On the Contrary

As near as I can tell, the Republicans tell us the Obama is the cause of all our economic problems.  To wit, he  has expanded government (no he hasn’t), he has massively expanded government spending (no he hasn’t), he is killing us with regulations (no he isn’t), driven up gas prices (no he hasn’t), been a world apologist (no he hasn’t), and his stimulus ran up the debt (no it didn’t and it actually worked).

Then we get to the best part, what do they propose to fix all of this?  Or here is a better question, what is their plan that is different than what we had in the last 30 years, lower taxes, less regulation, less government?  We have the numbers to show that this has worked fabulously for the top 1% whose income has increased a whopping 700%.  Meanwhile, for the bottom 90%, their median income has actually decreased.  Let’s see.  You don’t need a degree in economics to understand that if 90% of you population has less income than they used to, what we have been doing isn’t working.

The problem with our economy is that nobody has money to buy stuff.  It has nothing to do with the deficit. It has nothing to do with confidence.  Businesses are simply not going to hire people to make things before people want those things.  If we start paying down the deficit to jump start the economy, we have less money for people to buy stuff.  That is why the Republicans have it so wrong.  Private debt is a whole other issue and is constraining spending.  But all we are doing is waiting for this debt and the economy to improve.  It will eventually but we may all be dead by then.  We have all bought into the austerity and confidence fairy drivel.  Actually it makes perfect sense if you are talking about a family budget (microeconomics) and absolutely no sense if you are talking about an economy (macroeconomics).

Friday I wrote a blog (Is the Economy Improving) about why I thought we were headed for another nose dive in the economy, basically because we are pursuing this austerity nonsense.  Saturday the New York Times pointed out that I am not the only bear around:

“The bears point to weakness underlying current numbers. Disposable personal income, a measure of how much money Americans have left over once they have paid their taxes, has barely been increasing of late, raising questions about how much spending the debt-soaked American consumer can contribute to the recovery. The shock of growth at the end of 2011, which gave a shot in the arm to economic confidence this spring, came mostly from wholesalers restocking their inventories as well. “Final sales are barely growing,” Professor Roubini said. “So I don’t see a sustainable recovery coming from that.”

On top of that, the bears note that some trends could be making the job gains and economic growth of the last few months seem more robust than they really are. One factor is the warm winter, which might have pulled forward economic activity from the spring. In a research note entitled “Sticking With Sluggish,” the relatively pessimistic analysts at Goldman Sachs argued that the “exceptionally mild” winter stole commerce and hiring from March and April. Moreover, the surge of hiring in the winter, which was unexplained by growth in economic output, could have been from employers who had laid off too many workers during the recession and were swinging the other way by adding too many workers, meaning hiring might slow down again. Those trends were perhaps borne out in the lower-than-expected jobs number released on Friday, which showed that private employers added 121,000 workers in March, just 2,420 jobs per state and about half the amount added in the previous three months.

Then, there are the headwinds coming from Europe, where debt yields are rising yet again for countries including Spain. The economy is cooling in China, now a major United States export market. Worse, gas prices have continued to track upward over increased demand from emerging economies as well as from concerns about a confrontation with Iran as the White House and the European Union prepare to apply strict new sanctions.”

All of this is occurring while we do nothing.  If the Republicans get their way, there will be further cuts in government spending and our ship will really hit the rocks.  To fix it, we need to give money to people to prime the pump.  Instead of letting our infrastructure further deteriorate and decimate our school systems through lack of funding, we need to take all the money we can get our hands on at zero interest rates and start fixing up the place.  People will have money, they will spend it, business will expand, and if we keep it up until we get a self-sustaining recovery, we can grow our way out of debt. That would be that John Maynard Keynes dude that everyone right now is ignoring while we do nothing.

Meanwhile we  further cut spending to dig ourselves a deeper hole (GDP falls, revenue falls, deficit grows along with the deficit as a percentagel of GDP).  Don’t be afraid of the deficit, be afraid of becoming a backwater nation by our failure to act boldly in investing in tomorrow.  Or as my title suggested, it won’t fix itself.  It is the zenith of lunacy to continue on our present path of doing nothing or to pursue further contractive policies that the Republicans want to push on us.  But with them controlling the House and the Senate through the use of the filibuster, nowhere is where we are going.  At election time, things could be a lot worse simply because we refuse to be bold.

Until we stop the transfer of wealth to the wealthy, ensure that all citizens share in the bounty of our productivity, invest and improve in our infrastructure,  end our wasteful health care system, make major investments in our people in terms of education  and R&D to make us a world leader again, we have fixed nothing.  The deficit can’t be fixed until we fix these systemic problems with our whole system.  Ignore Republicans, they are only intested in maintaining our failed system and holding us back.

