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I never cease to be amazed by the dogged persistence of some people in regarding Ronald Reagan and what we have come to call “Reaganomics” as commendable.

When you hear these people ranting, never forget this:  Reagan and his policies turned the U.S. from the world’s largest creditor nation into the world’s largest debtor nation.  Here’s a link to an article with more information on that.

Note that as a creditor nation, money goes out to one or more other nations, but comes back with interest (i.e., a net gain), except in the case of defaults which tend to be rare.  But as a debtor nation, the flow of capital gain is reversed, from the debtor to the creditor;  no bank or financial institution in the private sector could long endure
under such conditions.

You will also note in the article that the Carter administration phased out price controls on petroleum, allowing gasoline prices to rise.  But while the article fails to mention it, those price controls were partly based on subsidies to the petroleum
industry which, even though the price controls no longer exist, are still being granted today.

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A lively debate erupted in the wake of Clyde Prestowitz’s blog post about the new Oakland Bay Bridge being made in China. He found the best comments to be those of Vikram Dalal of Iowa State University and shared them as a “Guest Post” at his Foreign Policy blog.

The real problems are:

1. The destruction of American industrial infrastructure. As former Intel chief Andy Grove says, it is absolutely critical that we continue to manufacture “commodity” industrial items, like bridges and rivets and bearings and computer chips and tires and steel and aluminum and commodity chemicals. Once we lose that, we lose the workforce. It takes many, many years to build up an industrial workforce, but only 10 years to destroy it. When younger people see jobs being lost in manufacturing, they turn away from it, with the result that the workforce dies off. That is exactly what is happening today — industries cannot find enough well-trained young people.

2. The second problem is that as the industrial workforce (the people who make things that we can export) is reduced and laid off, they (and their children) go into “service” businesses, particularly health care. But health care is a giant monopoly — the doctors have an iron grip on it. There is no competition there. What it means is that the only way more jobs are created in “meaningful” health care — jobs like technologist or lab tech (as opposed to those in bedpan health care) — is by doctors prescribing more MRIs, CAT scans, PET scans, and so on. That increases medical costs, especially because Medicare requires no second opinion. You walk in and before you know it, the doctor has prescribed 10 tests, because no one is checking; and he, and the hospital, make more money from more tests. So increasing health-care employment is not a winning strategy from a national economic viewpoint. (more…)

By Robert Reich
Former U.S. Secretary of Labor, Professor at Berkeley

“I am concerned about the fact that the recovery that we’re on is not producing jobs as fast as I want it to happen,” President Obama said Tuesday, amid the flood of bad economic news, including last Friday’s alarming jobs report.

Does this mean we’re about to see a bold package of ideas from the White House for spurring growth of jobs and wages? Sadly, it doesn’t seem so.

Obama says he’s interested in exploring with Republicans extending some of the measures that were part of that tax-cut package “to make sure that we get this recovery up and running in a robust way.” (more…)

By Mike Lux
Author, “The Progressive Revolution: How the Best in America Came to Be”

Picking a new head for the National Economic Council is an important moment for the president’s rapidly realigning White House staff. It is an opportunity to do two very critical things at once going into the president’s crucial final full year before the reelection campaign gets into full swing. The first of these is the most urgent project of this next year: finding some way in this badly damaged economy to start seriously generating some new jobs. The second mission is possibly even more important to the president’s reelection and long-term political health and legacy: restoring the balance in the Democratic coalition.

Ever since William Jennings Bryan’s “Cross of Gold” speech at the 1896 Democratic convention, after which the populists merged their movement and their party with the Democrats, the political party I am proud to call mine has on economic issues been an uncomfortable coalition of those working-class populists and urban business leaders. Woodrow Wilson was the first Democratic president to govern with this uncomfortable coalition, and he chose fairly evenly between the two. FDR and Truman were more clearly on the populist side, JFK was more in the middle between the two, and LBJ went more with the populists, but all of those presidents had significant business figures as part of their advisers and political coalition. Carter and Clinton both leaned much more heavily toward the business (increasingly Wall Street) wing of the party but both had more populist progressive advisers as well. Having smart guys like Joe Stiglitz and Bob Reich on the same side as me during those White House policy fights didn’t mean we won half the time, but us progressives inside won a few rounds at least. (more…)

Robert Kuttner
Co-Founder and Co-Editor of The American Prospect

This precarious era of reform faces threats from two very different kinds of conservatism. The first is all too flagrant. A cynical Republican Party that would rather block any Obama initiative than address deep national challenges combines with an increasingly lunatic-fringe right-wing populism that is becoming the litmus in Republican primaries.

