Stop Acting Surprised
by Mike Kimel
Stop Acting Surprised
It seems a lot of Democrats seem surprised that Obama is willing to give up on what they view as core principles. On the Republican side, there seems to be an implicit understanding that pretending the economic mess and spending began under Obama’s watch, and thus the policies that they favor (most of which Obama has continued, whether they admit it or not) bear no responsibility for where we are today. As a reminder that reality is what it is, even if memory is weak and feeble, I’d like to repost something I wrote a few days after Obama was elected in its entirety below:
Is Obama Starting Poorly?
One of the things that worried me about Obama was that he (like McCain) supported the ridiculous bail-out bill. As I noted when it passed, it wasn’t going to work, and the net effect would be this:
…shady, undeserving characters will be enriched, young versions of the idiots who got us into the mess will launch successful careers (can you say “Kashkari”?), and the promised benefits to the American public, the schmucks footing the bill, will never materialize.
We now know the banks are not loaning out money which was the thing this whole bail-out was supposed to accomplish, but Goldman, Welfare, Queen, & Sachs (to borrow a term from Lambert Strether left at the previous post) has made out like the proverbial bandit, Kashkari’s career is made, and the American public would be better off being beaten with a stick than having to pay for this garbage.
Sure, the idea for this was rammed down everyone’s throat by the administration and Bernanke, but the Dem leadership guided it through, and Obama voted for the bail-out. To me, it was the financial equivalent of invading Iraq because Osama hit us on 9/11. I can understand that at the time, many people thought something absolutely positively had to be done. Even many smart people who aren’t crooks – just folks who are too decent to be cynical enough to anticipate what this administration will do when you let them, felt the gubmint had to act, and act fast. So I can understand Obama voting for this piece of $%^&.
But, now that we know the thing not working, and Paulson isn’t even pretending it was intended to work as advertised, isn’t it time to pull the plug? Shouldn’t the President-elect be out there, demanding an end to this waste of money? Shouldn’t he be calling on Congress to pull back the money that hasn’t already been thrown away? Shouldn’t he be proposing some other alternative? (If the problem, as we were told a while back, is that banks aren’t loaning money, and they’re still not loaning money, why is it worse for gubmint to loan money directly to people and corporations that need it than it is for the gubmint to find all sorts of ways to help Paulson’s former employer?) Instead, there’s all this talk about spending even more money on even more undeserving people and companies in a wider variety of industries, and Obama is not saying anything to discourage any of this.
I understand that the man hasn’t even been inaugurated yet, and I stand by what I wrote not long ago – I’m willing to give him a chance. (Heck, I voted for him.) But this bodes ill.
—
Now, its been a few years, and we still have a problem. There’s no demand. Consumers are sitting on their hands. Companies are sitting on their hands. Banks are sitting on their hands. Which leads to a second post I wrote a few days later, which I’m also reproducing in its entirety:
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How To Bail Out the Economy – A Less Wrong Way
Regular readers know I’ve had post after post explaining why a bail-out would be a bad idea and would not work, dating to long before the bail-out began. I predicted that the end result would be the further enrichment of some of the very folks who brought us this mess and junior versions of the same folks who were too young to get in on the original crime spree, but otherwise, we’d have nothing to show for the trillions that would get spent.
The supposed “rationale” for this bail-out is to make sure that companies that are willing and able to produce goods and services that consumers wish to purchase are able to do so, and that in turn consumers are willing and able to purchase goods and services that companies want to bring to market. The story line is that this can be accomplished by giving money to the financial sector, that sector of the economy that for the past few years has specialized in selling squirrel meat as fillet mignon. Give those talented folks some money to make up the massive losses pulled off in the past years and they will happily loan money to producers and consumers, we are told.
Its becoming obvious even to the likes of Henry Paulson that no matter how much money gets paid to Goldman, Welfare, Queen & Sachs and Citi and Countrywide and the rest of ’em, the “financial system” of old is gone forever. Compensating buyers of squirrel meat is more than enough burden on the taxpayer, but it seems we’re expected to make Goldman, Welfare, Queen & Sachs whole for paying the exorbitant salaries of folks like Henry Paulson in the past, and the current and future generations of Henry Paulson to boot. Clearly this is not only a very, very, indirect way to keep companies producing and consumers buying, its also adding a bunch of layers of unnecessary expenses.