Note to Republicans:  Bold is not slashing federal spending, gutting the country so your rich pals can roll in more dough.  Think about it.  If the middle class doesn’t start to grow and earn more, you won’t have anybody to sell things to. Duh.

I guess I have to say I don’t think so.  Don’t get me wrong, what the Republicans propose will crash the economy in short order and they may still do that with the budget debates coming up.  Obama has taken a middle road, and any stimulus has been blocked by the Republicans.  But if we really look at things, we still have massive private debt (public debt is irrelevant with zero interest rates).  Some are hiring, but it is small and the spending does not track with increases in productivity meaning we are just borrowing again.  State Governments continue to cut spending, contracting the economy, and the wonderful austerity kick in Europe is also contracting their economy.  Without a vibrant middle class with disposable income to buy things, the economy is dead in the water and Republicans continue trying to extract more wealth for the wealthy.  I fear we are in for another recession and what I really fear is that brain addled  Americans will then vote Republican and really trash the economy.  God I hope I am wrong.

What we should know from history is that we need to be taking advantage of the low interest rates and putting people to work improving our infrastructure, funding states to stop the erosion of jobs especially in education (our seed corn), investing in R&D for our future.  We know that if we can get the economy to grow this way, we can improve revenues and start then slowly controlling the deficit.  But the Republicans want to do the opposite and they control Congress.  So at best all we can expect is very little change.  With an aggressive program of spending and investment we could turn this thing around, but conservatives have stopped all hope of that.

One really has to wonder if there are any facts any more according to our press media.  Listening to the news media there is the Democratic claims and the Republican claims and nothing in between.  “President Obama said…, John Boehner responded by saying…?”  Yeah okay, that is what they said, but did you do any fact checking so we know which one is more accurately presenting the truth?  Nope, that would taking sides as though facts are simply opinions.  News these days rarely tells us anything except analysis of the political implications, and a he said/she said food fight, but when it comes to analysis to help us judge what is going on they are silent.  Somehow doing journalism has become taking sides.  It is the great failure of media that is dumbing down the whole nation and is the primary reason we now have a truly divided nation.

The great debate debate before us is the way forward for the nation after the great crash of 2007/2008.  One, the Republican approach, sees government as the problem, Obama wrecked the economy, has presided over a massive growth in government, that regulation has gotten out of hand, taxes should be very low for the rich and all taxes in general are bad, and as the wealthy go, the nations goes.  The deficit must the reduced and is our impediment to future growth.  These are all verifiable claims yet we continue this he said/she said coverage of these claims as though there are not facts out there to address them.

Not as President Obama claimed, but as a matter of fact, we are spending less on discretionary spending as a percent of GDP than was done under Ronald Reagan so where is the massive expansion of government? Regulations as issued by the Obama Administration are equal to or less than under the Bush Administration and there is that little problem of seeing how lax regulations was part of the biggest oil spill in the Gulf of Mexico and the near financial meltdown, but now we want to gut them again?

Is the deficit really the problem and if it is where did it come from.  That answer is fairly straight forward.  Most the deficit (you can check this) came from the Bush Tax Cuts, the war in the Middle East, the loss of revenue do to the crash in 2007/2008, the kick-in of safety net programs due to that crash, and yes, ballooning Medicare and Medicaid cost in the future.  No Virginia, the stimulus, which data shows greatly helped prevent a worsening situation, was a drop in the deficit bucket.  Our biggest problem is not the deficit, but to start growing the economy again to increase revenues so that the deficit becomes a smaller and smaller percentage of our GDP (see post World War II for an example).

Okay Republicans say, but to grow the economy we need lower taxes on our job creators (wealthy).  But that doesn’t stand up to the light either.  George Bush, through his famous Bush Tax cuts, cut taxes to the lowest rates in 60 years and the job growth was the weakest in 60 years.  It simply is not true and flow down is a proven myth.  Basically Republicans see our problem as a supply problem.  If the economy would just get going again and produce goods and services, people would buy them and the deficit is holding us back.  Well they only got it sorta right.  First, business are sitting on record amounts of cash (this is a fact) and are simply not investing it in new production because there is no market for it (demand). This is also a testable fact based on surveys of businesses.  It is a demand problem mostly based not on public debt, the deficit, but private debt (the housing market) and the resulting lack of jobs and disposable income. Said another way, this is a demand problem because people are broke or deeply in debt and are not spending.

