the principal amount is the base of the real money supply. We all have to fight over getting enough of that real money supply in order to be able to pay back the principal plus interest on our loans. When the banks make that original loan to you or me they only created the principal amount. If the overall credit market does not continue expanding then your or my abilty to get the extra real money needed to pay the interest on our loans becomes very difficult, especially if banks and corporations are sitting on trillions of dollars and won’t put it into the system.
    So it might make conservatives feel good on an emotional level to say that these overpaid government employees should lose their jobs just like the rest of us in the private sector. But it is absolutely the wrong way to go if you want to see a recovery. At this point what should be done is that the government should hire more people. It may sound counter intuitive, but the unemployed need to be put back to work so they will have more money to spend. The private sector won’t hire them until the demand returns. So the public sector needs to employ them to create the demand and then they can be shifted to the private sector as the demand rises. I know, your going to say that just means more government borrowing and hire debt. Under the current fractional reserve banking system that is correct,. But how we address that issue is another lengthy subject. You can read what Ben Franklin wrote on this subject, but my post will give you a starting point.
    By the way did you watch Rachel Maddow on Friday? I gave her an A on covering the Republican debate. She did a great job of fact checking the claims each were making against the others. The segment on Senator Mark Hatfield (R-Oregon) who passed away this week was also really good and it showed how elected officals could work together across party lines. If you missed it you can probably get it on-line.

  2. hi daniel:

    you sure can write a lot! i appreciate your making the effort.

    i’ve read a bunch of your blog posts and will try to provide some comments there.

    you’ve made many points here. a few reactions.

    – i accept that original stimulus protected gov’t jobs in states – the charts in the post show this – and that this effect moderated the fall in GDP for a while. i’m not sure that was the best way to spend the money, but it is done and now behind us.

    – i realize that if we pumped more money into another stimulus type program to further bolster states again that would protect add’l jobs (for as long as the money lasts) and that would boost GDP. if federal money could be spent for a finite period of time – say 3-6 mths, or whatever – to tide us over until the private sector picked up, then perhaps people would be more open to it. problem is that we have only modest signs that private sector is picking up. does it make sense to indefinitely carry a bloated gov’t sector forward thru time? i don’t see it myself.

    – i don’t buy the idea that we should be going on some type of gov’t hiring binge. possibly if anyone believed they would later be laid off, it might be possible to imagine it, but gov’t rarely if ever gives back it’s gains – except by force or catastrophe. perhaps if Dems made an actual bloody proposal about something with a true termination date, somebody would listen. but have they formally proposed a damn thing lately? no. they sit around blaming the GOP, but they don’t come on record with concrete anything.

    – to me, the focus needs to be on actually looking at why and how the private sector is broken and to fix that. i thought that from the beginning. if we went directly at the problem – bad home loans, too much household debt, and so forth- possibly we could accelerate the clearing process (like we did during the S&L crisis). instead, we are looking at all sorts of 2nd and 3rd order things and we just don’t have enough slack to make that kind of mechanism large enough to heal the core problems – those are just big band-aids and leaves those core things broken and left to heal on themselves. unfortunately, they aren’t going to do that quickly – we are looking at 2-3 more yrs from what i read. that means your stimulus plan for gov’t workers isn’t a 3 mth or 6 mth plan, but probably a 24-36 mth plan. how much does that cost? $1T? Paul Krugman would surely say yes. not so obvious to me.

    – as to your analysis of CDOs as the reason we are in this mess. i don’t think that is right. it was part of the problem, but wasn’t the largest part or the root cause. the root cause is/was overextended households and a collapse in the real estate market. we would, no doubt, differ on the cause of the overextension (you: banks as animating force, me:gov’t as animating force).

    – i don’t think bank lending (or lack thereof) is the primary problem. it’s a factor, but the main problem is that businesses don’t want to borrow for a variety of reasons and consumers don’t want to borrow because they are overextended.

    i did not see rachel maddow on the debate. plenty of grist for fact checking there. not to mention all the personal peccadilloes, dressing styles, manner of speech, etc. i’m sure we’ll be seeing lots of material for her, the rest of MSNBC, Jon Stewart, Stephen Colbert and other such venues for months and months to come. i caught a completely absurd rant from Al Sharpton earlier tonight. geez. pitiful.

    re: Hatfield. personally, i think the whole thing about compromise is overblown. politics is a messy business and we are facing issues of huge proportion right now. both sides see it as a fight for the soul and future of the country. there are bound to be intense feelings on both sides. that’s how the founding fathers designed it to work – we have big fights until one view prevails. then we carry on. it will work out like that here – what isn’t known is does the US become more European and socialized (Dems) or do we return to our more free market, entrepreneurial roots (GOP).

