Blog

Leo W. Gerard

By Leo W. Gerard
International President

For a brief moment, when Congress authorized that $700 billion bailout for the Wall Street wise guys whose recklessness caused the financial crisis that we’re all suffering, federal officials actually considered giving part of the money to foreign banks.

Really.

They quickly backed away from using American tax dollars to prop up overseas financial institutions.

But now, the same issue is at stake with the $825 billion economic recovery package. Fifteen groups including the U.S. Chamber of Commerce and the Business Roundtable want to give American tax dollars to foreign manufacturers to create jobs overseas.

That’s right. The U.S. Chamber of Commerce wants to spend the tax dollars of unemployed Americans to create jobs in China and Indonesia, Korea and India.

The 15 business groups sent a letter to Congress opposing provisions added to the recovery package that would strengthen existing laws requiring government agencies buy American steel and other products when building public works projects with tax dollars.

The recovery package would use American tax dollars to pull the United States out of a deep recessionary hole caused by a blind belief that business knows best and shouldn’t be regulated – from banks to pharmaceutical manufacturers.

The package is, essentially, Americans agreeing to increase their national debt to revive an economy sucker punched by greedy Wall Street gamblers. So when business interests want to spend those tax dollars overseas, to create jobs there at the expense of unemployed Americans, while at the same time increasing the U.S. trade deficit, frankly, it looks a bit like treason.

To survive this economic catastrophe, Americans must assert themselves as economic patriots. They must stand up to the likes of the Chamber and the Roundtable and call them out for being economic traitors to the United States of America.

The measures proposed in Congress to strengthen the existing laws requiring that American products be purchased are simple, inexpensive and would not delay construction projects. For example, Ohio Sen. Sherrod Brown wants requests for waivers to the federal “Buy America” requirements to be publicly posted on the Internet in a place where people with knowledge of the situation can comment on them. That way, a government agency will likely quickly find out about attempts to use the waiver process to circumvent the rules.

The Chamber and the other business groups whine in their letter to Congress that strengthening “Buy America” rules may violate international agreements.

That’s bogus and the groups know it. America can honor its international obligations while using U.S. tax dollars to employ American workers. For example, states that receive federal grants for highway and mass transit projects may specify that products for that construction be purchased from U.S.-based producers without violating international agreements.

The Chamber and the other business groups also contended they were worried that strengthening the “Buy America” rules would prompt retaliation from foreign countries, so that U.S. companies would be prohibited from providing materials for construction funded by foreign stimulus programs.

When other nations nurture their industries and employ their own countrymen with their tax dollars, it won’t be retaliation. It will be reasonable. It will make good economic sense.

French President Nicolas Sarkozy announced in December that he would do whatever it took to save his country’s auto industry. No big protest broke out from anyone contending France should buy the auto parts from some low-priced American competitor. No, it seemed logical that France’s president would “buy French” and strive to rescue the industry that employs 10 percent of his population.

India already employs many protectionist measures to shield its industries. China subsidizes its manufacturers and manipulates its currency. But, somehow, the U.S. Chamber of Commerce thinks it’s wrong if U.S. tax dollars are spent in America to employ Americans.

These are the guys who were behind George W. Bush’s tax breaks for the rich these past eight years. These are the very ones whose wrongheaded policies brought America to its economic knees. And they are the business hotshots who don’t see that they’ve done anything wrong that should change.

Those Wall Street business wizards felt so entitled to Americans’ $700 billion in tax dollars given to bail them out that they spent it on $18 billion in year-end bonuses, a $16,000 commode and a $50 million Dassault Falcon 7X manufactured-in-France corporate jet. (Well, the Obama administration did tell Citigroup it had to cancel that jet.)

Here’s the thing to remember about these business groups so worried about preserving “free” trade. A dozen of them put America or U.S. in their names, like the United States Council for International Business. But it’s not the U.S. they care about. Their focus is themselves.

Many of them long ago shipped manufacturing overseas, to benefit from tax breaks provided by the Bush administration, slave wages paid to third world workers and zero enforcement of safety and environmental regulations. That’s why they oppose “Buy America” regulations. They want to use American tax dollars to pay subsistence wages at their factories in foreign countries, then ship the steel or aluminum or rubber back to the U.S. at untold cost to the environment and the trade deficit.

You can trust ‘em same as you can Bernie Madoff.

What you can trust is that empty feeling in your stomach and your pocket, a pang that’s spreading quickly while the U.S. Chamber busies itself trying to thwart “Buy America.” More than 2.55 million Americans have been thrown out of work since Bush’s recession began. On Monday alone, companies announced they would cut 75,000 more jobs. Unemployment stands at 7.2 percent, and it is expected to rise to 10 percent before year’s end if drastic action isn’t taken.

Drastic action isn’t sending American tax dollars overseas to create jobs there.

Last year, the Government Accountability Office reported that “Buy America” policies are effective by “protecting domestic employment through national infrastructure improvements that can stimulate economic activity and create jobs; protecting against unfair competition from foreign firms as a result of foreign government subsidies; and maintaining national security interests through the continued use and development of certain industries within the U.S. economy, like the iron and steel industries.”

That sounds like a policy worth investing in. A policy good for America.

Robert Borosage

Robert L. Borosage

Co-Director Campaign for America’s Future

We are headed into the most ambitious era of progressive economic reform since the New Deal. The crisis leaves little alternative, as job losses mount across the country and the world. The Obama administration has hit the ground running, pushing to pass an $800 billion plus recovery plan, scrambling to put together a new plan for banks still on life support, and cobbling together an initiative to help millions of families on the verge of losing their homes.