The Republicans want to attack the deficit and they appeal to the gullible rabble through their fear of debt.  So their number one priority is to get control of the deficit by cutting taxes for the wealthy and cutting spending to support those cutting of taxes.  Well the facts tell us that spending is not out of control and that the deficit is primarily the result of too low tax rates and lack of revenue from the crash.  So would it not be reasonable to raise taxes and do what is necessary to spur the economy to increase revenues?  Here again one only has to check the facts.  We are in a liquidity trap (zero limit) where monetary policy is ineffective (the interest rate is effectively zero and there is no borrowing and investing).  This occurred in the Great Depression, and again during the Japanese Stagnation.  In both cases when we stimulated the economy by deficit spending, the economy began to recover, and when fears of the deficit rose and when spending was restricted, the recovery faltered.  The way forward is staring us in the face and the failure of the Republican approach is out there for all to see, yet somehow in the media, it is he said/she said.

Aside:  The other driver on the deficit beside faltering revenues and tax cuts, is the ballooning Medicare/Medicaid costs.  The Republican approach to reigning them in is to eliminate the programs.  The real solution is to grow our economy so we can afford them, and bring the costs down to the world norm (about half of ours) and it is no longer a problem.  The Republicans have done everything in their power to prevent any reform of the health care system including creating fictitious death panels.  If the media wanted to really do the country some good, they would challenge the Republicans on how offloading the costs helps, and what is their plan to bring cost down, more competition?  That has worked out well with companies who are for profit and their business model is to insure healthy people and deny coverage.

Finally, lets just examine the Ryan budget from a fact based approach.  Once again the media has to do their homework.  Average Americans don’t have the time or in many cases the smarts to understand the implications.  That is why we buy magazines and newspapers, to inform us.  So do your damn job!  Do what President Obama did in his speech yesterday.  Add up the numbers.  And when all is said and done, we are looking at massive cuts to existing programs to support tax cuts for the wealthy, and if revenues cannot be found (you know those unnamed tax loopholes) the deficit is going to grow mightily or discretionary programs are going to become non-existent, the real aim of this budget..  And ask yourself this:

1. With these kinds of cuts who builds our infrastructure in the future (see FAA’s need for new satellite traffic control system)?
2. How will our kids afford college in the future and while China, India and other emerging nations are educating more and more of their citizens to compete in the new world economy, we are slashing access except for the wealthy elite?
3. In a world where our invasion of Afhganistan and Iraq along with nation building has proved to be such a financial drain with no real results, why are we increasing military budgets?
4. If you are 65 and don’t have medicare, unless you are a gazzillionaire, you can’t afford health care, so why are we unloading these costs on to seniors in some pie-in-the-sky belief that the market place will lower rates for them?  It never has and the Republicans Medicare Advantage proved a major market place failure in lowering cost?
5. Who upgrades roads, bridges, mass transportation, water systems, protects our environment, inspects our foods, ensures medicines do what they say, invests in medical and R&D research in a budget that cuts funding for all these things?
6. Finally when the holistic flow down doesn’t happen as it has never happened, how do we then address the massive deficits this budget will cause in the future?

You know, it is sad that an old man living on a vineyard in Northern California can shoot holes through the Republican mythology, and young, vibrant, and smart news leaders sit on their hands and let he said/she said rule the day and misrepresent the facts.  Don’t we deserve better than this.  The bottom line, and yes there is a bottom line, is that the Republican plan for the future is more of the Bush years only more radical.  The Democratic view is one where we have to accept deficits in the near term so solve the real problem, jobs, and invest in our future so we will have one.  I cannot for the life me figure out why this is hard.

We are approaching the decision point in our country and we are going to have to make a choice about the future.  We re-elect the Republicans in Congress (and maybe the Presidency) and either stayed mired in going nowhere, or head off in a direction of austerity and reduced hope for the middle class.  Or we change the nature of the Congress and move forward really addressing our problems, maybe not with the right solutions, but at least attempts.  Now, my conservative friends will say, wait a minute, what makes you think Republicans won’t address our problems?  And all you have to do with this one is say, so what are their plans?  Health care? Energy? The Economy?  They just want to do more of what we have been doing only faster.  It is amazing to me that the election could even be close, but then I think about Obama.

Don’t get me wrong, it is Obama or assured mutual destruction.  But as a few really revealing stories about his political moves have indicated, he does not seem to have a rudder, or know where the North Star is.  By that I mean that he has a different idea of policies that will work than many of us do.  His definition of will work is politically defined.  Many liberals and progressives have given him a pass on this one, after all, shouldn’t he be trying to do things that are at least politically viable?  Well, yes and no.  If politically viable moves the ship even marginally toward the goal. then yes.  But if the assumption is that any movement of the ship (bipartisanship) is good, then the answer is no when that bipartisan solution moves the ship away from home port and toward the rocks.