  3. Hi John,
    Yes, I do tend to write a lot. That is why I satrted a blog. I have read several hundreds of books on politics, economics, business, history and philosophy, in addition to all the other daily stories I read and I needed some way to pull my thought together and put them out there.
    To respond to your points;
    -I don’t think it can be a short term 3-6 month solution with government stimulus. It would have to be for several years. The hole is so deep that these small short term efforts won’t work and everyone will just get frustrated. There needs to be a sustained rise in demand before the private sector will jump in with both feet. But what we can’t do is cut services that we need like the cops, fire fighter, EMT’s, teachers and weaken demand at a time we want to increase it.
    -Actually the Democrats have come forward with proposals and budgets. Did you know that the progressive caucus put out a proposed budget shortly after Paul Ryan did. But they get no news coverage on their proposals. Also, the Democrats can’t get any bill to the floor with the Republicans in charge of the House. When they did control the House Nancy Peloci (I know you guys hate her) got hundreds of bills passed, but more than 300 died in the Senate. If you go back and look you will see what I mean, so you can’t blame them for not trying.
    -I don’t think that you realize how big the derivatives market (CDO’s,CMO’s,CDS) is and how the securitization of every type of loan drove this expansion. Yes, households got over extended and the government played a big role by deregulating the banking industry. But it was the Wall Street banks that pushed the huge credit expansion because they needed the new loan volumes in order to securitize them and create all these new derivatves products. They were making big fees at the front end and at the back end when the sold them. Wall Street was not concerned if these would be preforming loans because they had no intention of holding them. What they would do is slice a sub-prime mortgage up into traunches and then put pieces of thousands of these into a CDO or whatever other name they gave them. So there was no way for any investor to trace back to the original loans to determine if they were good or bad. This is where the ratings agencies came in. When they gave them AAA rating, these big investors relied on them so they though they were getting a safe investment. When the derivatives market was going at full steam the mortgage brokers were pushing out some of the worst sub-prime crap but Wall Street didn’t care. Nobody cared because they had no skin in the game. When the defaults on these loans started that is what caused the collapse of the real estate market. It was the pin prick in the housing bubble. It actually started in 2006, and by August 2007 the loan defaults were starting to affect these derivatives. What you need to keep in mind is that it wasn’t just one derivative product that was affected by each of these loans, because Wall Street had made a bunch of side bets on these same products. They had created CDO’s squared and CDO’s cubed and the credit default swaps were basicly insurance policies against these things failing. AIG wrote a bunch of these CDS which is what took them down. To give you an idea of how big the derivatives market was, in 2008 the International Bank of Settlement (the Central Bank for the Central Banks) estimated the derivatives market size at $690 trillion. That is 10 times the size of the world’s economy. This is why we have a long way to go to deleverage. This cannot be blamed on the little guy.
    -I have to disagree with you on the compromise issue. The Constitution was a compromise, with slavery being the biggest one of all. What I am seeing today is that same level of absolutism and even some of the same rhetoric that occured in the 1840’s and 1850’s, I don’t think we want to go through another Civil War until one side prevails.

  4. – as to cutting back on fire fighters and so forth. your sole reason not to do that is to maintain market demand? possibly that’s what you believe, but many on the left are more conniving than that. and if we are spending that kind of money, are you 100% sure that’s the best way to stimulate demand? why not take all that money – we’re talking trillions – and buy out all/most of the bad mortgages, clear people’s debt loads, etc.? that would actually go a long way to fixing the underlying problem. anyway, it’ll never happen – way too expensive.

    – if the Dems have plans, you’re right, they aren’t getting any play. who’s fault is that? Fox News behind that, too? imo, the Dems are way overplaying the role of the GOP. the way it works is that if you’ve got an alternate plan, put the bloody thing out there for others to see. if you can’t get your ideas aired, even as you control 2 branches of gov’t and a large swath of the media, you got a problem – and it ain’t to do with the GOP.

    – i understand derivatives and financial markets generally pretty well – MBA from MIT and all that. yes, they went bonkers, but they were aided and abetted by almost all of us in the sense we provided the raw material. we did that voluntarily. many people did not take out crap loans. – and the gov’t played a big role, too – excessively low interest rates even as asset bubbles were clearly developing, plus the underlying legislation and rules that drove banks towards a desired policy outcome. but that’s all history: i don’t see where this affects the real economy too much right now – it’s like a separate universe. it has little to do with what’s happening in households or the real economy (i.e., non-financial companies) today.