But recovery, however daunting, is not enough. Even as the administration struggles to fend off a full-scale depression, it faces the task of constructing the foundations of the new economy out of the ashes of the old.

Republicans, still grousing about more tax cuts and less spending, are clueless. But even many Democrats seem to assume that if we just get the economy going, bail out the banks, add a dash of regulation, we can go back to business as usual.

But that is neither possible nor desirable. That old economy was founded on stagnant incomes and unsustainable debt. Families struggled to keep their heads above water by taking money out of their homes and assuming ever higher levels of student, car, credit card and consumer loans. The country served as the consumer of last resort for the world by borrowing staggering sums — $2 billion a day over the last years – from creditors abroad, largely Japanese and Chinese central bankers. That economy was floated on asset bubbles like that in housing which has now exploded in our faces. We can’t resuscitate the old economy – and should not want to.

The next economy must seek to provide a sustainable and a widely shared prosperity, one where the American dream remains in reach for working people. That will require new thinking and bold reforms. A group of progressive organizations have joined together to kick off this discussion. (For the first conference on “thinking big, thinking forward — already oversubscribed — go here.)

But many of the changes needed are clear — and the initial struggles over signature reforms are already teed up.

What is needed to insure to every person a job with a decent wage, a world class public education, affordable health care, and retirement with dignity? This is the pledge Franklin Roosevelt made when he laid out his Economic Bill of Rights in the midst of World War II. It was echoed in Obama’s inaugural address. Surely that new economy must include:

1. A new public social compact — affordable health care, pensions above Social Security — to replace the promises that the corporations have shredded. The signature fight over health care reform will begin this year. 

2. Sustained public investment in areas vital to a maintaining a high wage path in a global economy — world class schools, affordable college, 21st century infrastructure, cutting edge science, research and development. The first volleys of the signature battle — over whether we will sustain expanded public investment after the economy regains its footing or short-change it –are already being exchanged. 

3. A new global economic strategy — featuring a new industrial policy — that enables the US to balance its trade, while creating global rules that protect workers, consumers and the environment, rather than threaten them. The initial struggle over making the transition to renewable energy the centerpiece of economic reform is beginning. 

4. Restructuring and regulation of the financial sector, making banking a boring occupation again, devoted to making loans to the real economy, not hawking exotic instruments in operatic speculative ventures. The signature reform — taking over and breaking up the major banks that are on life support — is likely to be fought out in the next months. 

5. An aggressive wage policy that empowers workers to organize and bargain collectively, raises the minimum wage, and mandates basic benefits and safety standards. The donnybrook will begin this Spring over the Employee Free Choice Act. 

These are fundamental choices threatening entrenched interests. Health care reform requires taking on the drug and insurance companies. Sustaining public investment requires defeating the military lobby and the wealthy whose taxes will rise. A new global strategy challenges the multinationals that profit from the old order. Getting Wall Street under control threatens the largest political donors. The business lobby promises Armageddon if the Employee Free Choice Act moves forward.

President Obama has already signaled his intention to go forward with the core reforms in this agenda. So forget about a new era of bipartisan consensus and get ready to rumble. We’re headed into pitched battles that will succeed only with massive popular mobilization. We won’t have this opportunity again, and we dare not blow it.

Robert Kutner

Robert Kuttner
Co-Founder and Co-Editor of The American Prospect
One of the most coyly ambiguous lines in President Obama’s Inaugural Address was his pledge to “end to the petty grievances and false promises, the recriminations and worn-out dogmas that for far too long have strangled our politics.”

That sounds high-minded, but you can read the promise two ways. Some heard it as a reproach to Republican ideology and to President Bush, who was seated nearby. Others heard it the latest reiteration of Obama’s desire to move beyond dogma per se and to achieve a new synthesis.

We will soon learn which it was. Obama, the president who would be post-ideological, is at last having his first encounters with the realities of polarized politics. Exhibit A is the stimulus package.

Obama has been more than generous in offering the Republicans far more tax-cutting as part of the recovery program than sound policy warrants. Will they reciprocate and support the rest of the package?

At Obama’s meeting last Friday with Congressional Republican and Democratic leaders, Republican Congressman Eric Cantor of Virginia was making the case that more tax cuts would be more stimulative than public spending. Obama replied in a jocular way according to those present, that the issue had been settled by the election, and “I won.”

Nothing post-ideological about that assertion.

More important, perhaps, was Senate Republican Leader Mitch McConnell’s reported statement that Senate Republicans would not filibuster against the stimulus package. But this may have been short-lived. In the official Republican response to the President’s remarks Saturday urging passage of the plan, House Republican leader John Boehner scoffed that the plan would “spend a whopping $275,000 in taxpayer dollars for every new job it aims to create, saddling each and every household with $6,700 in additional debt.”

On the Sunday talk shows, Republicans turned up the rhetoric. Even John McCain, who Obama went out of his way to court, called for more tax cuts and indicated he would vote no unless they were included.

The bill can squeak through without Republican votes, assuming no filibuster. But a more difficult balancing act may come within the Democratic Caucus. Obama needs not only some Republican backing or at least a Republican agreement not to filibuster. He also needs the support of the fiscally conservative Blue Dog Democrats. Their mantra has been that deficits are far too large. They were calling for spending cuts (and some tax increases) back when the deficit was less than 3 percent of GDP.