What is truly disturbing about Obama is the story of the “Grand Bargain” and how it fell apart during the negotiations with the Republicans over extending the debt.  The story, in great detail, was laid out in the following article that originally appeared in the Washington Post:  Behind the Grand Bargain on the Debt.  While the writers from the Washington Post have an agenda to show that President Obama ruined the deal when he saw the Senate Gang of Six with a better deal and supported it, the real disturbing issue is in the deal itself.  Note as Arianna Huffington and  Johnathan Chait pointed out in their reviews on this article, the writers claim that it was all Obama’s fault is not supported by their own facts (Remember that Dean Baker likes to refer to the Washington Post as Fox on 15th Street).  But that is not the really disturbing thing, and that was how far Obama went to sell out liberal ideas for a solution that was a total capitulation to conservative austerity and balancing the budget on the least able to afford it.

The real crash of the negotiations were caused by the fact that even the minimal, and some think illusionary, revenues in the plan (taxes) were not acceptable to the right.  Basically when all was said and done, the Republicans had the deal of the century and it fell apart because they don’t negotiate taxes.  That in itself should be a lesson for those looking for bipartisanship in the future.  The only solutions possible will be on the Rights terms of no new taxes (on the wealthy).  But to be truthful, they saved us.  Had Obama gone through with what apparently he desperately wanted, a Grand Bargain, he would has set back progressive and liberal ideas 100 years.  He seemed so eager for a deal that he did not care that the deal was destructive to our future.  Or more likely, maybe he has no North Star and was oblivious to it.

Now I don’t care what the apologist say, this is not what we thought we got in 2008 when he preached change and then showed us the worst of business as usual.  As Arianna put it, “Campaign Obama came to Washington promising to change the way the system works, but in many instances he let himself become captive to the most destructive and entrenched Washington shibboleths.“  More importantly and demonstrating his lack of a real understanding of the direction we need to be moving in (my North Star metaphor) is this from Arianna:

“Why did the administration prioritize debt reduction in the first place? The answer is found in this excerpt from David Corn’s new book, Showdown: “Plouffe was concerned that voter unease about the deficit could become unease about the president. The budget issue was easy to understand; you shouldn’t spend more money than you have.”

But in fact, unlike a family, the government doesn’t have to tighten its belt in lean times. Indeed, the government can create demand by expanding when families are forced to contract — and by growing the economy, it can help reduce the deficit. This isn’t that hard to understand (though much of Washington and the media don’t seem to), but Obama never trusted the American people enough to even try to make that case. Instead, his reaction to the midterm disaster was to pivot to the worst sort of Washington dogmas. Rather than double down on his own message, he adopted 80 percent of the other side’s. “The depth of political malpractice here is just mind-blowing,” writes Paul Krugman of the Plouffe excerpt. “It’s the economy, stupid, not the deficit.“

It is a scary tale, but with maybe some real guidance for the rest of us.  Obama is who he is, and on his own is not a good enough leader (well he may be a good leader, but doesn’t know the direction he should be leading us in) to keep us moving forward.  Time after time we have seen him compromise away real change for the sake of compromise.  Soon his grand accomplishment, the Affordable Care Act, will be struck down because he did not understand what really needed to get done.  The only way forward is to re-elect him and a Congress strong enough to force him to stay on course.  He just doesn’t seem to be able to find the North Star by himself.

One other thought about group think.  Here we have a White House working 24/7 trying to solve our problems, but they got so wrapped up in making the deal that they could not step back and see that the deal stunk.  It was the intransigence of the Right that saved us from disaster and probably setting back the economy for many years.  Maybe some of those guys ought to work less and remember what we are fighting for.  My favorite description of the difference between managing and leadership came from Stephen Covey (7 Habits of Highly Effective People).  He tells a story of a group of managers who are hacking their way through the jungle.  They are making good time as they came up with a system of trading off who hacked the limbs in front of them while passing the debris back behind them.  They were making real progress when on of the mangers asked them to stop.  They all complained that they were making real progress now and did not want to stop.  He want to climb a tree and see where they were actually headed.  You can guess which one was the leader.

Trying to make sense of politics today for many of us is bewildering.  As I pointed out yesterday, we are having arguments about what many of us thought were settled issues 50 years ago.  It is almost like a longing for the 19th century, both in economics and in cultural issues.  That is strange because we seem to have amnesia about the horrid booms and busts we used to have or the fights for women’s rights including the right to vote.  We have forgotten that it was in the 1960′s  and early 70′s that we secured (at least in law) the right of a woman to control her body or the rights of blacks to vote and to go to schools of their choice.  But then Ira Glasser comes along with a wonderful piece that maybe really puts his finger on what is really going on (What are the Conservatives trying to Conserve).