    – you think we are on the cusp of civil war? uh, no.

  5. John,
    I can tell that you are not a hard core right winger, which is why we can carry on a conversation. I have sent comments to a few other blogs and after 1 or 2 comments they revert to the name calling at which point there is nothing further to discuss.
    -I wasn’t implying that the sole purpose of retaining fire fighters, cops, teachers etc. is for economic stimulation. These are needed services, in fact we probably do need more them, but cutting them at a time when demand and the economy are weak will only make the problem worse.
    -I agree about buying out the bad mortgages. Back in October 2008 I was telling anyone who would listen to me that I thought instead of bailing out the banks with TARP, those funds should be used to start Uncle Sam’s Bank. With a trillion in start up capital, leveraged at 10:1 the bank would have $10 trillion to work with. They should have used those funds to refinance all of the bad sub-prime loans. They could have restructured them with longer terms, making the low teaser rate a fixed rate or whatever they needed to do to keep people in their houses and out of the foreclosure process. Of course some of them would still fail and the government would have to take ownership, but then they could have put them back into the market in an orderly way, similar to the RTC workouts after the S&L mess. Then Congress could have told Wall Street to workout the derivatives mess on their own. But in suggesting that the government should own a bank made me a socialist, communist, … you know all the names.
    -I don’t buy the arguement that the MSM is liberal. It is corporate, even MSNBC. They will allow some liberal voices on the air, but for the most part they are pushing a corporate agenda. Have you ever wondered why when you watch the Sunday morning shows (and many others) that many of the advertisers are for things you can’t buy? They buy the ad time to influence the content of the shows. If the shows go too far astray, then the corporation threaten to pull the ads. Take notice how almost every conservative idea gets some coverage but the ones coming from the progressive caucus don’t. If we truly had a liberal MSM it would be the opposite.
    -Yes, we were the raw material for Wall Street. But I would say that it wasn’t all voluntary on our part. Greenspan and the FED played a huge role by keeping interest rates low. Deregulation also played a big role in allowing all of these ARM’s, and no income verification loans, etc. Greenspan finally admitted in 2008, in front of Congress, that he was wrong in his premise that Wall Street would do a better job of regulating themself due to self interest. I remember the days when you needed to have 20% down, income had to be verified and fixed interest loans were all you could get. That is how I bought my first house and everyone since. However, for the average Joe who’s income level (adjusted for inflation) has been stagnate for 30 years, 20% down and fixed rates were unheard of. In fact most lenders try to push people into ARM’s. We had to insist on a fixed rate loan each time. Also, when the rates kept going down, it was a good financial decision for average Joe to keep refinancing. Everywhere you turned you were bombarded with commercials, TV shows (Flip this House) etc. encouraging people to get rich in real estate. I knew we were in big trouble when I found out our maid and her daughter had bought multiple investment properties. They had some mortgage broker telling them they could get in cheap (nothing down) and sell in a year or two for a profit. They were just grist for the mill and of course lost everything.
    My wife and I weren’t the average Joe. We specifically went to small community banks, because we didn’t want our loans sold, and took out fixed rate loans on our investment properties. We still put a significant amount down and made sure we were going to generate a positive cash flow. In our view the capital gain will be a bonus. But we know this was not typical.
    -I disagree that it is a separate universe. The housing market collapse is still having a big impact on the economy and weighing it down. Also, finance has become such a big part of our GDP that it impacts the non-financial sectors. Back in the late 70’s early 80’s the financial sector was only around 7-8% of GDP and manufacturing was in the low 20% range. Today those numbers have completely flipped. So there is no way for the rest of the economy to avoid the impacts created by the financial sector.
    -I hope were are not on the verge of another Civil War, but I don’t like hearing the nulification, 10th amendment, secession talk. It is dangerous and can’t lead to anything good.

    1. Hi Daniel:

      – I think ads on the Sunday shows tend to be corporate because they know the audience is a good place to reach their target market – i.e., corporate decision makers and executives. Yes, the shows are purposefully more balanced than the rest of the programming, but I think you are reading too much into it. I hardly think conservatives get a free ride – if you listen closely to the questions and the delivery, the Dems are generally given the easier ride, imo.