Even without Obama’s proposed $820 billion recovery program, the Congressional Budget Office’s latest budget projection shows a deficit of $1.2 trillion this year, or 8.3 percent of GDP. The sharp increase in the deficit is the result of the recession, which reduces economic activity and hence tax receipts. With enactment of the stimulus, the deficit temporarily rises to over 10 percent of GDP–the biggest deficit since World War II.

Most of the Blue Dogs, who include House Budget Committee Chairman John Spratt of South Carolina, acknowledge the need for a temporary increase in public spending. Spratt’s opposite number, Senate Budget Chairman Kent Conrad (D-ND), warned at a recent hearing that the United States was headed for a fiscal catastrophe. Conrad acknowledged “the need to have an economic recovery package that will add to deficits and debt in the short-term.” But he went on to sound the alarm about the “unsustainability of our current fiscal condition.”

This also suggests an ideological division that will be hard to paper over. After four decades of bipartisan assaults on government, many progressive Democrats (this writer included) hope to use the stimulus as a down-payment on an expansion of government services such as affordable housing and early childhood education that have been chronically under-funded, as well as long term investments in green energy and smart infrastructure.

But the 49-member Blue Dog Coalition in the House and Senate fiscal conservatives such as Conrad see the stimulus as a one-shot. They want sharp spending cuts as soon as the immediate crisis is past, to pay for the fiscal sin of a temporary deficit hike.

If you look at the details of the Obama recovery plan, however, it includes a lot of outlays that don’t look like one-shots: laying more than 3,000 miles of electric transmission lines; installing 40 million “smart” utility meters to help reduce energy use; weatherizing 2 million homes and most federal buildings. Among the other infrastructure investments are improving security at 90 major ports and modernizing the nation’s water system. These needs and others like them don’t end after two years.

Obama said Saturday in his first radio and video address, “This is not just a short-term program to boost employment. It’s one that will invest in our most important priorities — like energy and education, health care and a new infrastructure — that are necessary to keep us strong and competitive in the 21st century.”

Sounds good to me, but he will face ideological qualms from the fiscal conservatives within his own party, as well as from most Republicans. So the bipartisan honeymoon is unlikely to last, and I’d say, good riddance. Obama’s real challenge is to mobilize public opinion–not just to win general approval ratings but to make it very hard politically for anyone in either party to oppose his recovery program or to demand crippling budget cuts down the line as the quid pro quo. That’s what leadership is all about.

It’s show time. Call me out of date and ideological, but it’s reassuring when President Obama reminds himself and his opponents that “I won.”

Dean Baker

By Dean Baker
Co-Director, Center for Economic and Policy Research

Hold onto your wallets. The bankers are coming bank for more money. They burned through the $350 billion that we gave them in the first round of the Troubled Asset Relief Program (TARP) and they are worried that even the second $350 billion will not be enough money to keep them solvent. The selective leaks from Treasury tell us that the banks will need far more money to cover their bad debts.

The latest story is that the banks want to sell us their bad assets at above market prices, which was the original plan that Treasury Secretary Paulson proposed, except the banks want to push off their junk on an even bigger scale. In one version, the government would set up a Resolution Trust-type corporation (RTC), like we did with the bankrupt Savings and Loans in the 80s, which would hold all the garbage and then gradually resell it to the private sector to recover a portion of what the government paid.

This is a reasonable course, except there is one big difference between what we did with the S&Ls in the 80s and the leaked plan being floated. The S&Ls were taken over by the government and then resold to the private sector. These were bankrupt institutions that were put out of business. The stockholders were wiped out, which is what is supposed to happen to stock holders when their company goes bankrupt.

But this is not what happens in the plan being discusses. In this plan, the taxpayers just do the banks the great favor of paying above market prices for their junk so that we can relieve them of the burden of their past mistakes. The taxpayers get to eat the losses and the bank executives and their shareholders go on their merry way.

These folks are not market fundamentalist types. The Wall Street view of the world, and apparently the view of at least some people in the Obama administration, is that the government always is there to help a bank or banker in need.

The idea that we would give one more penny to this crew that has wrecked the economy should make taxpayers furious. There is a legitimate public interest in keeping the banks operating; a modern economy needs a well-operating financial system. But, there is zero public interest in rewarding shareholders and overpaid banks executives.

These executives bankrupted their banks and brought the economy down with them. They belong in an unemployment line not collecting multi-million dollar paychecks in their designer office suites.

The obvious answer is to take over the insolvent banks, just as we did with the insolvent S&Ls. The government should form an RTC as we did in the 80s, which would dispose of the assets over time, collecting as much money as possible for the government. The bankrupt banks would be restructured and sold back to the private sector as soon as their books were straightened out. The point of the exercise is not have the government run the banks, the point is to keep the financial system running without giving even more money to the richest people in the country.

This is the only reasonable solution to the mess that the bankers have created. The other solutions are simply efforts to transfer dollars from hardworking taxpayers to overpaid and incompetent bank executives. It is hard to believe that anyone would take it seriously, if not for the enormous political power of the Wall Street gang.

It’s too bad that the Republicans’ anger over giving tax breaks to workers who did not pay income taxes does not extend to giving tax dollars to Wall Street banks who have wrecked our economy. Where are the anti-government conservatives when we need them?

PoliPoint Press, LLC.

David Sirota

By David Sirota
Author of “The Uprising: An Unauthorized Tour of the Populist Revolt”

History’s great American parables teach that if anything unified our founders, it was a deep antipathy to dictatorship. As bourgeois revolutionaries from Boston to Philadelphia courageously split with the British crown in 1776, they created three equal branches of government to prevent, in the words of James Madison, “a tyrannical concentration of all the powers” in a president’s hands.