So… if the goal is to stimulate production and/or consumption, why not cut out the unnecessary layers of exorbitant expense? I’m not sure I see the reason for bailing out car companies, but say that was the goal for some reason. In that case, the government could simply buy a $20K car for every single American, every single one, and spend less than the $7 trillion that’s been committed so far. That’s well over 30 times as many cars as GM made last year. Worldwide. You could bet the car companies would tool up for this, and it would employ a lot of people, and it would stimulate the economy. Additionally, we’d all have another car thrown in. Sure, it might be a GM vehicle, but its still something, which is more than the nothing we’re gonna get from pumping it into the Goldman, Welfare, Queen & Sachs black hole. Heck, it doesn’t have to be cars – the gubmint could simply commit to spending $20,000 on something, anything each of us picks. You could take your 20 G and spend it on a menu of American made options.
Preposterous, you say? Inflationary, you say? Jingoistic, you say? Sure, I say. Its a stupid idea and I don’t like it all. But I think its a much better idea than the current bail-out approach, which I think is worse than taking (for now) $7 trillion and setting it on fire. Giving the money to the likes of Henry Paulson’s former employer is simply rewarding bad behavior and sending the wrong message, not to mention preposterous, inflationary, and jingoistic.
—
So… to summarize a few things that seemed obvious to me a few years ago and yet which I’m finding today aren’t part of the narrative any more:
1. The government response to the problem began long before Obama took office.
2. The government response to the problem wasn’t going to have any positive effect since it addressed a non-existent problem (i.e., poor decision making on on Wall Street) and didn’t address the actual problem (i.e., weak aggregate demand on Main Street).
3. The government response to the problem was going to have a negative effect since it was extremely costly.
4. By the time of the 2008 election, the sitting administration had abandoned the rationale for the government response, but maintained that response regardless.
5. By the time of the 2008 election, Republican and Democratic leaders, including Barack Obama, knew the sitting administration had abandoned the rationale for the government response and yet were continuing that response regardless, and nobody complained.
In a sane world, the folks who let things get where they are, including pretty much all our esteemed members of Congress and our esteemed President, would not be allowed to be involved in “solving the problem” now. Most economists who had some input into the previous “solutions” or who cheerleaded for them would also be shown the door. But that’s not where we are.
The solution to our current mess is obvious, and was obvious a few years ago. Equally obvious is that we won’t be going anywhere near that solution. But if you’re wondering what the world would look like if we did follow the obvious solution, just remember… the last time the economy took a tumble like this, and was further exacerbated by bad policy response was 1929-1932. In 1933, four years after the proverbial doo doo first hit the fan, the correct policy response was finally implemented. Real economic growth rates for ten of the next 11 years exceeded 5% a year. Real economic growth rates for nine of the next 11 years exceeded 8% a year. Real economic growth rates for five of the next 11 years exceeded 10% a year. (Data here.)
It has now been almost four years since the doo doo hit the fan this time around. Does anyone expect we’re going to see that kind of performance this time around?
Wasting hundreds of billions a year on occupations, wearing out expensive poorly performing weapons in no win reruns of Vietnam is not activley in 2 wars.
The defense cuts are ridiculously stiny cuts to inflating fictions. DoD is planning to continue to be a growing sacking agency.
The humbug factories and the war profiteers’ noise machines are gearing up.
The detailing of the generals’ platinum lambhorginis is not being threatened.
The platinum fleece continues and the result is mass poverty including he aged.
Mcwop has the right idea, though I’d say the part about the police is questionable. We already live in a quasi-police state today, and it’s only going to get more so. As the saying goes, “you ain’t seen nothing yet” is very to the point in the good old U.S.of A. Of course, there are those who say “if you don’t have anything to hide”, to which I say “I have a bridge I’ll sell you for cheap”. You all do realize that the social networks are demanding real names under the guise of people being truthful, which then makes it easier to trace & detain/arrest you if you don’t spout the official party line. But of course, this just sounds too crazy, the ramblings of a lunatic, right? Check out just how many rights you have left today, vs 10 – 20 – 30 years ago. Is this really the land of the free, the home of the brave? Register, so they where you are to come and arrest you, or censor you. Food for thought
Austerity does nothing for resolving the trillions in unpriced “assets” on the US and Euro banks’ books.