      – I definitely don’t agree that MSM is not left leaning. There is a new book out that apparently digs into this with a great deal of data – Left Turn by Tim Groseclose. Quote from an interview with the author: “If you poll Washington correspondents and ask “Who’d you vote for last election?”, about 93% will say the Democrat. Why are newsrooms so liberal? I don’t know, except that I suspect that it’s mainly self-selection.”

      – By ‘separate universe’, I meant the mortgage-backed securities specifically, not the housing collapse or the finance sector generally. Of course, those two things matter, but the mortgage CDOs themselves aren’t having much effect just now.

      i’ve enjoyed the dialog and would welcome further comments. i will make a point to get over to your blog again soon.

  6. John,
    -I wasn’t saying that conservatives get a free ride, What I was trying to say is that their ideas and proposal get aired and discussed and the proposal put forth by the Democrats and particularly the progressive caucus are ignored as if they don’t even exist. Then you hear the arguement that the Democrats don’t put out any ideas of their own. Did you know the Democrats have had a Make it in America agenda for a few years. How much have you heard about it? But I will bet you have heard aout the Ryan budget.
    -I will check out Left Turn, but it sounds like a rehash of a book called The News Twisters by Edith Efron in 1971. The Nixon Administration latched on to this book to attack the media back then because they were not happy with the war coverage and then Watergate coverage. Guess who came up with the political strategy of assulting and dicrediting the journalism profession as a way to fight back. Pat Buchanan.
    Even that 93% number sounds like the same one they have been throwing around for decades. Do you know if Groseclose did any new surveys of Washington correspondence, or is he using the old claim? But even if they did vote Democratic in the last election what does that prove? A lot of Republicans and Independents voted for Obama. McCain showed he was not a good choice when he picked Palin. But he really lost the election on Sept 16 when he said “the fundamentals of our economy are strong” the day after Lehman collapsed and Wall Street was imploding.
    -I have a hard time separating the CDO’s from the housing and rest of the financial markets because they were so integral in creating the problem. So many taxpayer dollars and all of FED’s behind the scenes bailouts went in to proping up the banks, leaving virtually no money to address the Main Street issues caused by the collapse. I still think the CDO’s are a big part of the credit deleveraging process that is still occuring. But it is hard to find anyone talking about it in the media. You also have to consider that these derivatives were the catalyst for creating the recession around the world. As a result the GDP of many governments shrank as did their tax revenues which increased the debt to GDP ratios many countries are struggling with. It also forced governments to step in and increase their spending which also made the ratios worse.
    I would have supported a radical concept of creating an entirely new financial system to replace the fractional reserve banking sysytem because I think this is the heart of the problem. You will see my thoughts on this in my “Not Enough Real Money” post. But we are nowhere close to getting that type of a change accepted. Maybe the next time Wall Street implodes and there is no taxpayer money to bail them out we will get there.

    1. hi daniel:

      sorry for the slow response. responding to your points:

      – i get confused about the use of the terms ‘democrat’ ‘liberal’ and ‘progressive’. sometimes they mean the same thing, sometimes ‘progressive’ is a subset of liberal – i think that is how you are using it now. in this instance, i have not heard of the ‘Make It in America’ plan from the progressives. as i said before, all i can say to that is who’s fault is that? it is not covered on MSNBC or the NYT and no Dem politicians discuss it. you can’t blame the GOP or Fox News if your own people are not championing the cause. and the idea that conservatives are swamping the airwaves and drowning out the idea is not persuasive.

      – somewhat relatedly, i heard a great phrase on the news shows this morning ‘preemptive concession’ referring to the practice in recent months (if not longer) of the Pres and Dems generally not putting up a plan because, supposedly, the GOP will never agree to it. to me, that is lame. if you’ve got a better bloody idea, put the thing in paper, articulate to the body politic and see what comes of it. failure to present ideas is not the fault of the other side. it is not the fault of the other side if the populous does not embrace your ideas.

      – re: “Make it in America”. I googled that and found very few references to it. 2 sources seem most likely what you are talking about. one on Steny Hoyer’s website about some bills that are apparently part of a grand plan and a book written by the CEO of Dow Chemical. it’s one of these? the book sounds interesting, but from quick skim of the excerpts it seems to advocate a bunch of things that don’t sound totally in line with recent Dem rhetoric. it also reminds me of a big thing that was going on when I was at MIT called ‘Made In America’. it was a response to the success of Japan (in particular) in the 1980’s and called for more industrial policy and the like. in the 1980s, i was also involved with huge gov’t programs that were a form of US industrial policy at a time when the Japanese were pursuing industrial policy in very similar technical areas (advanced IT). turns out that sort of vaporized when the US came out of the recession and Japan did not. that said, i’m supportive of industrial policy at some level – but mostly in the sense of prepping the playing field domestically and internationally for the private sector and also in supporting fundamental R&D (mostly ‘R’) to explore promising technologies. i am very skeptical of gov’t being successful picking specific industries (e.g., green energy) to actually build out. might work in other countries with stronger command and control economies, but don’t see it happening here. again, haven’t read the book, so this may not be what you are talking about at all.

