A diplomatic solution in the Ukraine

US Secretary of State John Kerry meets with Russian Foreign Minister Lavrov in Paris next week to talk about a negotiated settlement in the Ukraine, even as some 60,000 Russian troops mass on the eastern Ukrainian border.

An optimal negotiated settlement, in my view, would be approximately as follows:

• Voting in May determines a federal structure for the country;
• West and Russia let portions that want to join EU join; NATO membership not an option;
• Russia is assured it can keep its navel bases in the Crimea (they already had them); while a second plebescite if necessary validates the Crimea returning to Russia; all such voting needs to be internationally monitored and squeaky clean;
• Russia provides as close to an apology as possible to the Ukraine for its invasion of the Crimea, accompanied by a large chunk of the IMF money that has flowed to it in aid to the federated Ukraine.

The costs of war would fall on innocents, the profits would flow to plutocrats on both sides. I hope Putin sees this. Russia is collapsing demographically (see this); it is an early-dying nation of drunks and Putin is holding on to power only by increasing domestic repression and fanning the flames of nationalism.

Should Putin invade eastern Ukraine before May as many expect, NATO will surely arm the Ukrainian forces, which can be described as rag-tag (Vice News has great video reporting from the Ukraine). This war would be pathetic in the extreme. NATO could send in drones, no boots on the ground. The Ukraine would be torn up for a generation. There would be further losses to Western banks, who have just coughed up a bundle to keep the gas flowing, and who, through London, have a huge interest in seeing the Russian and Ukrainian plutocrats stay whole. So I can only imagine that the banks are doing their best to sweet talk both sides into playing nice.

When the bankers don't want war, it's not likely to happen. When it does, the bankers generally try to line up on the side that will win. If the hawks in the West push for war and get it, Russia might collapse, and another Russian revolution might easily be the result--the Western banks can't count on a stooge like Boris Yeltsin this time to let them come in and loot. Anyway, the Russian plutocrats already have their positions, are being serviced by the London banks, and would probably be happy to run the country as regional war lords. If the West can turn the Russian plutocrats against Putin by telling them what a sweet deal they could have if Russia fell to the West, then Putin might find himself odd man out. I wonder if the Russian plutocrats still in the country can leave if they want to.

Would the plutocrats trust the Western banks and the CIA? Well, they did pretty well working with them 23 years ago.... But can Russians ever make democracy work, or do they need an authoritarian Father figure? The neo-cons might not care, so long as they weaken Russia for another generation.

Who or what would come after Putin? That is the question.

Comment posted on another website

Posted this morning in comments at FabiusMaximus.com

Fab,

You amusingly take your contrarian tendencies to meta-levels of self-revolution that virtually are always entertaining! But you must be dizzy at times. Thanks for being so entertaining!

Two comments semi-germane to today's post:

1. As I've pointed out before, the rehearsal of catastrophe is always good entertainment (Aristotle), but that doesn't mean it's wrong! W.r.t current forecasts of collapse, my personal take is that the economy still exhibits the signature of pre-collapse seen before the Great Depression: excessive debt/GDP, mostly bad debt not being cleared by the banks; and very high income inequality. So I expect another financial collapse. This is a judgment call resulting from 30 years post economics PhD following the economy and learning to separate the mainstream propaganda from "the truth" as far as I can discern it.

2. John Robb is out with a proclamation that the problem with the world is that "the American dream" (that one should be able to get ahead by working hard) and that it needs to be reborn. I assert that it is excessive greed of the "managerial capitalist class" and their focus on profit (i.e., usually by screwing labor; record high profit/GDP etc.) that is the problem, and until all corporations face regulations similar to those in Germany and Scandinavia recognizing that employees are valid stakeholders in a corporation the problem won't be solved.

Back in the 'Seventies when regulation was in its heydey businesses used to say (re: environmental protections, for example) that they couldn't do it by themselves, that it needed to be required of all or they couldn't make a decent profit. Same thing applies today. Employee rights need to be enforced via law around the world in a reasonable way.