What Ira does in this wonderful piece is to show us how many of the rights we take for granted really came about in the last 50 years and what we fail to notice when women got the right to vote, when desegregation was enforced, when women got the right to control their own bodies, when labor unions got the right to organize, and organized religion lost their power to control prayer in the schools, is that other groups lost the rights to control these groups and the message. They lost their privileged position to control the rights of others.  As Ira points out, when you win the right to be free of organized prayers in schools, a religious group, in the South mostly Southern Baptists, lost their right to impose their prayers on you in your school.  When women won the right to vote, men lost some of the power they had in politics.  Same can be said for allowing blacks free access to vote.  As groups win their rights, another group’s rights to control your and their future is diminished as you gain more power in the system.

Ira makes the point that this loss of control is terrifying fat old white people (FOWP) (my term) and they are reverting to their perceived golden age of the 19th century to gain back their control.  He also makes the point that demographics may finally be the death knell of conservatives because a whole generation has grown up with these changes in place and are no longer frightened by them (See Jonathan Chait, 2012 or Never).  I think he has clearly identified what is going on now.  Why do you fight global warming or evolution, or a women’s right to choose?  Is it really about religious beliefs or is it being terrified of how the world you were on top of is changing and relieving you of your commanding position?  Gays certainly don’t challenge traditional marriage.  Young heterosexual people are challenging traditional marriage.  It terrifies people like Rick Santorum who claims sex is for procreation only.  Think about it, it is just another way of controlling women so men stay in charge.  Gee, if women can choose their lovers freely, the world will be in chaos, right Rick?  Most young people think he is crazy.

Santorum is kind of the poster child for what is going on with conservatives.  He home schools his kids and decries advanced education because he is terrified they will be turned away from the light.  Frank Bruni wrote a wonderful opinion piece about his college roommate (Rethinking His Religion) who was obviously a devote Catholic when he got to college, but many of his life experiences made him question his beliefs, not his moral attitude toward his fellow man, but some of teachings of his religion.  “He grew up in the South, in a setting so homogenous and a family so untroubled that, he said, he had no cause to question his parents’ religious convictions, which became his. He said that college gave him cause, starting with me. Sometime during freshman year, he figured out that I was gay, and yet I didn’t conform to his prior belief that homosexuals were “deserving of pity for their mental illness.” I seemed to him sane and sound. ”

But it is not just cultural issues, it is also applies to important economic issues that face our country.  Conservatism can be seen as trying to maintain the current state of power and control.  Anything that upsets the existing power structure is to be resisted.  We can’t get a rational energy policy because the vested interests don’t want to let go of their favored position even though in the long run, it is best for the country (Drill baby drill).  We can’t revise the tax code because the rich would suffer and all the vested interests that benefit from the current abomination will fight it tooth and nail.  We can’t admit there is global warming because if we were wrong about that, what else are we wrong about, and again we lose power.  Evolution?  If it is true, what about all that other nonsense we believe makes us special?

Many, including myself, have commented on the need to have two competing political parties that ensures the excesses of one are checked by the other.  But the Republican Party and the conservatives they represent have become so dysfunctional that the only thing they stand for is revisionism.  They prevent any movement whatsoever in a world that is screaming our for change from what is obviously a failing system.  They stand for maintaining the status quo even with a mountain of evidence that shows their path is the wrong one.  It is why rational argument is wasted on them.  They are terrified of loosing their hold on power and are grasping at straws.  It is why the Republican Party is no longer functional in American life.  It is why as a country, we need to put them behind us.  We need to be willing to strike off in new directions and try new things, and all they do is hold us back with no alternatives.  If you want a two party system, and I do, just look to the Democratic Party.  Most Democrats are where Republicans were in the 1980s and the Progressives (like myself) are still not in charge.  It will fragment into two with the demise of the Republicans, and we will all be better for it.  Maybe then the country can move forward and move out of the 19th century into the 21st.  I can only hope.

What is the average gas price in Europe these days?  Roughly $8/gallon.  Why so much more?  Because they tax it to pay for or mitigate the environmental damage done by burning fossil fuels.  That is why you can get on a high speed rail in Europe or in most other industrialized nations, but not here in the United States.  We have kept our prices artificially low through under taxation at the pump.  We Americans just bear the costs elsewhere in tax subsidies to oil companies or in sales taxes to pay for rapid transit.

But the real laugher is the idea pushed by the Republican Know-Nothings (RKNs), that we can drill our way out of the already too low gas prices.  First, let’s assume that they are right, that we can drill our way to lower gas prices, which I will show is not possible, what have we wrought?  If gas prices were to drop significantly and the market place operates as it should, forget alternate energy.  It can’t compete with artificially low gas prices.  Second, although the RKNs deny it, global warming will leave a very expensive mess for our children to deal with.  You know, this one is kind of ironic because the same people who decry the deficit and the bill we will leave to our children (also not true) can’t seem to see the same result in drill baby drill.