      – i haven’t read Left Turn, so can’t really comment on what research is behind it. but to me, it is inherently obvious that the media – writ large – is left leaning. it is common sense and the day-to-day examples too obvious to conclude otherwise. i’m sure you disagree, but honestly i just can’t see how one could conclude otherwise. and in saying this, i’m not referring to Fox News vs. MSNBC, but all forms of media, including movies, TV shows, books, music, and whatever else. liberal themes without question trump conservative themes in the totality of messaging our brains receive. it may not seem that way to liberals because these views seem normal and right and not in question, but to a brain like mine that doesn’t take it as gospel, i am constantly struck by stuff that is stated as received wisdom which is not. and the reason for that is that self-selection from an early age of career choices. there are just a lot more Hollywood actors and so forth who are liberal than there are conservaties (or at a minimum, the liberal ones are much, much more vocal). personally, i think this is true across all types of media – authors, reporters. studies aside, do you seriously think that most journalists and so forth are not liberal based on your own experience? perhaps this is changing by degrees. personally, i don’t think this is any huge problem, but i find it annoying when liberals seem intent on denying liberal presence when it is obvious. like does the NYT acknowledge publicly that it is liberal? not to my knowledge.

      – as to CDO’s being a huge part of the problem even now. what is the effect you see them having? i never hear about it, except to say that the write downs of these assets might be insufficient if we go into another recession and the value of the underlying assets are further reduced. that said, the problems of BoA could be the ‘canary in the mine’ and may be what you are referring to.

      – on a new topic, i do hope the Pres comes back with a solid plan. i don’t get why, if he’s got a plan, he’s waiting even an hour to tell us. i suspect he’s writing it now, but regardless, i hope it is good – meaning mostly that it is not too gov’t centric.

      will visit your ‘money’ post now.

  7. John
    I don’t think there is much difference between liberal and progressive. I think some started to use the term “progressive” when the conservatives succeeded in turning “liberal” into a four letter word. I wouldn’t say Democrat means the same because you have a wide range of opinions under the Democratic Party banner from blue dogs to progressive.
    The Make it in America plan I was refering to is what you found on Steny Hoyer’s site. It is a legislative program the Democrats put together a couple of years ago to address the decline in manufacturing and out sourcing. They managed to get about 6 peices of legislation throught before the Congress changed hands. I have heard this plan mentioned a few times on MSNBC and on a rare occasion when Hoyer or other Democrats are on the Sunday shows they will mention it, but the host will quickly move on to a new subject and not follow up. This is what I mean by corporate media. A lot of these proposals are not benfical to corporations, like taking away their tax credits for off-shoring jobs. So they don’t want to engage in any discussion.
    I will give you another example of corporate media burying a subjet. After the Supreme Court ruled on Citizens United the polls showed 80% of Americans were opposed. Across the board we all thought it was a bad decision and bad for the country. How much discussion did you hear about this after the first week? Not much, unless you are watching MSNBC and you will hear about it on occasion.
    But MSNBC is not the propaganda channel for the Democratic party the way Fox is for the Republicans. My argument is that the media is corporate and promotes the corporate agenda.
    Steven Colbert once said “we all know the facts have a well known liberal bias”. When the MSM does report facts, conservatives tend to see this as being a liberal bias. Liberals just see it as reporting facts. If you are interested in reading more about how conservative and liberal minds hear the same thing in differnt ways, 2 good books are “Moral Politics” by George Lakeoff and “Conservatives Without Conscience” by John Dean. Don’t let the title turn you off, it was a twist on Barry Goldwater’s book. John Dean had started this book with Goldwater before he died and then a few years later Dean picked it up and finished the book. You will find a lot of good information about how conservatives organize their thinking.
    -It is not just B of A, but the EU banks as well. One of the thing I read last month that makes me think along these lines is that all $600 billion of QE 2 which ended June 30th, went into the reserve accounts of foreign banks. The Fed bought securities through “open market operations” but over half of the primary dealer that they buy from are US based branches of foreign banks. The charts of cash assets for the foriegn banks show that since QE 2 began in November 2010 that total bank reserves increased by $610 billions and foreign banks moved in lock step going up $630 billion and cash reserves for American banks remained flat. Basicly QE 2 was a Fed engineered bailout of the European banks. The banks have been insolvent since the housing bubble popped and the CDO’s were the driving force behind creating the bubble. The banks are still holding theses toxic assets (CDO’s) on their books and as you might remember the regulators got rid of the mark to market requirement so that they didn’t have to show the losses on the books. These things still have not gone away, but with a wink and a nod everyone treats them as if they still have their inflated values so that it isn’t obvious that so many of these banks are insolvent. The problem is you can only play the shell game for so long before it unravels. We have started to witness this unraveling in August with the market volatility. I don’t know if you invest (I should say gamble) in the stock market, but I wouldn’t be on the long side. We are heading into a bear market that I think will take us below the March 2009 lows. I am not a financial advisor, but that is the way I have positioned myself. Sorry for the heavy stuff on a Sunday night.
    -On Obama’s jobs there are probably 2 reasons to not bring it out right now. One is they are working on the final touches and trying to figure out how best to position it politically. Lets face it, this will be another ideological political fight and it will be for both sides positioning for the 2012 elections. So don’t expect much to actually happen except fighting. Second, as one of the Bush Administration official said about the build up to the Iraq War, “you don’t roll out new products in August”. Nobody pays attention because everyone is on vacation before the kids go back to school. You do it after Labor Day if you want people to pay attention.

