(If throwing a contribution Pottersville2's way won't break your budget in these difficult financial times, I really need it, and would wholeheartedly appreciate it. Anything you can afford will make a huge difference in this blog's lifetime.)
Fact or Fiction?
Wonder what Paul Craig Roberts thinks of this sham? Don't! Just watch the video below, and don't let his somewhat lackadaisical responses during the interview worry you about his political judgment now. He's so familiar with the situation and the population's miseducation that he's just as depressed (if not more so) than the rest of US.
Paul Krugman warns us (all of US and the rest of the world) that if we allow the weasels who did this to us to get away with it, we have only ourselves to blame for what they've got planned for us for the future. And it ain't pretty, friends. Not unless you've got a ticket out like they do.
Published: May 8, 2011
The past three years have been a disaster for most Western economies. The United States has mass long-term unemployment for the first time since the 1930s. Meanwhile, Europe’s single currency is coming apart at the seams. How did it all go so wrong?
Well, what I’ve been hearing with growing frequency from members of the policy elite — self-appointed wise men, officials, and pundits in good standing — is the claim that it’s mostly the public’s fault. The idea is that we got into this mess because voters wanted something for nothing, and weak-minded politicians catered to the electorate’s foolishness.
So this seems like a good time to point out that this blame-the-public view isn’t just self-serving, it’s dead wrong.
The fact is that what we’re experiencing right now is a top-down disaster. The policies that got us into this mess weren’t responses to public demand. They were, with few exceptions, policies championed by small groups of influential people — in many cases, the same people now lecturing the rest of us on the need to get serious. And by trying to shift the blame to the general populace, elites are ducking some much-needed reflection on their own catastrophic mistakes.
Let me focus mainly on what happened in the United States, then say a few words about Europe.
These days Americans get constant lectures about the need to reduce the budget deficit. That focus in itself represents distorted priorities, since our immediate concern should be job creation. But suppose we restrict ourselves to talking about the deficit, and ask: What happened to the budget surplus the federal government had in 2000?
The answer is, three main things.
First, there were the Bush tax cuts, which added roughly $2 trillion to the national debt over the last decade.
Second, there were the wars in Iraq and Afghanistan, which added an additional $1.1 trillion or so.
And third was the Great Recession, which led both to a collapse in revenue and to a sharp rise in spending on unemployment insurance and other safety-net programs.
So who was responsible for these budget busters? It wasn’t the man in the street.
President George W. Bush cut taxes in the service of his party’s ideology, not in response to a groundswell of popular demand — and the bulk of the cuts went to a small, affluent minority.
Similarly, Mr. Bush chose to invade Iraq because that was something he and his advisers wanted to do, not because Americans were clamoring for war against a regime that had nothing to do with 9/11. In fact, it took a highly deceptive sales campaign to get Americans to support the invasion, and even so, voters were never as solidly behind the war as America’s political and pundit elite.
Finally, the Great Recession was brought on by a runaway financial sector, empowered by reckless deregulation. And who was responsible for that deregulation? Powerful people in Washington with close ties to the financial industry, that’s who.
Let me give a particular shout-out to Alan Greenspan, who played a crucial role both in financial deregulation and in the passage of the Bush tax cuts — and who is now, of course, among those hectoring us about the deficit.
So it was the bad judgment of the elite, not the greediness of the common man, that caused America’s deficit. And much the same is true of the European crisis.
Needless to say, that’s not what you hear from European policy makers. The official story in Europe these days is that governments of troubled nations catered too much to the masses, promising too much to voters while collecting too little in taxes. And that is, to be fair, a reasonably accurate story for Greece. But it’s not at all what happened in Ireland and Spain, both of which had low debt and budget surpluses on the eve of the crisis.
The real story of Europe’s crisis is that leaders created a single currency, the euro, without creating the institutions that were needed to cope with booms and busts within the euro zone. And the drive for a single European currency was the ultimate top-down project, an elite vision imposed on highly reluctant voters.
Does any of this matter? Why should we be concerned about the effort to shift the blame for bad policies onto the general public?
One answer is simple accountability. People who advocated budget-busting policies during the Bush years shouldn’t be allowed to pass themselves off as deficit hawks; people who praised Ireland as a role model shouldn’t be giving lectures on responsible government.