The sole virtue of this first conservative threat is that it is probably too crazy for most swing voters. Even so, despite far-right House and Senate candidates this fall, Republicans stand to pick up more seats than in the normal off-year unless President Barack Obama can speedily deliver more for working Americans.

The other brand of conservatism is more insidious, more mannered, anything but populist, and in the long run more of a threat to the liberal project. I refer to the fiscal ultra-conservatism now sweeping the United States and the world.

Though excesses on Wall Street combined with an ideology of regulatory default caused the second great crash, the aftermath (unlike in the Age of Roosevelt) has been a gift for the orthodox right. At home, the billion-dollar Peter G. Peterson Foundation, in close concert with President Obama’s own fiscal commission, has been promoting stringent cuts in domestic spending coupled with a value-added tax and a mandatory budget-balance formula.

In Europe, an aftershock of financial panic directed at government bonds has produced a perverse rescue strategy. The European Central Bank and the larger nations, led by Germany and France, have belatedly guaranteed Eurozone state bonds. But in return, the forces of fiscal orthodoxy have demanded and obtained a stringent program of austerity.

As John Maynard Keynes taught us, an economy cannot deflate its way to prosperity. If everyone tightens belts at the same time, there is not enough demand to buy available output, and the global economy sinks further. You eventually get budget balance, but with a needlessly depressed economy. Herbert Hoover’s treasury secretary, Andrew Mellon, who commended brutal austerity as the cure for the crash of 1929, would be pleased — and Peterson, the latter day Mellon, is overjoyed.

After the second meeting of the Obama fiscal commission on May 26, Peterson declared, “The crisis in Europe sends a powerful message to U.S. policy-makers. … On our present course, America’s public debt is expected to reach Portugal’s levels within two years and Greece’s levels within 10 years.”

In fact, Europe was in decent fiscal shape until the crash of 2007 hit. Most nations were enacting careful reforms of their welfare states to align commitments with demographics, and their overall public debt was manageable. Spain, now the target of bear raids on its bonds, was running a large surplus.

And the United States was in superb fiscal condition until George W. Bush’s tax cuts, his two wars, and his administration’s serial regulatory defaults. Yes, there was a need for fiscal fine-tuning of Social Security and long-term reform of an inefficient health sector — but no calamitous crisis.

According to briefings by senior administration officials, the White House wants its fiscal commission to embrace something close to the Peterson formula of caps on social insurance coupled with a domestic spending freeze, a value-added tax, and mandatory deeper cuts if Congress doesn’t meet targets. Not only is this perverse economics; it is a political gift to Republicans. They can be expected to warn that the White House has a secret plan to cut your Social Security and raise consumption taxes on the middle class — and with unemployment still at nearly 10 percent!

This is where the two conservatisms come together, though they have little else in common: The Peterson brand of orthodoxy will short — circuit a progressive moment both by choking off the funding we need for broad-based prosperity and by delivering Congress to the far right.

Bipartisanship is said to be defunct. It certainly was of no use for legislating emergency fiscal stimulus, health-insurance reform, or proper regulation of Wall Street. But when it comes to fiscal hysteria, bipartisanship is all too alive and well. The fiscal conservatism of the Peterson Foundation, of the Republican and Democratic chairs of President Obama’s fiscal commission, and of the administration’s own senior economic officials is basically of a piece.

We do need to bring deficits and debts back to historic norms. But the benign way to accomplish that is to get a recovery first, even with larger temporary deficits. New revenues, progressive ones preferably, should under-write needed social outlay and not be used to appease false gods of financial orthodoxy. It would be appalling if a financial crisis made on Wall Street became the pretext for Wall Street’s brand of austerity.

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This piece was first published in The American Prospect

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Robert Kuttner is a senior fellow at the think tank Demos. He was a longtime columnist for Business Week and continues to write columns in the Boston Globe.  His new book is “A Presidency in Peril.” His other books include “Obama’s Challenge: America’s Economic Crisis and the Power of a Transformative Presidency.”