  8. the more i read from you, the more it sounds like you view the world as being at the mercy of a giant corporate conspiracy that surrounds us on all sides on virtually every issue.

    are corporations a net positive or net negative in the world?

    in somewhat related questions, do you believe that wealth is created by gov’t or by the private sector? and do you believe we need more regulation of the private sector or less?

    as to jobs, count me skeptical, but i’m looking forward to seeing what obama comes up with. i get the august thing in general, but we are in special circumstances and there is no doubt whatsoever that people are paying attention now. but whatever, he will release it in Sep and we’ll see what he comes up with.

  9. John,
    I think corporations are both a positive a negative and it moves in cycles. Right now I think we are in one of those negative times. I would compare it to the early part of the 1900’s when the trusts became so big that they were monopolies. The negative times happen when deregulation goes too far because corporations will always push the envelope, and then some. There has to be a clear set of ground rules for capitalism to thrive and not self-destruct. It has to be the government of our elected representatives that sets these ground rules.
    I think wealth is created by a combination of both government and private sector. For example, take the internet. If it had not been for a substantial investment by government in developing the technology that was the basis for the internet the private sector would not or could not have created the vast amounts of wealth that have been generated by all of the internet companies. If you want to go low tech, the same thing could be said for the interstate highway system development. When government puts taxpayer dollars into education and infrastructure it open tremendous opportunities for the private sector to expand wealth creation. Conservatives too often discount that upfront investment of taxpayer dollars and only focus on the back end wealth generation.
    The problem that I see is that when corporations are given to much leeway they will kill the goose that lays the golden egg. Take the financial industry as the prime example. For years they wanted to have Glass-Steagall repealed. Deregulation of the financial industry start in earnest in the 1980’s with final repeal of Glass-Steagall occuring in 1999. What we then saw was consolodation of financial services into these mega corporations where they use to be prohibited from combining certain service lines due to conflicts of interest. The Fed, eventhough they had regulatory authority to limit the leverage ratios of the banks, was lead by Greenspan who was a true devotee of Ayn Rand’s philosophy and thought the “free market” would do a better job of self regulation. The banks increased their leverage ratios to 30:1 or 40:1 creating a giant credit bubble. Greenspan finally admited in Congressional testiony in 2008 that his philosophy was wrong. There is a lot of Ayn Rand’s philosophy that I agree with, however I aslo know that left unregulated or under regulated that corporations will push it to self destruction. If the regulations prevent them from getting too big, then fine let them destroy themselves. But when you allow these “too big to fail” corporations exist and to become so dominate that their failure brings down the rest of the economy then it is a problem for everybody.
    When it comes to government’s role I think it needs to be two fold. First, they need to be the “rules committee” and then the referee to enforce those rules. Just think what a football game would be like if each of the teams could make up their own rules or call their own penalties. Second, the government needs to be the initial investor in research and development for cutting edge technologies and basic infrastucture. These types of investments may not ever generate a profit, so corporations are not likely to undertake them, but when they do result in something like the internet it opens a whole new world for the private sector to profit from and create wealth.
    I also think the government needs to set the rules based on our national self interest not based on what is most profitable. The outsourcing of our manufacturing sector has not been good for us nationally but has been very profitable for corporations. As corporations have gained more influence over the government they worked to game the rules to their advantage but to the country’s detriment. I don’t think anyone can disagree that we have a shrinking middle class. The base of our consumer driven economy has been a strong and growing middle class since WW 2. I ask conservatives all the time to explain to me how our economy will grow if our consumer base is shrinking and making less money. They have now exhausted their ability to borrow and spend. So under a free market theory we should allow the economy to contract and deleverage until it bottoms out and then can start to grow again. That will take several years of deflation and depression for that to occur. But I think that is where we are headed.
    Obama’s jobs proposal won’t get through the House. The Republicans ran in 2010 on jobs as the number one issue, but then immediately pivoted to the debt after winning. They haven’t put forth any jobs bill in 10 months so why expect that to change now? This will be all about positioning for the 2012 elections.