In the end the banks should have been nationalized.
Buff,
I agree the three points you mention make things tough. But as I noted way back when, being President is a privilege, not a right. He was elected to do a tough job. If he is too incompetent to do it, he should resign. (I said the same thing about GW.)
Where I disagree with you is that you seem to believe I think he has the leadership chops. I’m pretty sure you won’t find a single sentence in anything I’ve written since I first heard of Obama in 2007 that indicataes that I have that faith in him. I simply held my nose and voted for what I thought (and still think) was the least bad of the two choices.
The problem is, this is a repeated game, and he’s doing more than just doing a crappy job. He’s also doing a crappy job under a false flag. That last piece means he’s also ruining a brand worth keeping intact. That added piece is the reason I won’t vote for him either.
ilsm,
Depends whose risk gets socialized.
DB,
I think he folks pushing for austerity don’t think it will affect them. Its austerity for other people.
I almost always agree with you Mike, but I really do not about TARP. Should people have gone to jail and should more equity holders been wiped out? Yes, but I do not think letting the financial system collapse would have made things better. In retrospect, the stimulus bill was too small and was too skewed toward tax cuts rather than actually investing in things that would create jobs. I think that a lot of the smart people did not realize what a massive deleveraging would look like and therefore did not properly calculate how much trouble we were in. Now the real problems have never been addressed. Why was there so much leverage? Well the crooks on Wall Street facilitated it, but the reason so many people borrowed so much was that they were trying to bridge the growing wealth inequality in this country which dates back to at least the Reagan era. In the face of stagnating income, all but the very well to do tried to maintain a competive middle class lifestyle by borrowing–and completing the transition to 2 wage earner households. Given the Reagan era tax “reforms” it only made sense to borrow against your home. While there are a variety of factors which have caused the growth in wealth inequality including tax policy. I think globalization is plainly the most important. I understand that all of the models show that trade enhances the economic good of both countries–the simple model–,but in the last 30 years almost all of the benefit has gone to the elites in this country, either the capitalists or the Wall Street types. That leads me to ask your opinion on the Hawley-Smoot or Smoot-Hawley Act. The talking heads all make the charge that the tariff act made the Great Depression worse, that trade wars are to be avoided at all costs and that loss of export jobs in retaliation for tariffs would be devestating to the economy. I always thought that the concerns were overblown, but given the nonsense these same talking head spew about Keynesian economics no longer working and that tax cuts are needed to get corporations to start spending money, I am beginning to think that a trade war is just what the country needs. Your point about GDP growing after the tariff act was passed seems to support this thinking. What say yee?
Mcwop
i am not looking forward to increasing our police forces at home. you won’t get a much more effective response to terrorism. you will get the infrastructure for a police state.
coberly,
We agree here 100%. Explain to me why the Dept of Education has a SWAT team?
Islam will change
buff,
On numbers 1, 2 and 3:
1. Just war profiteers’ noise.
2. Austerity and bail outs are not excused by the neutering of the New Deal finance system protections.
3. If the US had a draft the KP’s etc in the wars would notbe Pakistanis………………
The contractors always deliver the bodies with overhead, profits and no performance.
mike
austerity = tax cuts.
these people have no “plan” (except seizing political control). all they understand is “more” for me.
they are not even capable of seeing that once they grab everything on the table, the game is over.
Mike,
You are correct. You never have mentioned, that I recall, that Obama has the leadership chops. Just a whole bunch of people on the left did.
I’m pretty sure we would not be talking about SS cuts if McCain had won. Bush’s experience with that attempt would have kept him in line. But its a Nixon goes to China thing (IMHO).
Since the crises response was pretty much bi-partisan and all the players wanted it (in late 2008 when Bush was still Pres) I’m not sure anyone would have taken the FDR approach. Personnaly I don’t think it can be done anymore due to changes in US government regulation, our lack of a background of hard out-door physical labor, and the differences in our economy between now and then. Short of sending checks to everyone (didn’t Bush do that?) I’m not sure what would have bumped the economy.