In my more optimistic moments I speculate that, as the most powerful form of social organization on the planet today, that corporations will naturally evolve to optimize their internal distributions a la Wilkinson (see his great TED talk on inequality) to maximize health and welfare benefits of all.

Interestingly, Putin has encouraged his oligarchs to register their businesses for tax purposes in Russia to support the nation. Radical concept.

The scariest thing I've heard recently

In an interview with Greg Hunter on his YouTube channel Catherine Austin Fitts said, "What we need now is a global debt for equity swap."

In other words, let the sovereigns out of their unpayable debt by selling off public assets to the global plutocratic class.

This will seal the deal for generations of neo-feudalism to come.

More and more, I think the only way populations will throw off this yoke will be by national strikes that shut the corporatocracy down. I'm not advocating national strikes, but I don't see any way to combat entrenched neo-feudalism through democratic means, as the democracies have been eviscerated through the corrupting powers of money.

Talk continues to percolate through the Intertubes of the imminent "global reset"....

Words from Proverbs 22

Listen up, Troika and House Republicans!

The rich rule over the poor, and the borrower is slave to the lender.

Whoever sows injustice reaps calamity, and the rod they wield will be broken.

The generous will themselves be blessed, for they share their food with the poor.

Today’s depressing arithmetic

Say you have an income of $96,000, under the payroll tax ceiling.  How much will the 2 percentage point payroll tax increase affect your paycheck?

Your gross monthly income is $8,000.  If your take-home is 65 percent of your gross, a standard assumption, then your take-home pay will be reduced by (0.02*8000)/(0.65*8000) = 0.031 or 3.1 percent.  The dollar reduction in monthly take-home is $160. 

Combine this with a health care premium increasing 6.3 percent (source) and the hit to take-home pay climbs to $200 or more.  Combine this with pay raises that approximately match the actual rate of inflation, and you have a situation where most people’s take home pay is dropping in purchasing power.

I can’t help but believe that when the first pay stubs of the new year arrive, that a considerable amount of belt tightening will ensure.

The 1 percent that runs the country is blissfully unaware of all this, and thinks there is no problem with stiffing the American people year after year.

The public players are all fools

How long will our MSM political discourse be limited to witless exchanges between cartoon ideologies? The libertarians are lazy, puerile pikers who want no one to take their toys away. The evangelicals follow like sheep their war-mongering false prophets, funded by greedy rich bastards who laugh at their stupidly. The screeching leftists like Krugman and Bernanke are too brainwashed in fiddle with the dials neoclassical macroeconomics to fully realize that the problem is the distribution, stupid. How long will progressives who sense a fundamental corruption in the military-industrial-financial-fascist complex resulting in the erosion of Constitutional protections, blatant suppression of significantly disruptive opposition (Wikileaks), the lack of a single prosecution of anyone responsible for the massively fraudulent activity that led to the financial crisis and the subsequent bailout of the perpetrators--how long will rationally skeptical progressives be labeled "conspiracy theorists"?

Most of the American people probably would fall into the latter category if they were honest about their views.

At this point They already know all of our political opinions through their surveillance of all our private communications, so what is there to lose in the American people tying up the phone lines to Congress more often with expressions of our disgust with our "representatives"? What other power do we have? Are we going to continue taking this lying down?

 

US tax policy: Wild West vs. Sweden

Via:  nytimes.com  Sure a flat tax or VAT is okay *if* it is accompanied by a commitment to good health care and education and social services for *everyone*.  This is the best discussion of the underlying issues I’ve seen, in that it’s clearest about the kind of *social contract* that underlies a tax system. Everyone will have to pay more to get to a good place; lowering taxes will send us into neo-feudalism, which is what the 1 percent would love.  I get very impatient with the ever-so-puerile libertarians about this….  Now if we can just get to a single-payer health care system….