But let us shine a little light on the reality of the drill baby drill crowd.  “ …the United States alone does not have the power to change the supply-and-demand equation in the world oil market, said Christopher Knittel, a professor of energy economics at MIT. American oil production is about 11 percent of the world’s output, so even if the U.S. were to increase its oil production by 50 percent — that is more than drilling in the Arctic, increased public-lands and offshore drilling, and the Canadian pipeline would provide — it would at most cut gas prices by 10 percent” (Boston Globe).  Further, there is no link between our production and gas prices in general. “Seasonally adjusted U.S. oil production dropped steadily from February 1986 until three years ago. But starting in March 1986, inflation-adjusted gas prices fell below the $2-a-gallon mark and stayed there for most of the rest of the 1980s and 1990s. Production between 1986 and 1999 dropped by nearly one-third. If the drill-now theory were correct, prices should have soared. Instead they went down by nearly a dollar.”

Oh, and by the way, “Since February 2009, U.S. oil production has increased 15 percent when seasonally adjusted. Prices in those three years went from $2.07 per gallon to $3.58. It was a case of drilling more and paying much more.”  Under President Obama oil production has significantly increased with a negative impact on prices.  How do you explain that RKNs?

Finally, and related, oil is sold on a world oil market.  Oil produced in Alaska or Oklahoma goes to the highest bidder on the world market and that is what sets prices.  Again, doesn’t it seem ironic that the market place will solve all problems crowd doesn’t get how the market place works?  With competing new arrivals in the developing nations arena, the demand of oil is just going to increase along with its price.  So what screams out is our need for alternate energy and we have the RKNs screaming drill baby drill and cut government spending on alternate energy.  Now I could understand how a large portion of our FOX News informed nation could get this wrong, but Presidential candidates?  Kind of makes you wonder what else they have totally backward, like our economy and how it really works.  Just another day in reality-challenged America.

This blog is for those who want to really understand what has happened to us economically, and why policy has been so misguided.  Paul Krugman went to Lisbon to present a paper and he kind of summed up what has happened.  It is a short and extremely informative look at the two schools of economics and why when we needed them, they were warring instead of giving us good advice:  Economics in a Crisis .  For those of you that really want to understand liquidity traps (what we are in when the interest rate is basically zero and investment is not happening) and the IS-LM curves, I suggest this site for a little primer: Macroeconomics Tutor.

Why this is so important is that Europe is demonstrating that austerity is an unmitigated disaster for stimulating the economy.  We are embarking on the same path here as we begin once again to worry more about the deficit (the Republican Mantra) than jobs.  Here is one of my favorite quotes from Paul’s presentation on this point:

“Thus, it’s normal to think of the economy as a whole as being like a family, which must tighten its belt in hard times; it’s also completely wrong. But lacking any clear message from the economists about how and why this is wrong, it became the common standard of discussion in America, where both Republicans and, alas, President Obama became very fond of the statement that the government should tighten its belt because families were tightening theirs.

It’s also normal to think of economics as a morality play, a tale of sin and redemption, in which countries must suffer for their past excesses. Again, this normal reaction is wrong, or at least mostly wrong – mass unemployment does nothing to help pay off debt. But absent clear guidance from the people who are supposed to explain that economics is not, in fact, a morality play, moralizing became the core of economic policy thinking in Germany, and hence played a huge role in European policy more generally.

Finally, government officials who hang out with businessmen – and almost all of them do – naturally tend to be attracted to views that put business confidence at the heart of the economic problem. Sure enough, belief that one should slash spending even in a depressed economy, and that this would actually promote growth because it would have positive effects on confidence, spread like wildfire in 2010. There were some economic studies used to justify the doctrine of expansionary austerity – studies that quickly collapsed under scrutiny. But really, the studies became popular because they suited the prejudices of politicians, prejudices that would have been totally familiar to Herbert Hoover or Heinrich Brüning.”

In order to get past our false analogy of the home budget and a morality play about austerity, we have to understand how a macro economy works.  And that is why I have left you with the above links.  We can either go on doing the wrong thing and maybe have full recovery by 2025, or we can relearn the lessons of history and restart our economy.  Keynes left us with this amazing insight into what we are now doing:

“But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”

In my consulting travels I spend a lot of time with true conservatives.  I try my best not to say anything because we have a job to do and we should not get distracted into politics that will, quite frankly, takes us nowhere.  But I am always intrigued at how they think.   There are not two sets of facts in the world and contrary to conventional wisdom, both sides don’t equally equivocate.  By and large, progressives pretty much tell it like it is and conservatives twist it mercilessly.