Heck maybe Perot was right way back when…
Islam will change
norman
i think it’s already too late for thought. in the beginning they weren’t sure how far they could go. they have seen they can go very far indeed with just a little bit of plausible cover. try talking to your congressman, or your favorite advocacy group, and you’ll see what i mean. that’s if you haven’t tried talking to your neighbors and co workers.
Terry
how much sanity is there is giving a “payroll tax holiday” while cutting unemployment benefits?
give money to the people who already have it… and that includes the millionaires who get the biggest “holiday” on their payroll tax… even under the cap…. while taking away money from those who have none.
we could note that both SS and unemployment are “insurance” legally paid by the insutee in the case of SS and arguably paid by the insuree (comes out of the employers budget for labor) in the other.
these people are insane. they just throw policies around according to how the words make them feel. there is not the slightest attempt to understand the reality those words represent.
Terry,
Everyone says that people saw stagnating income. What on the individual level does that really mean? I have had my income go up (even considering inflation) every year since I started working at 15. Its been uneven, but I’ve managed to always get promoted every so often and get the attendent pay raises, plus the normal yearly raises. Even if you take out my military service, it still holds.
So our you telling me that a person who works 20 years at McDonalds on the french frier should get paid more than your typical HS student? I mean, if you do the same job as you did 20 years ago why should you expect to make anymore (after inflation) than you did then?
I hear this all the time but can you enlighten me?
Islam will change
terry
i think you are right about Smoot Hawley… whatever it did for the Depression, we are not in Smoot Hawley days anymore.
But as for the people borrowing too much. It is a long, long established practice of money lenders to lend people more money than they can afford to repay in order to ruin them and foreclose on them.
the people are always dumb… not intending insult here…. the people simply don’t have time to study “finance” and are always the victims of the sharp traders. it’s the failure of the regulatory system that honest politicians enacted to protect the people that needs to be addresse.
we are addressing it by making it worse… that is easier for the now very rich sharp traders to continue to fleece the people… except that after you have shorn the sheep it is harder to pull the wool over their eyes.
i think we are in for a long bad time.
buff,
The contracts DoD negotiate include COLA and increases in G&A automatically.
That is explains your experience and also why $350B over 10 years is merely a clip to profit growth.
Beside the AF sent you for an MS degree so you could fly B-52’s better and go off to some beltway job after doing your 20.
Coberly, I was only talking about TARP. My unease with Obama turned to total rejection last December when he cut the deal with McConnell–it was the stupist thing he could have done and put him in serious contention with Dumbya for the worst president ever. It was a totally unforced error which lead directly to the recently concluded debt debacle.
What I mean is that the statistics show that for 98% of the working people in this country, their income, when adjusted for inflation has not budged since 2000 and is only marginally higher than it was in 1980. This means that the kid at McDonalds who starts tomorrow is making the same inflation adjusted wage as the kid who started in 2000. While you may be making more money today than you did in 2000–as am I– you are making the same amount as someone with your skill set and experience was making at your job in 2000 when adjusted for inflation. I am making less, but have always been a bit of an underachiever. At the same time 2% of the population has enjoyed enormous growth in income annd wealth during those years essentially getting all of the benefits of productivity increases.
Terry
while i almost always agree with you and sometimes not so much with buff, let me play the devil’s advocate here:
that mcdonal’s fry cook… or that Buff predecessor in the ‘same’ job… may not “deserve” a raise in real wages if his contribution to “the economy” has not grown over time. to take a probably not very good example, if highly skilled buggy whip makers are still making buggy whips in 2011 they may not “deserve” any more in real wages than they got in 1811.
That said, it is easy enough to imagine that an economy that provides “enough” for the great majority, can afford to pay almost all of its real gains in productivity to the people who produce those gains… arguably the high end technicians and the entrepreneurs who organize and fund their work.
this would look unfair to the people still making the “same” as similarly employed people of the last generation, but it would not look unfair to those who have directly participated in creating the “new wealth.”