For two centuries since, civics books, Hollywood biopics and party convention speeches have constructed a mythology insisting that this democratic commitment to checks and balances makes our country a beacon of freedom – the “shining city on a hill” overlooking a despotic world below. We are told that democracy’s tumult – its messy debates, legislative sausage-making and electoral friction – is the best way to guarantee that public policy represents public will, therefore making us a strong and durable nation.

If that is true, then every patriot should be concerned about the intensifying efforts to supplant democracy with something far more authoritarian. Call it American czarism.

That term should be as impossibly oxymoronic as crash landings and deafening silence, considering our Constitution’s desire to create a “government of laws and not of men,” as John Adams said. But politics is filled with paradoxes from Reagan Democrats to Obama Republicans, and czars – i.e., policymakers granted extralegal, cross-agency powers – have become increasingly prevalent in our government over the past century.

After the Great Flood of 1927, for instance, President Calvin Coolidge named Herbert Hoover the federal government czar overseeing relief efforts, and Hoover subsequently appointed “dictators” (he actually used that term) to help coordinate the response.

During the power consolidations of the New Deal in the 1930s, a Time magazine story headlined “Dictator or Democrat” reported on the “suspicions of those throughout the nation who have an uneasy feeling that Roosevelt, under cover of the emergency, is trying ‘to slip something over’ on democracy.” In the 1940s and 1950s, parks commissioner Robert Moses – famously known as “the power broker” – amassed so much personal authority that he was able to almost single-handedly redesign New York City. And lately, presidents have given us poverty, energy, drug, health and even Iraq war czars.

Until now, this slow lurch toward czarism has primarily reflected the ancient, almost innate human desire for power and paternalistic leadership. The current president reminded us that executives see all-powerful “deciders” when they look in the mirror. And Americans – sans kings to rally around – have been elevating commanders in chief to superhero status well before Barack Obama’s Marvel comic-book debut and George Bush’s flight-suited “Top Gun” impression in 2003.

In recent years, this culture of “presidentialism,” as Vanderbilt Professor Dana Nelson calls it, has justified the Patriot Act, warrantless wiretaps and a radical theory of the “unitary executive” that aims to provide a jurisprudential rationale for total White House supremacy over all government. But only in the past three months has American czarism metastasized from a troubling slow-growth tumor to a potentially deadly cancer.

In October, Congress relinquished its most basic oversight powers and gave Treasury Secretary Henry Paulson sole authority to dole out billions of bailout dollars to Wall Street. At the same time, it did nothing when Federal Reserve chairman Ben Bernanke used fiats to commit “$5 trillion worth of new money, loan guarantees and loosened lending requirements,” according to Politico – all while he refused to tell the public who is receiving the largesse.

And the Washington Post has reported that lawmakers may appoint a “car czar” who “would essentially control the purse strings” of an auto industry bailout and “could force Detroit’s Big Three automakers into bankruptcy” if he or she didn’t like their behavior.

Put bluntly, the unprecedented usurpation of spending power by the executive branch and the Federal Reserve is systematically undermining our democracy’s most sacrosanct principle – the one that is supposed to ensure “the legislative department alone has access to the pockets of the people,” as Madison said. And this new czarism is so strident because it reflects both executive power lust and the 21st century economy.

Today, keystrokes and mouse-clicks instantly whisk trillions of dollars across the planet, and many of those keystrokes and mouse-clicks are uninhibited by the grindingly slow processes of democracy.

Saudi princes don’t have to publish announcements in a federal register before moving cash from sovereign wealth funds into foreign investments. China’s rulers aren’t obligated to obtain legislative approval when buying or dumping U.S. Treasury bills; and transnational corporations will not wait for public hearings before shuttering offices, eliminating jobs and cutting off credit.

Our nation is integrally connected to this fast-moving globalized economy, and American czarism effectively posits that in order to compete, we must anoint strongmen as saviors, prioritize speed instead of sobriety and emulate dictatorship instead of democracy.

Indeed, the Economist magazine’s prediction that the “economic crisis may increase the attractiveness of the Chinese model of authoritarian capitalism” is coming true right here at home, as we seem ever more intent on replicating – rather than resisting – that model.

This, as much as personal hubris, explains why Paulson and Bernanke sought unprecedented latitude in spending trillions – they want to be able to move as fast as their autocratic counterparts in other countries, and believe congressional oversight will slow them down.

It explains why UC Berkeley economist Laura Tyson says we need an auto czar who will “take a number of approaches to this problem that are already known, that have been discussed endlessly, and force it through” – because to economists, a czar quickly “forcing it through” is more important than any consideration for democratic deliberation.

And it explains why when Obama aides this week demanded complete control over the second half of the Wall Street bailout funds, House Financial Services Committee chairman Rep. Barney Frank, D- Mass., shirked his oversight duties and said he’s “willing to accept their word” that they will spend the money responsibly. In a czarism, that’s what legislators do: “accept the word” of the czar.

In sum, it explains why the age-old struggle between capitalism and democracy is once again defining our politics – and why capitalism is now winning.

That triumph may be terrific for the czars and great for their industry suitors, but as the founders would likely agree, it is a Pyrrhic victory for America.

Dean Baker

By Dean Baker
Co-Director, Center for Economic and Policy Research

For some reason most of the discussion in Washington and the media of the bank bailouts is overlooking their central feature: taxpayer dollars are being used to sustain the income of incredibly rich bankers. The public should be furious over this upward redistribution of income.