  10. Hi Dan:

    I mostly agree with your line of reasoning, but definitely not with the lead-in comment where you say we are in one of those ‘negative times’ when corporations are over powerful. definitely not a subscriber to that view.

    i agree with the general concept that gov’t plays an important role in setting creating the right playing field, but i suspect i view those things as being more arms-length principles/mechanism/laws than you would.

    i also am quite skeptical about the effectiveness of gov’t in setting those rules. first off, they are wrong a lot of the time. like with Greenspan being too loose with money for years. maybe like Glass Steagel, but I would more say in this case with implementing rules that forced banks to make lower quality loans than they naturally would have in the interest of increasing home ownership rates. everybody had a hand in that, but gov’t was the catalyst for that and, imo, gov’t set in motion a whole chain of events that led to the collapse which you now seem to blame entirely on banks.

    i don’t think corporations would have got there on their own – almost certainly they wouldn’t have because they weren’t making such loans prior to gov’t mandates to do so in poorer neighborhoods. but let this specific example not distract from my main point which is that gov’t can set very bad rules – and bad rules have bad consequences, too.

    secondly and very importantly, private enterprise is not at all like football because it is not a static game with fixed players, boundaries, etc. it is highly dynamic – and getting faster and more and more complicated. It also includes many players and entire countries over which we have no control. this dynasism creates several serious problems.

    for instance, it is impossible for outside observers (i.e., regulators) to keep up with industries that are moving quickly. this was surely the case with the financial sector in the ’00s. and even if they could, legislators cannot implement laws fast enough to let them stay abreast. as a result, rules are almost by definition designed for a marketplace that was, not a marketplace that is, let alone the marketplace that is coming.

    third, there’s a huge asymmetry of knowledge and information. regulators are almost by definition not as smart or as knowledgeable as the industry executives and specialists in industries they regulate. i worked for years in telecom and telecom regulation was literally about a decade behind the state of play.

    that doesn’t mean they can’t play a role, but it sharply limits the kind of role they can usefully play. regulators tend not to see the limits of their capabilities – it is not natural for them to do so. as a result, they easily overstep and are too interventionist.

    as an example would i want an actual surgeon determining treatment for my wound or a gov’t worker who regulates the industry. no question i want the practioner to have substantial freedom of movement. likewise, what qualifies somebody like Al Franken to question the merger of ATT and T-Mobile? he doesn’t know what he’s talking about and is driven purely by ideology (or something) in challenging that merger. completely counterproductive exercise of gov’t power.

    the net result is a balance must be struck. all would probably agree with that, but the question is where. to me, we are now going absolutely rule crazy when we should be doing the opposite. the proliferation of rules under obama is absurd.

    as to R&D, i agree with the basic idea of it. i used to work for the agency that funded the initial internet research you refer to. so i get the idea and i support it totally. but i defintiely don’t support this statement “the government needs to be the initial investor in research and development for cutting edge technologies and basic infrastucture” – specifically ‘needs to be the initial investor’. surely it should be ‘an’ initial investor, not ‘the’. and it should be selective about the types of things it pursues, so i agree with ‘needs’ only in certain types of situations.

    as above with regulation, gov’t simply isn’t as smart or as fast as the private sector and academic researchers to come up with all the ideas we should pursue. it also has virtually no sensibility as to the economy reality of the marketplace and hence pushes ideas that may be nice in theory, but aren’t actually economic. sometimes that may be good, but it needs to be handled with restraint and i don’t see gov’t being especially good at restraint.