But the larger answer, I’d argue, is that by making up stories about our current predicament that absolve the people who put us here there, we cut off any chance to learn from the crisis. We need to place the blame where it belongs, to chasten our policy elites. Otherwise, they’ll do even more damage in the years ahead.
Dean Baker concurs and takes it a few steps more.
By Dean Baker
At this point, Republican politicians are beginning to sound almost like wind-up toys when they complain about job-killing taxes and regulations that keep businesses from hiring. The media should at least do the Republicans and the public the courtesy of attempting to discern if these complaints make any sense. (McClatchy gets high marks for this effort.)
If the charges are true, then there are logical implications that can be explored. The media should be taking the time to see whether the evidence is consistent with Republican claims.
The tax side of the story is pretty simple. The Republicans are making things up.
We still have the Bush-era tax rates in effect. The wealthy are paying a smaller share of their income in taxes than at any point since the Great Depression. The tax rate on corporate profits is also hovering near a post-Depression low.
Some of the more inventive Republicans may claim that it is fear of higher taxes in the future that discourages hiring, but this doesn’t fly either. There is a huge amount of turnover in the labor market, especially in sectors like health care, retail and restaurants.
Even if employers were convinced that higher tax rates in 2013 and beyond would make it unprofitable to have more workers; that would hardly be a reason not to hire workers today. It’s a safe bet that ordinary turnover would allow them to reduce their workforce to the desired level long before the tax rates returned to their Clinton-era levels.
Of course we created 3 million jobs a year from 1996-2000. This makes it difficult to claim the Clinton-era tax rates would destroy jobs.
The regulation part of the story isn’t much stronger. It is not easy to find the flood of onerous regulations coming from the Obama Administration. The health care bill is the one Republicans most often mention. This will put additional restrictions on insurers and also require firms with more than 50 workers to either provide insurance directly or to pay a fee to contribute to their employees’ health care costs.
This one suffers from the same problem as the fear of taxes story. Suppose employers fear that the higher burden imposed by the bill will be a big cost when they first take effect in 2014. Why would this matter for hiring in 2011?
Furthermore, most large firms already meet the law’s requirement since they provide insurance to their workers now, and most small businesses are not close to the 50 person cutoff where the regulation takes effect. Why would these firms be constrained in their hiring by the ACA?
If anything, the ACA promises substantial cost-saving to many large firms, since Republican economists have been maintaining that companies will dump their employees on the exchanges created under the ACA. If they believe this employee dumping story, then this means companies will be looking forward to big savings when the law kicks in. Obamacare should then be leading to a big surge in hiring.
At the very least, if ACA is the big bad job-killing regulation that is scaring employers then we should see its biggest impact on the employers most directly affected. This would be either large firms that do not currently provide insurance or alternatively firms that are near the 50 employee cutoff that would be subject to the law’s requirements if they crossed the 50 worker threshold. Is there any evidence that these firms have curtailed investment and hiring? If the Republicans believed their “job killing” claims then they should have mountains of it.
It is also worth remembering that if firms would otherwise be hiring, but are prevented from doing so because of fears of taxes and regulation, then we should expect them to be hiring more temps and to increase the hours of their existing workforce. If this is happening, it sure isn’t showing up in the data.
Average weekly hours worked actually declined in the August data, and they are still below the pre-recession level.
The same is true of temp employment. Job growth in this sector has been stagnant for months and is nowhere near its pre-recession level.
These are the sorts of things that reporters should be looking at in assessing the claims of job-killing taxes and regulation. This is not a he said/she said. These are claims about the economy that can be verified.
However, if you believe in a magical, finger-clicker world where scientific evidence, let alone evidence that comes from evaluating data is equal to pure belief, maybe not.
Tens of millions of people are suffering from this downturn. It’s not fun and games. Reporters have a job here. The reporters that just copy down outlandish claims by politicians without making any effort to verify them should switch places with the one of the unemployed who would like to work for a living.
This article was published at
Nation of Change. Please click on the link and give these guys some love.
And have you heard about those extremely unlikely black swan events? I read the book. If you really want to know what has been happening to your economic/financial life from a macro as well as a micro perspective, the author has more than a few words for you
here.
You really should click on that link.
Or this one:
Editor's Note: Nassim Nicholas Taleb is Professor of Risk Engineering at New York University and the author of The Black Swan. Mark Spitznagel is a hedge-fund manager.