i don’t think the answer is some kind of government enforced “equality” of wages or tax transfer of incomes. I do think the answer is two fold: first, the poor need to be treated decently… they should not make wages too low to support a decent life just because they lack leverage in the marketplace, and they need to be educated to both be better workers and to learn how to live a decent life on limited incomes. Second, the rich need to take a more paternalistic attitude toward the welfare of “the least of these.” This means that instead of grabbing everything they can with a religious fervor that “greed is good”, they need to take stock of the kind of country they live in and the future they are creating, and actively try to make it better. Note that doesn’t mean increase welfare or impose dictatorial/socialist plans and force people to “do the right thing.” It just means taking care of your fellow citizens and employees as well as you’d take care of your family or … no, i can’t say it. too many people would take it wrong… but we know how to be decent to those we love, and there is no reason we can’t be decent to those we need. first, we’d have to understand how it is we need them. Does it strike you as odd that the people who pick our fruit don’t make enough money to live in a single family home?
to that extent, the whole idea of “economically valuable employment” needs deep reconsideration.
what buff
and other right wingers fail to understand is that football would be a much less interesting game if there were no rules.
and the world would be a much sadder place if the only children allowed to play games were those who were able to play in big league no rule football.
With respect to your devil’s advocate argument, the problem is that 98% of the workers are not making buggy whips and the geniuses who are “adding to the economy” are too often the gamblers on Wall Street, the off shoring managers of corporate enterprises and those with inherited wealth. I have absolutely no problem with Paris Hilton making as much money as she can by being a professional party girl and tabloid favorite, but I think there should be limits –through taxes-on how much she can inherit from her grandfather. I also have no problem with the billions that Bill gates has made, although he has properly gotten his hands slapped for some of the illegal activity he has engaged in. I do have a problem with guys who are third generation owners of manfucturing concerns who have moved most of the jobs out of the U.S., pay themselves salaries for their brillance which are a 1000 times higher in real terms than their parents and grandparents took and still have the audacity to whine about how unions are ruining the country. I also have a problem with the folks who tanked the economy paying 15% taxes when their gambles pay off. And while I do not have a problem making more money than the guy who picks the apples I like to eat because I doubt whether he has 19 years of education or 35 years of experience in a mentally stressful profession, I do value the physical exertion and ability to withstand tedium that picking apples requires and think that the relationship between our respective incomes should be limited even if means I have to pay a bit more for apples and pay a bit higher taxes. I do not know about love–I am still working on that with family members–but I do think if you are in a country that has been good to you–allowed you to make money to support your basic needs and then some, protected your property and generally did not require more than taxes from you–that you should want that country to thrive and a country can not thrive if only 2% of the population are getting ahead and the rest are treading water or sinking.
Terry,
The interesting question is, would Paris Hilton make as much money does if Conrad Hilton hadn’t passed on a fortune?
I think a lot of people are constantly confused and surprised because they still think of liberals as being progressive or to the left of the conservatives. But they’re not. They are now the most right-wing party of all, well to the right of the Republicans or Tea Partiers. (I’d like to be able to say that this is only true of their leadership, but I can’t.) Once you understand and accept that, then all the pieces fall into place, and their actions make plenty of sense. It’s hard for me, as someone who has been a liberal/Democrat for 40 years, and who has invested tons of money, energy, effort and intellectual capital in them to face up to this, but it’s undeniable. They are the enemy now. They not only will never support progressive or anti-corporate policies in any way, they will actively oppose them. Look at their support for raising the debt ceiling, which is clearly ann extremist right-wing position. Nobody who understands economics or cares about working people would ever advocate debt or deficits, which help only the rich. I think the next election will see a major reshaping of the political landscape in the US.
Mike,
I doubt Paris would. She wouldn’t have started with the leverage needed to get her in the party girl circuit at the top level,. Now she has been (from what little I’ve read) fairly shrewed at making the money so she’s been able to leverage her initial advantage. But if she was just another daughter of a GM parts guy working in Akron, she would have had to start at the local strip club. She is not at the model-level beautiful but she does seem to have some brains and could have gotten somewhere with college if she started with zip.
But no way she would have made it so fast without Grand-dads cash or some extreame lucky breaks (they do happen). How many girls you went to HS with made it to her income levels by her age based on nothing but her ‘popularity’?
Islam will change
Terry,
Thanks fo rthe clarification. I always wondered about that. So in reality someone who doesn’t sit doing the same job for 20 years could well be making more than he did when he started. Its only the ones who leveled off early then decided to leverage themsleves that we are talking about.