The basic story here is very simple. If we got the government out and left things to the market, virtually the entire banking sector would be bankrupt. Citigroup, Bank of America, Goldman Sachs, Morgan Stanley and almost all the other big banks, and thousands of smaller ones, would be out of business. (My bet is that even “healthy” banks like Wells Fargo would be in bankruptcy before too long. They hold plenty of bad debts, too.)

Most of the top executives of these banks would likely be sent packing, while those remaining would have their compensation (including “golden parachutes” and bonuses) set by bankruptcy judges who would be running the companies in the interest of the creditors, not the shareholders. The shareholders themselves would be out of luck for the most part. Many bank stocks have already lost 80-90 percent of their value over the last 18 months. Bankruptcy would likely eliminate what little remains.

However the banks are not in bankruptcy because the confused state of affairs and potential loss of creditors’ wealth created by large-scale bankruptcies in the financial sector would be a devastating hit to the economy. This is the rationale for the TARP, the various special lending facilities created by the Fed, and other measures to ensure the survival of the banking system.

The government has intervened in a huge way to keep the market from taking its course. But the key issue that has been buried in the debate in the media and political circles is the separation of the interest of the public in a functional financial system and the interests of bank executives in high salaries and shareholders in getting returns on their capital.

At this point, the banks are desperate — they would be dead without government handouts. This means that the government can set whatever terms it wants. And, for both economic and moral reasons, it has an obligation to set terms that do not reward the bank executives and shareholders.

The bank executives and shareholders took big risks that went bad. If they are rewarded with taxpayer handouts, then the message this sends to the financial sector is to keep taking irresponsible risks. The game becomes heads they win, tails we lose. If the bets pay off, then they are incredibly rich. When the bets go bad, the taxpayer gets the tab.

The moral reason for not rewarding executives and shareholders is that these rewards require the taxation of middle income people, like truck drivers and nurses, to transfer money to some of the richest people in country.

This sort of upward redistribution is difficult to justify. Usually people in the United States like to believe that the market determines the distribution of income. Many get outraged over the idea that a mother on TANF can get a check for a few hundred dollars a month from the government. In this case, the government is effectively handing checks of millions of dollars to bank executives who would be out of work if the market was left to run its course.

We have to keep the financial system functioning, but we can do this without transferring hundreds of billions of dollars from middle class taxpayers to the wealthiest people in the country. If the bailout conditions imposed by the Obama administration and Congress don’t effectively eliminate shareholder wealth in the bankrupt banks and bring compensation (in whatever form) of bank executives back down to main street levels then it is can only be explained by corruption. There is no excuse for this massive intervention to redistribute income upward.

Leo W. Gerard

By Leo W. Gerard
International President

Symbols of the 16th president of the United States surround the soon-to-be 44th. And they did so from the beginning.

Barack Obama, formerly a Senator from Illinois, announced his plan to run for president on Abraham Lincoln’s birthday from the steps of the Old State Capitol in Springfield, the site of Lincoln’s “House Divided” speech, which launched Lincoln’s own campaign for the Senate.

Once elected, Obama assembled a “team of rivals” cabinet, as Lincoln did, including as his secretary of state, his chief challenger for the Democratic nomination, New York Senator Hillary Clinton, just as Lincoln selected for state his foremost contender for the Republican nomination, New York Senator William Seward.

Before the inauguration, Obama will pause for reflection and a concert at the Lincoln Memorial, where a somber statue sits beside the inscribed words of the Gettysburg Address. He’ll attend a luncheon featuring Lincoln’s favorite foods.  Finally, Obama will place his right hand on the same Bible that Lincoln did when he took the oath of office on March 4, 1861.

Symbols cannot, however, convey the depth of connection between their presidencies. It is crucial for working Americans that the 44th President appreciate that mere imagery such as Lincoln luncheons and concerts is insufficient. What the union needs now is for Obama to follow the philosophical footsteps of Abraham.

When Lincoln took office, most of the country was in the midst of a deep recession caused by the Panic of 1857. “It struck after a period of prosperity accompanied by higher prices, speculation and increasing powers accruing to the nation’s banks,” New York Times reporter Steven R. Weisman, wrote in his book, “The Great Tax Wars.”  It resulted, he wrote, in a run on the banks, selling on Wall Street, falling prices, declining trade and the federal government saddled with deficits and debts. The U.S. economic slump, uncontrolled by Lincoln’s predecessor in the White House, spread internationally.

Then, four weeks after Lincoln took the oath of office, the Civil War began with shots fired on April 12, 1861 at Fort Sumter, S.C.

Similarly, Obama has the wars in Iraq and Afghanistan to manage. His predecessor has bequeathed him the most serious recession since the Great Depression and the largest federal debt ever created in a presidency.  Risky speculation and deregulation caused last year’s financial bank failures that, in turn, pulled down the rest of the economy, as in 1857.

Lincoln is celebrated for preserving the union and freeing the slaves.  But that would not have been possible without his economic accomplishments. It is the philosophy at the base of those achievements that must be the prototype for change in America now.

While waging war, Lincoln also passed the Homestead Act giving land to those who would build houses on their plots and become family farmers; the Land Grant Colleges Act, promoting advanced farming methods, scientific research and access to higher education for the working classes; the Pacific Railway Act for construction of the first transcontinental railroad, and higher charges on imports to protect American industry and American workers.

The connection among these diverse laws is a respect for American workers and a belief that government should grant each American the opportunity to improve his lot by dint of hard work. Lincoln expressed this in a message to a Special Session of Congress in 1861: “This is essentially a people’s contest . . . It is a struggle for maintaining in the world that form and substance of government whose leading object is to elevate the condition of men – to lift artificial weights from all shoulders – to clear the paths of laudable pursuit for all – to afford all an unfettered start, and a fair chance, in the race of life.”