By Jack Metzgar
Emeritus Professor of Humanities at Roosevelt University in Chicago

A few weeks ago, Charlie Rose facilitated a discussion about the perils of the U.S. national debt among a thoughtful, articulate group of one politician, two businessmen, and two economists.  Except for a brief discussion of the bond market, I was able to understand the various points of view about how menacing the projected growth of the debt is and the various things we might do about it.  Though tilted toward business-class conservatism, Nobel economist Paul Krugman ably presented a progressive view, and I found the conservatives thoughtful and sensible.

I came away from this discussion among what Rose likes to call “the smart people” convinced that we must address our ballooning debt sometime in the next decade or so.  I also came away wondering why the smart people are not devoting similar attention to the President’s budget projections that unemployment will remain around 10% (using the official rate) the rest of this year and not drop by much after that.  It strikes me that this is like carefully discussing cracks in the foundation while the house is on fire.

It’s not that the panelists were indifferent to unemployment.  Continuing high unemployment is one of the major contributors to our growing national debt.  When people are out of work, they don’t pay income taxes, reducing government revenues, and they don’t pay Social Security and Medicare taxes, bringing those entitlement programs’ long-term fiscal problems at us sooner rather than later.  Likewise, nobody in this group, not even the guy from the often shrilly conservative Peterson Institute, spoke against the need to increase social-safety-net spending such as unemployment insurance and food stamps in order to reduce some of the suffering among the unemployed.

But while not indifferent to unemployment, they conveyed no sense of emergency.  They didn’t seem to realize that the house is actually on fire and even if the fire is not spreading as dramatically as it was last year at this time, letting it smolder indefinitely will eventually destroy the house, even if it doesn’t reignite and burn the house to the ground.

This is why a recent story in The Atlantic, “How a New Jobless Era Will Transform America,” is so important.  Though much of the information and analysis in the article will not be new to readers of Working-Class Perspectives, it reaches the right audience: Charlie Rose’s “smart people.”  The author, deputy managing editor Don Peck, is a certifiably smart person himself who writes in a clear, compelling but relatively understated way.  The article has already gained a lot of attention among leading opinion-makers and, therefore, has a shot at generating a sense of urgency about what Peck very convincingly shows is “a slow motion social catastrophe.”

Peck is not predicting a second dip to the Great Recession.  He simply accepts White House projections of persistently high joblessness as the economy keeps “recovering.” Rather, he explains what social science investigation over the past half-century shows about the devastating long-term consequences of such sustained unemployment – its impact on individuals (even after they go back to work), on families, communities, and the nation as a whole, even the majority of those who stay employed through it all:

The Great Recession may be over, but this era of high joblessness is probably just  beginning.  Before it ends, it will likely change the life course and character of a generation of young adults. It will leave an indelible imprint on many blue-collar men. It could cripple marriage as an institution in many communities. It may already be plunging many inner cities into a despair not seen for decades.   Ultimately, it is likely to warp our politics, our culture, and the character of our society for years to come.

The article is all the more effective, in my view, because it does not lay out its own or report others’ strategies for reducing unemployment.  Instead, Peck focuses on convincing us of the depth, extent, and urgency of the problem.  It’s like a 9-1-1 call reporting “the house is on fire,” and urging us, in Peck’s concluding words, “to do everything in our power to stop it now, before it gets even worse.”

The American labor movement has been making that 9-1-1 call to the White House for several months now, and not getting through.  Unions in coalition with the Center for Community Change and the National Urban League are backing variations of “A Five-Point Plan to Stem the U.S. Jobs Crisis”.   The plan would create (or save) more than 4 million jobs.  Though it would add $400 billion to the federal government deficit this year, it would be paid for over the next 10 years by a small (1/2 of 1%) tax on stock trades and other financial instruments — a tax initially proposed more than a decade ago to discourage speculative investment of the sort that led to the financial meltdown in 2008.  In other words, the tax is probably a good idea anyway, would be paid only by investors, and it would allow job creation now to reduce the national debt in the long run. Economists from the AFL-CIO and its rival Change to Win met with White House economists to advocate for this program about the same time as Don Peck’s article appeared.  The response, I’m told, was “politely dismissive.”

