"Richard Clark" - Will Obama and the Supply-siders Inadvertently Drag Us Into Another Great Depression?

http://www.opednews.com/articles/Will-Obama-and-the-Supply-by-Richard-Clark-110611-660.html

June 11, 2011

By Richard Clark

Even as another potential Great Depression looms, the US political/media system seems incapable of honestly addressing the crisis and devising coherent answers.   Instead, the old partisan and lobbying games dominate the political world, and obsession with trivia commands the news media's limited focus, Danny Schechter writes.

Some years back, Thomas Frank nailed it in his book, The Wrecking Crew.   It was subtitled "How Conservatives Rule" and it showed how narrow self-interest and well-practiced cynicism in the service of partisan warfare has crippled our political system, resulting in a deep paralysis despite the looming threat of a collapse.

What it really is, Danny says, is sabotage, a tactic that involves deliberate effort to insure that reforms are effectively undermined.   Today, the hatchets are out to do-in the needed financial reforms contained in a bill that has already been neutered and nit-picked, trimmed, sliced and diced by what's called "legislative compromise.'

And now a congressional-style Seal Team Six has been assembled by the Republicans and is ready to pounce on the new enemy of the politically powerful banksters:   financial reform.   (There is no corporate privilege or malevolent bank practice that bankster lobbyists will not defend . . in the name of fostering financial growth.)

One juicy sex scandal involving one or more pols gets more ink than all the investigations of how special interests, well-paid lobbyists, billionaire funders, think-tank gunslingers and slippery lawyers for hire serve to stop even mild reforms that might cost the industries they work for money or influence.   There are no reforms they won't endlessly amend into oblivion.

Here's how it works

First, they commission bogus and selective studies to "prove" why reforms need to be "reformed," their way.   Then, with PR and complicit corporate media, they orchestrate coverage to sell their policies.   They start with something small like protections for debit cards, and then escalate to full-scale warfare.

Escalation example:   the knives were out for the new Consumer Protection Bureau with a major campaign targeting Harvard Law Professor Elizabeth Warren, who first proposed the agency and was widely considered the most qualified to lead it.

She was then demonized by the industry and the Right -- and now the Obama administration seems ready to abandon her, rather than fight for her.   But we need her.   Why?   Because four years ago, the markets melted down, sparking a global crisis.   The bailouts followed and a trillion-dollar bank-led "recovery" helped many banks recover.   However, unemployment and foreclosures stayed high.   Very high.   And economic growth seized up.   The crisis continues.   And Elizabeth Warren understands the implications of all this for the average American, and she is our advocate.

So what was Obama's response?

He allowed his administration to be locked into an alliance with Wall Street.   This alliance then killed proposals for structural reform and restraints on private economic power.   And now the Obama administration is foolishly expecting an economic turnaround -- their version of faith-based politics -- even as jobs are not coming back.

In short, the Obama administration has no answers and is not prepared to fight any messy battles with the real power structure in this country, which consists of Wall Street and the big corporations.   In the name of pragmatism, Obama has betrayed his own campaign compromises and tacked right, drifting ever closer to the Republicans.

They call it "triangulation."   Their critics call it a sell-out.   The Republicans retreated into knee-jerk simple-mindedness, blaming everything on Democrats and government spending.   Then they began fueling a scare about "The Deficit" in the same way that their predecessors raved against "The Red Menace."

In Congress, supposedly wise men came up with a financial reform called Dodd-Frank.   After stripping it of anything remotely radical, they offered up some pragmatic measures to increase regulation and try to force the finance industry to act responsibly with more transparency and accountability.    However, the bill explicitly rejected proposals for any and all international standards and is essentially an empty suit.

Dodd-Frank passed, but then the real bargaining began on what the new rules should actually be.   The finance industry mounted a lobbying force consisting of 25 high-powered lawyers and consultants for each and every member of Congress.   The deliberations moved out of public view and into the corridors and closed clubs in Washington.   The predictable result has now surfaced in the New York Times:

"Nearly one year after Congress passed financial changes to rein in the banking sector, more than two dozen of the legislation's rules are behind schedule, and no end to the wrangling over details is in sight."

So where does that leave us?   Nowhere.   Or perhaps it's even worse than that.   Many in the public backed the reforms including protections of consumers.   And they think the reforms are being enacted.   However, when the next market crash occurs, as many insiders increasingly fear it will, the gullible majority of us will realize how they were played.   But by then it will be too late.