Maybe I don’t get it but I’ve never treaded water. Always been on the look-out to increase my skill set and try new things. I’ve tended to become a ‘fixer’ over time, taking over projects or jobs that are failing/failed and turning them around. I’ve found I’m not a good ‘polisher.’ If you have something running at 95% don’t call me to push to 98%. But I’ve managed to got school and pick up MS in engineering and math fields while working full-time. I basically taught myself program management. I’m always surprised at the number of people who won’t keep their skills updated or learn new ones.
BUt the bottom line is that unskilled labor is in a world-wide labor arbritrage. You either keep up or fall behind, and you better make sure your not in the buggy whip industry.
coberly – I really didn’t get your football analogy, and I have a pretty decent coberly to reality translator. 🙂
Islam will change
That’s notoriety, Buff, not popularity.
Terry
I agree with you about everything you said… except the apple picker. Your 19 years of education and 35 years of stress… are not, not, not, morally compelling arguments for paying you more than the apple picker. Education is a luxury and a pleasure and if it helps you get a job less stressful than picking apples… go for it. But don’t expect me to feel sorry for you while you are eating an apple picked by a man whose life is a thousand times harder than yours.
I get really angry about self justifying reasons for doing better, or pay less taxes, than the next guy.
You are a better person than this. Give it some thought.
buff
and here i was arguing your case. i was agreeing that there is a case to be made for no increase in real wages for people who have not been part of the increase in productivity… though i agree with Terry that it’s way more complicated than that, and most “wealth” these days is not earned by any kind of honest work.
which is how i got to the football analogy. you go from favoring…as you think… policies that reward productivity, to favoring policies that take away all the rules that would restrain rough play, or even leave the little leaguers with a field to play on.
i doubt you see yourself as favoring a no holds barred winner take all economic regime, but you seem to be an easy sucker for those who do.
mike
i have my own reasons for distrusting “liberals.” but i am not sure i understand yours. debt is a normal way of running a business. or a country.
nor am i sure i suppor “anti-corporate” policies. i support policies that keep corporations from injuring people.. that is not “anti corporate.”
It was tongue in cheek, the socialized risks are the worthless MBS’, CDO’s etc which nothing about austrian economics nor monetarism can address.
A lot of these are now residing on the asset side of the treasury (TARP) and Fed.
Well Coberly, I am willing to pay both more for the apple and more taxes. indeed while I do not like paying taxes, I understand that they are the price to pay to live in a country where I seldom am concerned about my safety or the safety of my property and allows me to provide for my needs and the needs of my family and then some and I fully appreciate that the apple picker should be able to do the same. I guess I do not consider education as a luxury–I consider it an investment. My parents invested in me and I gave up the ability to make more money when i was younger so I could have greater skills and make more money when I was older. I did the same for my children who also incurred the opportunity costs to gain greater skills. Should the apple picker have the same opportunities–sure, but that is the only moral issue I see not that the apple picker should get paid the same amount that I am paid. If the test is whether I am a socialist or communist–I am not and readily admit it. That does not mean that I subscribe to the idea that one human being should have the ability through intellect, hard work, inheritance or illegal activity , to accumulate all of the resources available and that seems to be direction we are headed.
Terry
i hope we agree. but i think you need to be a little careful about saying.. “my special talents and hard work and stress entitle me to better wages than” some other person whose special talents and hard work you utterly fail to appreciate.
i have worked as a tree planter and as a “scientist.” and while i am not sure i want to see tree planters living in mcmansions, i can tell you the working as a scientist was more fun and took less out of me than planting trees. in fact, any decent scientist “will work for food.”
i am not a communist, but the self justification you were offering is the same as that of the “rich” who are sure that their ability to make deals justifies their high incomes. and look at the stress!
tell you what: start out with a basic decent income for everybody, and respect for what they do, and for them as human beings (i’d have said as children of god, but that would offend too many people here)… and then play the market game for what you can sell your own labor for and good luck to you. but don’t give yourself airs about “deserving” more because of your special talents or special suffering.
yeah, I don’t get this one either. Debt is neither a goal nor an evil; it is a tool. And the “liberals” are the most right-wing “party” of them all? Who is in the “Liberal Party”? Certainly not Barack Obama, or Harry Reid.