As a Chicagoan who roots for our home-town heroes, I’ve been especially forgiving of Barack Obama.  Most of his critics seem to me to underestimate the level of difficulty Obama has faced given the character, severity, and timing of the Great Recession, the anti-functional rules of the U.S. Senate, the complexity of health care economics, and many other things.  But it is not difficult for a U.S. President to prioritize a house on fire over a crack in the foundation.  Part of the President’s job is to set the agenda for what gets public attention.  By establishing a bi-partisan commission to address the national debt while presenting a budget that basically says double-digit unemployment is acceptable for the next couple years, the President is making errors of both mind and heart.  It also seems like really dumb politics.   Pick up the phone, Barack, the house is on fire.

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Jack Metzgar is the author of a book about the 1959 steel strike called Striking Steel: Solidarity Remembered

Dean Baker

 

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

I first met Ted Kennedy in the fall of 1995. The context was truly bizarre.

Alan Greenspan had testified to the Senate Finance Committee in the fall of 1994 that the consumer price index (CPI) overstated the true rate of inflation. He told the committee that if it lowered the annual cost of living adjustment (COLA) for Social Security to correspond to the true rate of inflation, rather than the CPI, it could largely eliminate the budget deficit.

Greenspan told the committee that the gap was between 1-2 percentage points annually, so that after a decade, his plan would cut annual Social Security payments by more than 10 percent. And, the great thing was that Congress could do this cut by claiming it was just a technical adjustment.

Over the next half year, the idea of changing the COLA for Social Security gained considerable support in Congress from both parties. (Daniel Moynihan was the strongest proponent.) There was also support for the idea in the Clinton White House.

In this context, I was invited to talk to Senator Kennedy and his staff about the CPI, since I was one of the few economists who disputed the claim that the CPI overstated inflation. I was very happy when I got to his office to see 5 senior looking staffers. I assumed that these were the people that I really had to convince and I focused my attention on them, only occasionally looking back at Kennedy to avoid appearing rude.

After about 10 minutes of boring econ jargon (price indices are even boring to economists), Senator Kennedy started asking me probing questions. It was clear that he had listened carefully and understood everything I said. I then began to focus my attention directly on Kennedy and we had a very good discussion of the issues. I walked away with a very valuable ally in this fight.

I saw exactly how valuable about a month later. The scene was a meeting of an ad hoc House-Senate Democratic committee that had been established to help hammer out a balanced budget proposal that Congressional Democrats could sign onto. This was the period when the government was shut down, as President Clinton and the Republican controlled Congress could not agree on a budget.

The Congressional Democrats felt that it was important that they have their own budget to establish themselves as an independent force in the debate. The ad hoc committee was supposed to focus on the issues of the CPI adjustment and corporate welfare. The CPI adjustment was being debated because there were many Democratic members of Congress who found it an attractive way to achieve deficit reduction.

Senator Kennedy invited me to this committee meeting so that I could speak about the accuracy of the CPI. I met with him and his staff before the committee meeting. He explained that his goal was to keep corporate welfare on the agenda and the CPI adjustment off the agenda. He said that he wasn’t sure that he could succeed, but that was his plan.

The corporate welfare discussion came first. Senator Kennedy framed the issue. He noted hundreds of billions of dollars in tax breaks and subsidies that could be identified as corporate welfare. He said that the Democrats should set a target of reducing corporate welfare by some substantial amount as a major part of their program for a balanced budget.

Kennedy then shut up. He let the rest of the group spout off about all sorts of related and unrelated topics, only briefly intervening at a couple of points to keep the conversation moving forward. At the end of the discussion, corporate welfare was on the agenda.

Then we got to the CPI. He briefly, but accurately, laid out the case that the claims for an overstated CPI were weak. He then introduced me as an expert on the CPI and invited me to say a few words to the committee.

The ensuing discussion again went all over the place with Kennedy largely remaining silent. However, at the end of the debate, the CPI adjustment was off the table.

I was tremendously impressed. Kennedy had gotten exactly what he wanted on both issues and he never broke a sweat. He framed the debate and just let things run their course. It was truly masterful.