November 27, 2012

Combating Inequality May Require Broader Tax

By EDUARDO PORTER

Rarely have we experienced such a confluence of arguments in favor of raising taxes on the rich. After a hard-won re-election fought mainly over taxes and spending, President Obama arguably has a mandate from voters to tap the wealthy to address our budget woes.

What’s more, raising more money from the wealthy might go a long way toward righting our lopsided economy — which delivered 93 percent of our income growth in the first two years of the economic recovery to the richest 1 percent of families, and only 7 percent to the rest of us.

Yet while raising more taxes from the winners in the globalized economy is a start, and may help us dig out of our immediate fiscal hole, it is unlikely to be enough to address our long-term needs. The experience of many other developed countries suggests that paying for a government that couldhelp the poor and the middle class cope in our brave new globalized world will require more money from the middle class itself.

Many Americans may find this hard to believe, but the United States already has one of the most progressive tax systems in the developed world, according to several studies, raising proportionately more revenue from the wealthy than other advanced countries do. Taxes on American households do more to redistribute resources and reduce inequality than the tax codes of most other rich nations.

But taxation provides only half the picture of public finance. Despite the progressivity of our taxes, according to a study of public finances across the industrial countries in the Organization for Economic Cooperation and Development, we also have one of the least effective governments at combating income inequality. There is one main reason: our tax code does not raise enough money.

This paradox underscores two crucial lessons we could learn from the experience of our peers around the globe. The first is that the government’s success at combating income inequality is determined less by the progressivity of either the tax code or the benefits than by the amount of tax revenue that the government can spend on programs that benefit the middle class and the poor.

The second is that very progressive tax codes are not very effective at raising money. The corollary — suggested by Peter Lindert of the University of California, Davis in his 2004 book “Growing Public” — is that insisting on highly progressive taxes that draw most revenue from the rich may result in more inequality than if we relied on a flatter, more “regressive” tax schedule to raise money from everybody and pay for a government that could help every American family attain a decent standard of living.

Consider government aid for families. According to the O.E.C.D. study, our Temporary Assistance for Needy Families is the most progressive program of cash benefits for families among 22 advanced countries, accurately targeted to serve the poor.

But American family cash benefits are the least effective at reducing inequality. The reason is that they are so meager. The entire budget for cash assistance for families in the United States amounts to one-tenth of 1 percent of the nation’s economic output. The average across the O.E.C.D. nations is 11 times bigger. Even including tax breaks and direct government services, we spend a much smaller share of our economic output on family assistance than almost any other advanced nation.

The same pattern can be found across a range of government programs. The reason is always the same: their relatively small size. Over all, government cash benefits in the United States — including pensions, disability, unemployment insurance and the like — contribute about 10 percent to household income, on average, according to the study. The average across industrial nations is twice that.

Our budget reveals a core philosophical difference with other advanced countries. In the big-government social democracies like those of Western Europe, government is expected to guarantee a set of universal public services — from health care to child care to pensions — that are considered basic rights of citizenry. To pay for this minimum welfare package, everybody is expected to contribute proportionately into the pot.

Government in the United States has a different goal. Benefits are narrower. Social Security and Medicare follow a universal service template, but only for older Americans. Other social spending is aimed carefully to benefit the poor. Financed through a more progressive tax code, it looks more like charity than a universal right. On top of that, our philosophical stance virtually ensures a small government.

Progressive taxes make it hard to raise money because they distort people’s behavior. They encourage taxpayers to reduce their tax liability rather than to increase their pretax income. High corporate taxes encourage companies to avoid them. High taxes on capital income also encourage avoidance and capital flight. High income tax rates on top earners can discourage work and investment, too. So trying to raise a lot of money with our progressive tax code would probably not achieve the goal and could damage economic growth.

Big-government social democracies, by contrast, rely on flatter taxes to finance their public spending, like gas taxes and value-added taxes on consumption. The Nordic countries, for instance, have very low tax rates on capital income relative to income from work. And they have relativelyhigh taxes on consumption. In Denmark, consumption tax revenue amounts to about 11 percent of the nation’s economy. In the United States, sales taxes and excise taxes on cigarettes and other items amount to roughly 4 percent.