Lincoln saw himself as a person who had benefited from America’s ability to give her citizens opportunity. The son of uneducated farmers, he had only a year of formal education. He’d worked as a riverboat pilot, country store clerk, blacksmith, surveyor and postmaster. But he’d also read and studied and worked himself to the position of a reasonably wealthy small town lawyer and got elected as a lawmaker, and ultimately, president.

He also wrote, very early on, in a letter to the editor of the Sangamon Journal in New Salem, Ill., in 1836, “I go for all sharing the privileges of government who assist in bearing its burdens.”

In recent times, soldiers and workers have borne the burdens of government while the privileges accrued to the wealthy. The rich got Bush’s big tax breaks. Banks got deregulated. And big corporations escaped enforcement of federal environmental and safety regulations.

Last year financial banks and a major insurance company failed and got rescued by the federal government after Wall Street wise-guys risked untold hundreds of billions in crazy schemes. Those salvages are all on the taxpayers’ dime. The failures led to the stock market diving, which shriveled worker’s 401K retirement accounts and pension funds. They also froze credit, which ultimately contributed to 2.6 million layoffs, the highest level in six decades, as companies couldn’t get money they needed to operate. Of those, 791,000 were manufacturing jobs. As workers lost their jobs, or feared it, they stopped spending. So even less money circulated in the economy. The recession was on.

This is Obama’s crisis. And this is where he should look to Lincoln. The 16th President saw the value in “Buy American.” Many historians believe Lincoln’s higher fees on imports enriched the federal treasury, which was crucial to pay for the war, and promoted American industry, particularly the steel industry, which forged the rails for his transcontinental railroad. Those industries Lincoln promoted made America strong and employed Americans and new immigrants.

Lincoln’s railroads accomplished two goals. They created jobs during their construction and connected the country afterward. Those connections made commerce cheaper and American industry more competitive internationally.

Lincoln’s new colleges and homesteads provided opportunity to Americans while making the country agriculturally self-sufficient and scientifically advanced.

Obama has spoken of similar goals – to improve schools and lower college costs, for example.

That’s good as far as it goes. But this country was not built on sub-prime mortgages and credit default swaps. And it cannot sustain itself with an economy based on risky trading of Wall Street paper or consuming on credit. It must be productive. It must make things.

Obama’s administration, like Lincoln’s, must support industry and manufacturing and the jobs they create.

Doris Kearns Goodwin, author of the Lincoln biography, “Team of Rivals,” said after speaking to Obama about it, “There’s no better mentor for a president to look to than Lincoln’s leadership . . . Somehow, Lincoln has gotten into his heart and mind, and that can only be for the good.”

Working people across America have hope it will be good for them.

Peter Morici

 

 

By Peter Morici

Professor, Robert H. Smith School of Business, University of Maryland

 
Today, the Commerce Department reported the November trade deficit was $40.4 billion. This was down from $56.7 billion in October, largely because oil prices fell and the recession is curbing demand for imported consumer goods and petroleum.

To the extent stimulus packages expected to be enacted in the United States, Europe and China lift the global economy, the reduction in the trade deficit will reverse. Oil prices will rise again, and with China increasing subsidies on exports, U.S. imports of consumer goods will soar. The trade deficit will emerge as a major drag on the demand for U.S. made goods and services, and pull the U.S. economy back into recession as the effects of stimulus spending wear off.

At 3.4 percent of GDP, the huge trade deficit indicates Americans continue to consume much more than they produce and borrow too much from the rest of the world, especially China and the Middle East oil exporters.

The huge trade deficit is nearly entirely by trade with China, imports and automobiles and parts. These are caused by a combination of an overvalued dollar against the Chinese yuan and Chinese protectionism, a dysfunctional national energy policy that increases U.S. dependence on foreign oil, and the competitive woes of the three domestic automakers. Together, the trade deficit with China and on petroleum and automotive products account for virtually the entire deficit on trade in goods and services.

To finance the trade deficit, Americans are borrowing and selling assets at a pace of about $400 billion a year. U.S. foreign debt exceeds $6.5 trillion, and the debt service comes to nearly $2,000 a year for every working American.

The trade deficit will make the recession longer and deeper, and lessen the positive benefits of President-elect Obama’s proposed stimulus package. If Obama does not fix the banks and significantly reduce the trade deficit, stimulus spending will not permanently pull the economy out of recession, and the economy will slip into a prolonged malaise or depression.

Simply, money spent on Middle East oil, Chinese televisions and coffee markers, Japanese and Korean cars can’t be spent on U.S. made goods and services, unless offset by a comparable amount of exports. Since U.S. imports exceed exports by 3.4 percent of GDP, the trade deficit creates an enormous drag on demand for U.S.-made goods and services. Along with the credit crisis and resulting slowdown in new housing and commercial construction, the banking crisis and trade deficit could push unemployment above 10 percent for a long time.

The trade deficit imposes a significant tax on GDP growth by moving workers from export and import-competing industries to other sectors of the economy. This reduces labor productivity, research and development (R&D) spending, and important investments in human capital.  In 2009 the trade deficit is slicing $400 billion to $600 billion off GDP, and longer term, it reduces potential annual GDP growth to 3 percent from 4 percent.