Oh sure, you can find the anecdotal case where some left wing nut job is off the deep end, but take a step back and consider where we are today and what conservatives are telling us.  Global warming?  Doesn’t exist except of course that every respectable scientific body today endorses it.  Evolution?  Oh why go there.  Lower taxes will spur the economy, except as a percentage of GDP they are the lowest in 60 years and where are the jobs?  High tides lift all ships, except the vast majority of us are losing ground while we have the mass transfer of wealth to a small percentage of our population.  We have the best medical care in the world, except we don’t and it costs twice as much as what others pay for better outcomes.  The market place will create jobs if government will just get out of the way, except it got out of the way and the financial Masters of the Universe almost destroyed us. These are all indisputable facts supported by tons of data, and yet conservatives are in denial about it.  Why?

Well a conversation I had recently may shed some light.  Remember with conservatives, pointing out the actual data just gets them frothing at the mouth and does no good.  You have to understand that this is a visceral thing.  It is highly emotional and rationality doesn’t have a chance.  It is all about order and justice.  They believe in it.  It is at the core of their belief system.  It is a the core of their terror.  Many studies have shown that Progressives are more open to change than Conservatives, hence the term conservative.  At some deep psychological level we are either predisposed to handling innovation and change or we are terrified of it.  This has, I think deep roots in our survival as a species.  Being too adventurous in a hostile world could get you killed.  But not trying new things and being open to change, could also destine you to the trash heap of evolution.  Seen any Neanderthals lately?

So conservatives like to keep it simple and we are back to order and justice.  If things are ordered and you follow the rules, justice follows.  It is as simple as that for Conservatives.  It allows them to order anything and understand their place in that order.  That is why Conservatives are so arrogant about their place in life.  They earned it, they deserve it, and those that are less fortunate, well hell, it has nothing to do with fortune, but with discipline and rule following. Paying taxes simply allows government to reward those who don’t deserve it.   It orders the world’s chaos by blaming the victim.  One has to think no farther than looking at Conservatives and their religious beliefs that tend to be dogmatic and rigid, uninformed by the injustice of those beliefs in the real world.  The market place is the ultimate objective decider of fates if you just let it operate without interference.  If things are bad, blame the government as interfering and making it bad.  Never question the basic assumption about the market place, or for that matter, their religious tyrannical beliefs.

Okay back to the conversation.  It was a simple statement, but it embodied all of the above.  “What this economy needs is just to let entrepreneurs operate freely and they will create the jobs and economy that will take off.”  See, that mean old government is keeping us from excelling.  Order is out of whack because government interferes with the natural order of things.  Except, during the Bush years regulations simply weren’t enforced, tax rates were the lowest in 60 years and the middle class tanked.  Or even more salient today, innovate all you want, bring on great products, but if the middle class doesn’t have sufficient income to support a thriving economy, there will be no one to buy it.  It really is the chicken and the egg.  Which comes first, the goods people want to buy (supply), or the pent up money people have to spend (demand).  The answer which Conservative don’t want to hear, is demand.  And demand means first creating jobs so people have disposable income to buy stuff.  That would force you to admit that government has an important role to play and that brings into question the whole justice and order thing.  Could it be that no matter how carefully you follow the rules and regulate your life, shit happens?  If that is the case, is it not government’s role to keep the playing field level?  Oh my God, heresy.

So for Conservatives, chaos reigns if those they perceive as deserving of their fate get a helping hand from government.  It interferes with the natural order and justice in the world.  It terrifies them and allows them to try to reinvent reality to maintain their belief system.  Until shit happens to them, they are oblivious to it, and then it is a special case.  How do you explain the Log Cabin Republicans (gay Republicans)? Because they are Conservatives in that they believe in the order and justice thing, and just see the Conservative denial of their rights as an aberration instead of a logical extension of their belief system.  How do you explain a Conservative who sees the light on gay rights after their own child comes out?  Until it becomes personalized, they can simply shut it out in a whirl of denial or reinventing reality.

My favorite is austerity.  Yes, that was part of the conversation too.  Europe just had to get things back in order and they can’t afford all the entitlements they want.  Austerity is enforcing the natural order of things.  It means that justice will prevail if you follow the rules and the free loaders are put back in their place.  Evil doers must be punished to realign the natural order of things.  Except it doesn’t work.  Every nation that has gone on an austerity kick has seen their GDP not recover, but decline further.  While it violates in a basic way, Conservative ideology about blame the victim, ECON 101 and the data from our experiment with austerity has shown a disastrous outcome.  In order to get out of debt, you have to grow the economy and austerity simply depresses it.  Paul Krugman put a wonder graph out about what happens to countries that forgot everything we learned in the last 80 years or so and decided on punishment as the way forward (Austerity and Growth).  The data is incontrovertible and overwhelming, yet Conservatives will twist themselves into pretzels to try to explain it away because it violates their whole concept of the natural order of things.  Bad things only happen to bad people right?  And if you do bad things, you must be punished.