From the standpoint of the policy involved, although the details are incredibly obscure, the impact would have been very visible and quite large. If the CPI adjustment had taken effect, someone who had been receiving Social Security in 1996 would be getting about 13 percent less in their monthly check today (a cut of roughly 1 percent a year for 13 years). That would be a very painful cut for a segment of the population that doesn’t have much money to spare.

If the Democrats in the Congress had joined the chorus of those pushing for a CPI adjustment, it is very likely that it would have gone through. So, even though almost no one knows the details of this particular incident, Senator Kennedy played an enormously important role in protecting the financial security of tens of millions of current and future retirees.

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Dean Baker is the author of the new book, “Plunder and Blunder: The Rise and Fall of the Bubble Economy.”

This piece was first published on Huffington Post.

 

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

Jeff Faux, my former boss at the Economic Policy Institute, tells a story from his days as a foot soldier in President Johnson’s War on Poverty. Johnson was asked by a delegation from Alaska if he had an anti-poverty program for their state. Johnson assured the delegation that he had a “great big program” for Alaska. As soon as the delegation left, Johnson rushed into Jeff’s office and told them that they needed to come up with a program for Alaska.

Unfortunately, many liberals have not moved beyond Lyndon Johnson’s thinking on the role of the government in the economy. They still tie progressive outcomes – the guarantee of good quality health care, education, childcare, housing and a secure retirement – directly to big government. While the government must play a role in ensuring these outcomes, the point should be to have good government, not big government, as we usually conceive it.

There is a long list of ways in which the rules set by the government determine economic outcomes. While these rules have an enormous impact on the economy, they do not amount to “big government” in the sense of a large amount of taxes and spending.

Perhaps the most obvious example along these lines is patent protection for prescription drugs. The Centers for Medicare and Medicaid Services projects that the country will spend more than $330 billion in 2012 for prescription drugs. These same drugs would cost roughly $30 billion in the absence of patent protection. This means that the government’s patent monopolies will be redistributing roughly $300 billion in 2012 from patients to the drug companies. (There are alternatives to patent monopolies for financing the research and development of prescription drugs.)

To put this sum into perspective, after-tax corporate profits are projected to be less than $1,400 billion in 2012, so the amount at stake in preserving patent protection for prescription drugs will be more than 20 percent of all corporate profits. Alternatively, imagine getting Congress to appropriate $300 billion a year, or $3 trillion over a 10-year budget window, for our favorite government program(s).

However, in spite of the enormous amount of money at stake, this issue has received almost no attention from the vast majority of progressives. In fact, most progressives have probably never even given the issue of patent protection for prescription drugs a moment’s consideration.

It is easy to find other examples of ways in which government rules determine who gets the money. Along the same lines as patent protection, the entertainment industry and software industry survive in their current form because of the government’s copyright protection. This form of government intervention has made thousands of people, from Rupert Murdoch to Bill Gates, very rich at the expense of the rest of us.

The trade agreements over the last three decades have been deliberately designed to put manufacturing workers, and noncollege educated workers more generally, directly in competition with low-paid workers in the developing world. The predicted and actual result of this policy is to lower the wages of noncollege educated workers in the United States.

Do we want to rebalance the field? Why not set trade rules that put highly paid medical specialists and other big “winners” in direct competition with their low-paid counterparts in the developing world. We can debate whether this is good policy, but there is no dispute that we can use this “market” outcome to bring down the wages of those at the top.

And speaking of wages of those at the top, we can also rewrite the rules of corporate governance so that CEOs and other top executives don’t get to write their own paychecks. The compensation packages of the top five paid executives could be subject to regular approval by shareholders in a vote where unreturned proxies do not count. My guess is that with these rules much less money would go to those at the top.

There are many other ways in which we can change the rules so that less money flows to those on top, leaving more for the rest of us. Changing the rules does not require big government in the sense of large portions of GDP being collected in tax revenue.

It does require that government take an active role in the economy, but it is already taking an active role in the economy in these areas. The difference is that, currently, the conservatives have been setting these rules, while progressives have been polite enough not to pay attention. Instead, they have mostly focused their energy on matters that will have far less impact.

The economic crisis brought on by the collapse of the housing bubble offers progressives unprecedented opportunities. But we have to be prepared to actually think big, and not just think about big programs.