Cutting the trade deficit in half would pull the country out of recession and get the economy on a stable growth path. A fiscal stimulus package, increasing the federal budget deficit by two or three percent of GDP, will make things much better for a period of time; however, successive stimulus spending and permanently larger federal budget deficits will be needed to sustain the GDP and employment gains. Whereas, cutting the trade deficit in half would yield lasting benefits for U.S. GDP and employment growth, far transcending any fiscal stimulus in its permanent effects. Cutting the trade deficit would substantially increase tax revenues and reduce the federal budget deficit.

Each dollar spent on imports that is not matched by a dollar of exports reduces domestic demand and employment, and shifts workers into activities where productivity is lower. Productivity is at least 50 percent higher in industries that export and compete with imports, and reducing the trade deficit and moving workers into these industries would increase GDP.

Were the trade deficit cut in half, the movement of workers and capital into more productive export and import-competing industries would increase by at least $400 billion or about $2500 for every working American.  Workers’ wages would not be lagging inflation, and ordinary working Americans would more easily find jobs paying higher wages and offering decent benefits.

Manufacturers are particularly hard hit by this subsidized competition. Through recession and recovery, the manufacturing sector has lost more than 4 million jobs since 2000. Following the pattern of past economic recoveries, the manufacturing sector should have regained at least 2 million of those jobs, especially given the very strong productivity growth accomplished in durable goods and throughout manufacturing.

Longer-term, persistent U.S. trade deficits are a substantial drag on productivity growth. U.S. import-competing and export industries spend three-times the national average on industrial R&D, and encourage more investments in skills and education than other sectors of the economy. By shifting employment away from trade-competing industries, the trade deficit reduces U.S. investments in new methods and products, and skilled labor.

Cutting the trade deficit in half would boost U.S. GDP growth by one percentage point a year, and the trade deficits of the last two decades have reduced U.S. growth by one percentage point a year.

Lost growth is cumulative. Thanks to the record trade deficits accumulated over the last 10 years, the U.S. economy is about $1.5 trillion smaller.  This comes to about $10000 per worker.

Had the Administration and the Congress acted responsibly to reduce the deficit, American workers would be much better off, tax revenues would be much larger, and the federal deficit could be eliminated without cutting spending.

The damage grows larger each month, as the Administration and Congress dally and ignore the corrosive consequences of the trade deficit.

Dean Baker

By Dean Baker
Co-Director, Center for Economic and Policy Research

We got into the current economic crisis because many very smart people with outstanding credentials were unable to use simple arithmetic. If they knew arithmetic, they would have been able to see an $8 trillion housing bubble that was right in front of their faces.

The basic story was incredibly simple and obvious, at least as far back as 2002. After just following the overall rate of inflation for the hundred years from 1895 to 1995, house prices began to hugely outpace the rate of inflation in the mid-90s. Not coincidentally, this run-up in house prices paralleled the run-up in stock prices.

As was the case with Japan, the United States had a stock bubble and real estate bubble growing side by side. Unlike Japan, where the two bubbles crashed simultaneously, the crash of the stock bubble fed the growth of the real estate bubble in the United States. By 2002, nationwide house prices had increased by almost 30 percent above their trend levels. By their peak in 2006, they had increased by almost 80 percent above their trend level, creating more than $8 trillion in housing bubble wealth.

The inability of economists and the financial industry to see this enormous bubble was the basis for the current crisis. Remarkably, most discussions of housing policy still ignore the bubble.

It is often argued that we need to stabilize house prices. In many markets this is a desirable goal. However, in many markets in California, Florida, and the Northeast, where the bubble has not yet fully deflated, it would be counter-productive to try to sustain house prices at bubble-inflated levels.

Prices in these markets will eventually fall to their trend levels; the only question is how fast. Unfortunately, many of the same policy wizards who wanted low and moderate-income families to buy homes at bubble-inflated prices in the years from 2002-2007, would still want them to buy houses at bubble-inflated prices today. They somehow think that the best way to accumulate wealth is to own a home that is falling in value.

Even worse, they want to use lots of taxpayer dollars to keep people in homes in which they have no equity. Representative Barney Frank is one of the key villains in this story. His top priority is to use the TARP money to pay banks for their bad mortgages, so that people can stay in homes with no equity.

This one is really baffling as economic or social policy. Should we pay a bank $20,000 in order to keep a homeowner in a home in which they have zero equity? How about $30,000? How about $50,000?

It costs a bit more than $3,000 a year to pay for a kid’s health care under the State Children’s Health Insurance Program. We can all understand the benefit of health care for kids. Is it worth 17 kid-years of health care to keep someone in a home in which they have no equity?

There is a simple no cost, no bureaucracy alternative to Frank’s plan to hand tens of billions to banks. (Remember, the banks get the checks under Frank’s plan, not the homeowners.) We can simply temporarily change the rules on foreclosure to give people facing foreclosure the right to rent their homes at the market rent.

This is extremely simple and can go into effect the day after Congress passes the rule change. Judges or the court officers handling a foreclosure would be required to ask the homeowner whether they want to stay in their house as a renter. If they say yes, there would be an appraisal of the market rent of the home, and the homeowner would then have the option to stay in the house for a substantial period of time (e.g. 10 years), paying the market rent.

This would immediately give the homeowners facing foreclosure security in their housing. If they like the house, the neighborhood, the schools for their kids, they would have the right to stay there. It would also end the problem for neighborhoods of empty foreclosed houses. And, it would give banks real incentive to negotiate terms that allow people to stay in their homes as owners.

This proposal is very simple and costless. It is also possible to build onto this proposal with mechanisms that facilitate the transition to renters or allow buyback options as Bernard Wasow of the Century Foundation and Daniel Alpert from Westwood Capital have proposed.