So, are we stuck on this roller coaster ride into the apocalypse?

The problem is that while many see this illogical system for what it is:   intricately sabotaged from within -- the additional reality is that said system is set up to make it almost impossible to stop the approaching train wreck.   The press is out-to-lunch and largely missing, and few people comprehend the gravity and severity of what is about to happen.

To tackle these weaknesses we must somehow break finance's stranglehold over the economy and boost ordinary families' spending power and cut their reliance on debt.   But can we break finance's stranglehold over the economy if these issues can't even displace the sex scandal of the week as the real threat to our future?   Can we identify and stop the saboteurs in time?

Robert Reich has some answers and some suggestions

Reich cogently explains why the president must come up with demand-side solutions, and not go over to "the supply side."

"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 a recent and very alarming jobs report.

In response to this presidential announcement, Reich poses an irreverent question-and-answer:   "Does this mean we're about to see a bold package of ideas from the White House for spurring growth of jobs and wages?"   He then answers:   "No it does not."

Lap dog Obama says he's interested in exploring with Republicans the extending of some of the measures that were part of their tax-cut package, "to make sure that we get this recovery up and running in a robust way."   (Yeah, right.)

Accordingly, the White House is "mulling' a temporary cut in the payroll taxes that businesses pay on wages.   (BFD, as Joe Biden likes to say.)   White House advisers figure this may appeal to Republican lawmakers who have been discussing the same idea.   It would, in essence, match the 2% reduction in employee contributions to payroll taxes this year, enacted as part of the deal to extend the Bush tax cuts.

Other ideas under consideration at the White House include -- get a load of this -- a corporate tax cut, accompanied by the closing of a few corporate tax loopholes.

Can't we please get real for a moment?!

Businesses don't need more financial incentives!   They're already sitting on a vast cash horde estimated at $2 trillion.   Besides, large and middle-sized companies are having no difficulty getting loans at bargain-basement rates, courtesy of the Fed.

In consequence, businesses are already spending as much as they can justify economically.   Almost two-thirds of the measly growth in the economy so far this year has come from businesses rebuilding their inventories.   But without more consumer spending, businesses won't spend more.   A robust economy cannot be built on just inventory replacements!

So, the problem isn't on the supply side.   It's on the demand side:   Businesses are reluctant to spend more and create more jobs because there aren't enough consumers out there able and willing to buy what businesses have to sell!

And the simple reason consumers aren't buying is because consumers' paychecks are dropping, adjusted for inflation.   Plus, job losses are mounting.   The 83,000 new private-sector jobs created in May represent a net loss.   Why?   Because 125,000 jobs are needed merely to keep up with an expanding labor force.   Not surprisingly then, the number of Americans filing new claims for unemployment benefits edged higher last week.   At the same time, many Americans are falling behind in their mortgage payments.   As a result, housing prices continue to drop -- making homeowners feel ever poorer.   So where's the "recovery' the Obama administration says is upon us?

Close to 60% of the half-trillion drop in household debt since the depth of recession has been the result of defaults on mortgages rather than the result of repayments (i.e. paying off ones mortgage debt).   The problem here is that too many defaults makes it harder for people who'd like to enter the housing market to get new mortgage loans.   It also makes it difficult for anyone to refinance.    Meanwhile, other consumer debt burdens are rising.   On Tuesday the Fed reported consumer credit outstanding (i.e. debt) rose in April -- mostly from record-high levels of student-loan debt and an up-tick in credit-card borrowing due to food and gas price increases outpacing wage gains.

All this translates into a continuing crisis on the demand side  

In other words, consumers can't, and therefore won't, buy more.   Between January and March, sales grew just 0.15 percent nationally -- perilously close to no growth at all.   May sales look even worse.   Chain stores are reporting weaker sales.   Consumer confidence has dropped sharply.

How to get jobs back, then?   Obvious answer:   By re-igniting demand, which has only one practical meaning:   Put more money in consumers' pockets and help them renegotiate their mortgage loans.

How to put more money in consumers' pockets?  