I guess I can rest my case with watching the Republican Presidential Primary where up is down and down is up, where facts are so distorted that only true believers could accept these people as rational humans, much less as leaders of our country.  It is where this conservative logic has finally taken us to maintain its basic underlying beliefs, into the world of fantasy.  Melissa Harris-Perry, on her new show on MSNBC, made a wonderful point the other day.  Our democracy needs a strong and vibrant two party system to work.  When one party gets out of hand, as power always corrupts, the other side is there to right the balance with new ideas.  But the problem we face with the Republican Party is that they have no new ideas.  They only have the old failed ones that they cling to with all their might, while reinventing reality to make that possible.  They have got theirs and they selfishly don’t want to risk having to share.  Until they actually become a rational and thinking political entity again, we have a real problem in this country.  I only hope the rest of America sees the absolute failure of conservative ideas and puts them out of their misery.

I would comment on the Republican candidates, except they are superfluous.  They, and the political discussions around them, are just more of the problem.  They offer us no solutions and just a continuation of what we have done.  Their whole political approach is based upon feeding anger with outrage, and of course blame.  But when it comes to a new direction, it is just more of the policies or lack thereof that has caused our problems. Here are a couple of examples of our real life experiences that point out our going nowhere.  Sadly, until we personally experience the consequences of our policies, most of us are oblivious.

A few days ago I heard about a young Hispanic man I was acquainted with who was asked to go to a border town to straighten out his papers, and then they deported him. He was two when his parents brought him here.  He was a good student and a smart, hard working contributor to our society.  America is his home and we deported him.  It is so unfair, it is so wasteful, and yet this is what REPUBLICANS have wrought (DREAM Act).  Got to punish those evil doers, right?  Meanwhile I picked up the paper Sunday to read in the Sacramento Bee, “Colleges forced to cut key courses“.  In California our junior colleges have been the route for many who have stumbled in high school or beyond, who have to work and can’t attend college full time, to get on track and get the education they need to become successful.  With the massive cuts in education, we can no longer educate our future.  How dumb is that? Here is some data that Paul Krugman presented on the impact of the cutting of spending from state and local governments:

“But it’s even worse than he says. Why? Because if you look at what’s being cut, it’s heavily focused on investment:”

As Paul said, “That is, we’re sacrificing the future as well as the present. Oh, and the cuts that aren’t falling on investment in physical capital are largely falling on human capital, that is, education.“  This austerity is insane, we should know better, and we have been stampeded into fearing the debt by the Republicans with some help from feeble minded Democrats (or just pandering to the mob), and in effect, we are eating our seed crop.  I would sum up with another quote from Paul:

“It’s hard to overstate just how wrong all this is. We have a situation in which resources are sitting idle looking for uses — massive unemployment of workers, especially construction workers, capital so bereft of good investment opportunities that it’s available to the federal government at negative real interest rates. Never mind multipliers and all that (although they exist too); this is a time when government investment should be pushed very hard. Instead, it’s being slashed.  What an utter disaster.”

An utter disaster is an understatement.  The way forward is not rocket science,  As I pointed out yesterday, we will all have to pay (no pain, no gain).  That path was laid out by economist (one of many who we are ignoring) Michael Spence, a Nobel Laureate, and professor at NYU:

“I am sure you have heard this, but the great depression came to an end in WWII and two things happened at that point.  One, there was a huge fiscal stimulus because we could not finance a war effort on current income, and then we got rid of it over time, and the second one was that we went to the people and said you know what, it is a war and we are going to have to invest a huge amount of our resources in this and your consumption levels are going to have to go down because we can’t keep them up and make this big investment.  We just don’t have the resources and because it was a war, people said okay.  And so we created this powerful engine that not only took us through the war, but took us into the post period in pretty high gear…If we really wanted to overcome this one fast, then what would happen is a political leader would go and say this isn’t a war, but it is that sort of challenge and create recovery (war) bonds…I mean that is pretty politically unrealistic, but that would really put a jet engine behind this thing over time.”

It isn’t hard.  We need to start investing massively in the future, and making all of us pay for it.  But Republicans offer a free ride saying lets just do austerity, just remove regulation and government interference, and let us all keep our money and it will just magically happen.  Democrats tell you that we just need to tax the rich, and oh yes, austerity for all.  Sorry, they are all lies.  We need to get serious about moving forward and we all will have to pay.  Suppose you could get elected with that message?  Maybe when things get bad enough or we just get tired of standing in one place.  I will tell you this.  Republicans will never get you there.  Democrats have an inkling, but lack the courage.  Maybe the 99% can get their act together.  Remember, just being angry is not enough.