Liberal Democrats have long opposed them because they fall much more heavily on the poor, who spend a larger share of their incomes than the rich. But these taxes have one big positive feature: they are difficult to avoid and produce fewer disincentives to work or invest. That means they can be used to raise much more revenue.

Public finances are under strain today on both sides of the Atlantic, as governments struggle to cope with our long global recession and the aging of the baby boom generation. In Southern Europe, the pressure to pare back universal welfare systems is intense. In the United States, political leaders on both sides of the partisan divide have realized that even our relatively meager package of social goods cannot be sustained with our slim tax take.

But the United States has one option that most of Europe’s flailing economies do not. Its tax revenue is so low, comparatively, that it has more space to raise it. A more efficient, flatter tax schedule would allow us to do so without hindering economic activity.

Bruce Bartlett, a tax expert who served in the administrations of Ronald Reagan and George H. W. Bush, told me last week that he thought federal tax revenue could increase to 22 percent of the nation’s economic output, well above its historical average of 18.5 percent, without causing economic harm. If President Obama tries to go down this road, however, he may have to build a flatter tax code.

“We should reform the tax system, no question,” William Gale, a tax policy expert at the Brookings Institution and co-director of the nonpartisan Tax Policy Center, wrote in an e-mail. “We are going to need to move beyond the current set of tax instruments to raise the needed revenues — a VAT and or a carbon tax seem like the obvious ways to go.” And Mr. Bartlett, who writes a column for The New York Times’s Economix blog, also pointed out: “We can’t get all the revenue we need from the rich. Eventually, everyone will have to pay more.”

Social Security, just the facts

Via:  www.firedoglake.com   It is so difficult to get past the relentless propaganda.  Best line:

“Alan Simpson, the loud-mouthed, factually-challenged, -one who would reduce your future Social Security to a range of 9 to 15 K per year, calls people like me “Greedy Geezers”, then turns to you and tells you to resent me because I am going to receive something he wants to take away from you.”

You may have heard that Social Security is funded through about 2030.  The plutocrats and their henchmen, including Obama, desperately seek your neofeudalization.

Must watch:

The definition of insanity

Insanity: doing the same thing over and over again and expecting different results.
Albert Einstein

Obama missed the opportunity to make the point that doing what George W. Bush did—cutting taxes, mostly for the rich, and increasing military spending—is exactly what busted the budget in the last decade and started down the path of trillion dollar deficits.

“The last president cut taxes for the rich and increased military spending, and did we get jobs?  Where are the jobs?  NO, we got financial crisis and a mini-depression that I inherited.  So why would doing the same thing again work this time?”

Oh, he tried to make the point, but he lacked the emotional force required to counter an attack dog like Romney.

The national spirit level has sunk to new depths in recent weeks.  The Republicans appear to have successfully scapegoated Obama. 

The American social contract is broken.

Am I my brother’s keeper? (reprise)

Via:  firedoglake.com

The Cainite Repubicans say no, they say the bottom 47 percent are all a bunch of victim whiners. 

But the bottom 20 percent is doing worse than I imagined, according to the BLS.  And many of us are only a job loss or two away from joining them.  There will be a need for low cost [ware-] housing for the Americans frozen out of the economy as more of them lose their houses and can’t afford market rents.  I’ve often said my retirement will probably be in a single-wide mobile home in the desert.

Expensive to Be Poor: Expenses Twice as Much as Income for Bottom 20% of US Households

By: David Dayen Thursday September 27, 2012 11:38 am

A new study from the Bureau of Labor Statistics out today probably won’t get as much notice as their other report showing the US gained 386,000 jobs more than expected. However, this one shows a persistent problem in America, that it’s actually expensive to be poor.