    in particular, it should take specific types of ideas that are difficult to commercialize – like green energy or other things that require enormous scale and/or many years of innovations before they are commercially viable – and help move that research along. i don’t think it should do much on the development front in terms of funding anything beyond demonstration projects (as compared to putting money into actual profit making ventures like so many of the recent green energy projects). but all that said, in my view we should be putting tons of money into early stage innovation.

    as to whether outsourcing has been good or bad for us as a nation, we don’t agree here at all. i think outsourcing has been awesome for us and for the world. it has cost a lot of americans jobs, but it has raised the standard of living and opportunities for people around the world. it has also bound us more tightly to these countries. this is hugely and strategically important for us.

    americans (i.e., liberals) whine incessantly about wealth distribution in the US and then turn around and say we should protect jobs and share a lot less with the rest of the world (all the while supporting an energy policy that pours money into the coffers of many of the worst possible recipients). it makes no sense. sharing with the rest of the world helps make us better and safer and it helps make all our partners better and safer.

    that said, i have the exact opposite opinion about energy – in energy we have sacrificed massively not for profit, but for the environment. talk about a set of policies that work to the nation’s ‘detriment’. we have been absolute idiots in our handling of energy policy such that we literally pour money into other countries for next to none of the aforementioned benefits. it is a travesty. for this reason alone, it is worth supporting the GOP because they want to build domestic energy and it is anathema to Dems.

    as to the several years of unwinding, yes, that is where we are going. no doubt. it is the natural order of things after exceeding our spending capacity for years. i find it ironic that people who decried consumerism in years past are now pleading with consumers to borrow and spend more. that i also do not understand. i also don’t buy the part about how corporations drove us all to buy more than we could afford through coercive advertising, easy money, and so forth. that surely all contributed, but where is the personal responsibility. i know i overspent. do i blame companies for my bad choices? no, i do not. and we do nobody a service by aiding and abetting them when they blame others. such enabling behavior.

    but more than anything what we need is the next big thing to fuel economic growth and prosperity. that is what we and our leader obama should have been focusing our energies on the past few years. but no, we have fiddled with the deck chairs while the underlying edifice hovers at the waterline ready to sink.

    i blame obama for a lot of that. he has had an altogether poor vision of what is required. has pointed us in every direction, but the ones we need to go in. even now he appears completely clueless to me. a man who sold himself as having great vision turns out to have worse vision than most anyone. perhaps his Martha’s Vineyard vacation will allow him to get his head screwed on right, but i’m not optimistic.

    anyway, back to what we need. we need the equivalent of PCs in the 80s, internet in the 90s, internet and mobile in the ’00s (sort of). if/when we find that, then it will stimulate growth which will mitigate a lot of the problems we are all whinging about now. absent that, we will muddle along for a long time, imo.

    whatever that big idea is, it is not coming from the gov’t and it is not green jobs and it isn’t any jobs proposal i have heard so far (though some would help).

    i don’t know what it is, but i do know (or, more accurately, i do believe) that we are doing a lot of things structurally that will dampen the speed at which that new thing emerges: too much new regulation, too much emphasis on gov’t, not enough innovation in education to develop creative minds (too beholden to unions and the status quo), too high and too poorly structured a corporate tax system to compete in a global economy, too restrictive policies for immigration (particularly of high skill workers), too much demonization about companies / private sector (today’s NYT had at least 2 op-ed pieces that flayed private sector yet again), etc.

    some of these problems are deep and structural, but at the very least obama should stop with adding new regulations every single bloody day. geez. the guy is tireless on this front (which loops back to the start of my diatribe).

    personally, i think the most accessible and obvious big idea is domestic energy production. we have absolutely massive energy resources which we don’t tap. instead we buy from dictators and people who hate us. it would be well within reach to create a massive domestic boom. if we had such a boom and reduced the cost of dometic energy production, it would, among many other things, help reverse the outward flow of manufacturing jobs by changing the cost equation of US production.

    but that’ll never happen cause liberals hold environment sacrosanct – even as liberals and conservatives alike don’t recycle and do all sorts of things every day to prove our lack of commitment to the issue. we can’t even build a bloody windfarm off the coast of Mass., the most liberal state in the country. completely absurd. in a sense, we deserve what we get when we outsource our energy sector.

    but anyway, that sure went on and on…


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