But, the key point here is that it is simple to find a way to help homeowners that doesn’t help banks, if we are prepared to give the issue a bit of original thought. Fear of original thought among our top policy experts was the problem that got us into this enormous mess. We should not let the same group of failed experts perpetuate the damage that they caused by their fear of thinking.

Robert Borosage

 

Robert L. Borosage

Co-Director Campaign for America’s Future

President elect Obama is calling for “swift and bold” action on his “American Recovery and Reinvestment Plan” to stop the hemorrhaging of the economy. He also wants to change the way Washington does business, “turn the page” on the petty partisanship of the last decades. He’s said to want “substantial Republican votes” for the plan. Politico reports he’s looking for as many as 80 votes in the Senate, requiring that more than twenty Republicans climb on board. He’s not only invited congressional Republicans to offer their ideas, he is building tax breaks into his plan that Republicans say would make it easier to support. (For updated reporting on this debate over the recovery package go here.)

Now Barack Obama has proven his political brilliance time and time again, so he has earned the benefit of any doubt. But frankly, this strikes me as a really dubious idea – both in terms of policy and politics.

In policy terms, the economy needs exactly what Obama calls for — swift and bold action.
But inviting Republicans into the discussions insures only one thing — delay. Their leaders, Mitch McConnell and the perpetually tanned John Boehner, have already scorned the need for dispatch, with Boehner calling for “public hearings in the appropriate committees.” Delay will simply ebolden the lobbyists swarming to get their special interest built into the plan. Obama has a better chance getting a sound bill passed quickly than opening it up to the feeding frenzy that is the normal legislative process.

Second, Obama’s aides say sensibly that they are looking to “do what works.” But tax cuts come in a distant second to public investment in actually creating jobs. We saw that last year when the rebate checks didn’t have much effect. Much of the money sensibly was used to pay down debt and didn’t do much to lift consumption or create jobs. Much of what was spent went to products made in China. In contrast, public investment will be spent, and it is more likely to create jobs here.

Reports are that the Obama plan, still being put together, will contain about 40% in tax cuts. Half of those are devoted to a $500 tax credit for middle and low income workers. Since middle class tax cuts were a centerpiece of the Obama presidential campaign, he’s right to dismiss those who say these are designed solely to win Republican support. He’s fulfilling a campaign promise that was designed to win voter support. And the money can be dispensed rapidly so the whatever effect they have could be felt quickly.

But the other half of the tax package reportedly will go to businesses — $150 billion or so. These are said to include a Republican measure – blocked repeatedly last year by the Democratic congress — to allow businesses to write off current losses retroactively against taxes paid on profits over the last five years. This will benefit significantly the very financial and housing companies that inflated profits blowing up the bubble that brought us this mess. Worse, there is little reason to assume that giving a tax break to businesses that are losing money will do much to create jobs. Treasury and the Federal Reserve have pumped in trillions in equity and credit to banks without getting them to make loans. Most companies will use the break simply to bolster their books. Businesses hire people when the markets for their products expand, not because they have more money in their coffers.

There’s also talk about a tax credit for companies that create new jobs. This sounds better but it will mostly reward companies for jobs that they would have created anyway. And worse, it will generate a tsunami of fraudulent maneuvers designed to qualify for the break. A retail store firing clerks because business is off isn’t likely to add someone to get the tax break. But the less scrupulous could well lay off three workers and hire back the one they meant to retain anyway to pocket the benefit. The administration will no doubt add provisions designed to discourage such fraud. But enforcement will be a nightmare with only one saving grace: effectively policing the provision will surely create more new jobs than the tax break itself.

Politically, Obama’s generosity is unlikely to be rewarded. The congressional Republican caucus is more conservative and clueless than ever. They will see Obama’s pe-emptive concessions as weakness, not generosity. They are already pocketing them and asking for more. Boehner is grousing about “the size of the package” Mitch McConnell responded by calling for more tax cuts and peddling the lunatic notion that rather than providing grants to states and localities to avoid massive layoffs — perhaps the most effective dollar for dollar spending that we can do in terms of saving jobs — the federal government should loan them the money instead. Republicans don’t want unemployment insurance to go to part-time workers, and oppose paying for health care for those who have been laid off. They are pushing for permanent reductions in capital gains and income tax rates for — imagine our surprise — business and the highest income earners. These are the very ideas that helped get us into this hole.

My guess is that Obama’s maneuver reflects a strategic decision, not a tactical one. Substantively, he wants a broad and inclusive package — “making sure [consumers] have money in their pockets, as well as “incentives for business” and “investing in job creating growth industries…” Politically, he seeks as broad a consensus as he can get on a bold measure in desperate times.

But he’s likely to pay a price both in delay and in diminished effectiveness for the plan that emerges. He’d be more likely to get a big and bold plan passed swiftly if he had put together his package, called on the Congress to pass it, invited Republicans to join or take the risk of standing in the way, while saving any concessions on business taxes until the end if he actually needed to round up the votes. I suspect that he’d have won just about as much Republican support that way.

Obama seems to be choosing a path that builds consensus at the potential cost of effectiveness. But if the plan fails, he’ll take the blame no matter how many Republicans vote for it. And Republicans will attribute the failure to government spending, no matter how much of the plan consists of tax cuts.

We shouldn’t treat this as a spectator sport. Americans should be getting in touch with their legislators — particularly Republican Senators and conservative Democrats — and calling on them to support the swift action the country so desperately needs.