For the American economy – and for many other developed economies – the elephant in the room is the amount of money paid to bankers over the last five years. In the United States, the sum stands at an astounding $2.2 trillion. Extrapolating over the coming decade, the numbers would approach $5 trillion, an amount vastly larger than what both President Barack Obama’s administration and his Republican opponents seem willing to cut from further government deficits.
That $5 trillion dollars is not money invested in building roads, schools and other long-term projects, but is directly transferred from the American economy to the personal accounts of bank executives and employees. Such transfers represent as cunning a tax on everyone else as one can imagine. It feels quite iniquitous that bankers, having helped cause today’s financial and economic troubles, are the only class that is not suffering from them – and in many cases are actually benefiting.
Mainstream megabanks are puzzling in many respects. It is (now) no secret that they have operated so far as large sophisticated compensation schemes, masking probabilities of low-risk, high-impact “Black Swan” events and benefiting from the free backstop of implicit public guarantees. Excessive leverage, rather than skills, can be seen as the source of their resulting profits, which then flow disproportionately to employees, and of their sometimes-massive losses, which are borne by shareholders and taxpayers.
In other words, banks take risks, get paid for the upside, and then transfer the downside to shareholders, taxpayers, and even retirees. In order to rescue the banking system, the Federal Reserve, for example, put interest rates at artificially low levels; as was disclosed recently, it also has provided secret loans of $1.2 trillion to banks. The main effect so far has been to help bankers generate bonuses (rather than attract borrowers) by hiding exposures.
Taxpayers end up paying for these exposures, as do retirees and others who rely on returns from their savings. Moreover, low-interest-rate policies transfer inflation risk to all savers – and to future generations. Perhaps the greatest insult to taxpayers, then, is that bankers’ compensation last year was back at its pre-crisis level.
Of course, before being bailed out by governments, banks had never made any return in their history, assuming that their assets are properly marked to market. Nor should they produce any return in the long run, as their business model remains identical to what it was before, with only cosmetic modifications concerning trading risks.
So the facts are clear. But, as individual taxpayers, we are helpless, because we do not control outcomes, owing to the concerted efforts of lobbyists, or, worse, economic policymakers. Our subsidizing of bank managers and executives is completely involuntary.
But the puzzle represents an even bigger elephant. Why does any investment manager buy the stocks of banks that pay out very large portions of their earnings to their employees?
The promise of replicating past returns cannot be the reason, given the inadequacy of those returns. In fact, filtering out stocks in accordance with payouts would have lowered the draw-downs on investment in the financial sector by well over half over the past 20 years, with no loss in returns.
Why do portfolio and pension-fund managers hope to receive impunity from their investors? Isn’t it obvious to investors that they are voluntarily transferring their clients’ funds to the pockets of bankers? Aren’t fund managers violating both fiduciary responsibilities and moral rules? Are they missing the only opportunity we have to discipline the banks and force them to compete for responsible risk-taking?
It is hard to understand why the market mechanism does not eliminate such questions. A well-functioning market would produce outcomes that favor banks with the right exposures, the right compensation schemes, the right risk-sharing, and therefore the right corporate governance.
One may wonder: If investment managers and their clients don’t receive high returns on bank stocks, as they would if they were profiting from bankers’ externalization of risk onto taxpayers, why do they hold them at all? The answer is the so-called “beta”: banks represent a large share of the S&P 500, and managers need to be invested in them.
We don’t believe that regulation is a panacea for this state of affairs. The largest, most sophisticated banks have become expert at remaining one step ahead of regulators – constantly creating complex financial products and derivatives that skirt the letter of the rules. In these circumstances, more complicated regulations merely mean more billable hours for lawyers, more income for regulators switching sides, and more profits for derivatives traders.
Investment managers have a moral and professional responsibility to play their role in bringing some discipline into the banking system. Their first step should be to separate banks according to their compensation criteria.
Investors have used ethical grounds in the past – excluding, say, tobacco companies or corporations abetting apartheid in South Africa – and have been successful in generating pressure on the underlying stocks. Investing in banks constitutes a double breach – ethical and professional. Investors, and the rest of us, would be much better off if these funds flowed to more productive companies, perhaps with an amount equivalent to what would be transferred to bankers’ bonuses redirected to well-managed charities.
_____________________
Posts
2 comments:
Why all the fuss about 9/11 when it isn't for another two months?
11/9?
We're in America, Tony!
Take care, brother.
S
Post a Comment