• Enlarge the payroll tax break for workers -- not just for employers.  
• Exempt the first $20,000 of income from payroll taxes for a year.  
• Create a WPA for the long-term unemployed.  
• Allow distressed homeowners to declare bankruptcy on their primary residences, thereby giving them more bargaining power with lenders, to "reorganize' their mortgage loans.  
• Lend federal money to states and cities that are now firing platoons of teachers, fire fighters, and other workers because state and local coffers are empty.

But we're not hearing any of these sorts of demand-side solutions from the White House

Instead, by way of seeking Republican votes, compromizer-and-middle-of-the-roader Obama is meekly putting forth Republican supply-side ideas:  

• lowering the employer costs of hiring,
• cutting corporate taxes.   

Problem is, these proposals have nothing to do with the demand-side crisis facing us.   Obama may attract some Republican votes for these proposals, but what's the point if the proposals are irrelevant to the real problem?!

The President's putative embrace of the false notion that businesses need more financial incentives in order to hire . . also risks giving legitimacy to other Republican supply-side nostrums being pushed by House Republicans and GOP presidential aspirants.   On Tuesday, supply-sider Tim Pawlenty called for lower taxes on corporations (down to 15% from the current 35%), and lower taxes on the rich (to 25% from the current 35%).   Equally insane, supply-sider Newt Gingrich wants to lower corporate income taxes to 12.5% and eliminate the estate tax altogether.   And so on, as we edge our way up to the financial abyss and the next Great Depression.

Supply-side economics doesn't work.   It's been tried for 30 years, to no avail.

And now, when our continuing economic crisis is so palpably being driven by inadequate demand, it's more bogus than ever.   But try telling that to "the great compromiser" in the oval office.

Krugman's take on all this

Debt relief for homeowners -- which could have done a lot to promote overall economic recovery -- has simply dropped off the agenda.   The existing program for mortgage relief has been a bust, spending only a tiny fraction of the funds allocated, and yet there seems to be no interest in revamping and restarting the effort.

What lies behind this policy paralysis?   It's a response to interest-group pressure:   Consciously or not, policy makers are catering almost exclusively to the interests of those who derive lots of income from assets, and who lent large sums of money in the past, often unwisely, but are now being protected from loss -- at everyone else's expense.   Economists call them "rentiers.'   Others call them banksters.  

Whatever you call them, their argument against helping the unemployed is framed in terms of the economic risks it would impose on themselves.   "Do anything to create jobs, and interest rates will soar," they say.   "Runaway inflation will break out," and so on.   However, in the real world these risks keep not materializing.   Interest rates keep staying near historic lows, while inflation (outside the price of oil -- which is inflated primarily by the gambling exploits of Wall Street speculators), remains low.

So against these hypothetical risks one must set the reality of an economy that remains deeply depressed, at great cost both to today's workers and to our nation's future.   After all, how can we expect to prosper two decades from now when millions of young graduates are, in effect, today being denied the chance to get started on their careers?   Ask the banksters for a coherent theory behind the abandonment of the unemployed and the newly graduated, and you won't get an answer. 

While the ostensible reasons for inflicting so much pain on the unemployed keep changing, the policy prescriptions of what might be called the Pain Caucus all have one thing in common:   They protect the interests of creditors, no matter what the cost to others.   Deficit spending could put the unemployed to work -- but it might hurt the interests of bondholders!   And that trumps all.   More aggressive action by the Fed could help boost us out of this slump -- in fact, even Republican economists have argued that a bit of inflation might be exactly what the doctor ordered.   Small businesses and workers are hurt far more by the weak economy, verging on deflation, than they would be by, say, modest inflation that helps promote recovery.   But it's deflation, not inflation, that serves the financial interests of banksters and other creditors, so not one bit of inflation will be allowed -- damn the unemployed.   Let them suffer.  

Just to be perfectly clear, the only real beneficiaries of Pain Caucus policies (aside from the Chinese government) are the rentiers, i.e. banksters, and other wealthy individuals with lots of bonds in their portfolios.   And by the way, not only is this the class that makes big campaign contributions, it's the class that has personal access to policy makers -- many of whom go to work for these very rich people when they exit government through the revolving door that is at the heart of a corrupted and decaying system of government and politics.  

In summary:   Creditor-friendly policies are crippling our economy.   This is not a zero sum game, it's a negative-sum game, in which the attempt to protect the rentier/banksters from any losses is inflicting very large losses on everyone else.   And the only way to get a real recovery is for us to stop them from playing that game.   But can we stop them in time?