The average individual in the lowest 20% of the income ladder had take-home pay of $10,074 and average expenses of $22,011. That’s more than double, and it makes being poor nearly impossible to manage. The story for the second and third quintiles weren’t much better, with their expenses roughly commensurate to their income, meaning they live paycheck-to-paycheck and save next to nothing. But the expenses-versus-income report for the poorest Americans is almost unreal.

The Huffington Post puts some of these numbers in context:

This percentage of households includes many retirees, who are presumably living off savings.

Many of these households may be spending more than they earn through some combination of loans from family and friends, credit cards, savings, and payday loans. The government helps a bit with an income tax credit: The average bottom-fifth household’s after-tax income is $269 higher than its before-tax income. The income accounted for includes welfare and Social Security benefits.

Many are also taking on debt. In 2010, roughly one-quarter of the poorest fifth of households held a high debt burden, or had debt service payments exceeding 40 percent of their income, according to the Economic Policy Institute.

These households mainly are spending on necessities such as food, shelter, utilities, clothing and transportation. The average bottom-fifth household spent 87 percent of its after-tax income on housing alone last year.

The big lie

“Lower taxes cause higher economic growth.”  It’s making the rounds.

What causes robust economic growth—and a myriad of health and welfare benefits--is social justice, as reflected in a viable social contract that produces a much more equitable distribution of spoils than currently exists in the US, a state of the union where everyone is more or less pulling together rather than pulling apart, as the nation is currently.

Source:  www.washingtonpost.com

Truest statement made by a politician this week:  “You can’t change Washington from the inside.” – Barack Obama.

Mobilize, America!  Vote!  Amend the Constitution!  Clean up the mess!  You’re better off telling the rich to “love it or leave it,” than to fall into the neo-feudalism they would have your and your children and your children’s children live in.  The level of GDP is not the best measure of social welfare.  Most of what they tell you is lies anyway.

Stimulus—for whom?

As I’ve been saying for years, any fiscal stimulus will go to the 1 percent:  “The American income distribution is like a Detroit V8 firing on one cylinder:  it doesn’t matter how much you step on the gas, only one cylinder going to fire” (source, March 2011). 

In the 2010 recovery, 93 percent of the gains were captured by the top 1 percent. That’s because top incomes grew 11.6 percent in 2010, while the incomes of the 99 percent increased only 0.2 percent. (source)

It when we know facts like this that Larry Summers’ obtuseness in recommending more debt and more fiscal stimulus becomes truly breathtaking.  Well, at least we know Jamie Dimon won’t be becoming Treasury secretary now, after his bank’s trading blooper.

The problem is the distribution, people.  Take away from the military industrial security complex and give to infrastructure workfare and education, and for Christ’s sake, raise taxes on the rich. And make the banks write down or charge off debts that won’t be repaid.

When things go wrong, people get mad, and when people get mad, they make mistakes.

I just watched Bill Moyers on public television.  He showed a bunch of people saying they are mad at corporations, that corporations are looting the common people.

But corporations are just a form of social organization that is very good at raising capital and producing goods and services.

It is the ruling class who are looting the common people, a ruling class of interlocking boards and CEOs and lobbyists and Congressmen and just plain greedy people who have forgotten to reward the people who are doing the work because they along with almost everyone else in America bought into the notion that greed is good and that it’s okay to take more than your share.  I want it all now.  It’s time for you to get into me.

The problem is the ruling class and the American social values that have until recently validated the behavior of our ruling class.  Greed has been good since Ronald Reagan’s presidency, approximately.  We let them get away with it.

The solution is to bring the people in the ruling class down to earth by raising marginal tax rates to at least 75 percent on income over one million dollars.  Take the fun out of expropriating the employees and shareholders of their corporations, let the rich bear their fair share of cleaning up the fiscal mess Wall Street created (whether they’re on Wall Street or not).

If they want to take their money out of the country, they probably can, but the IRS is making it more and more difficult.  If they want to leave, let them go, it’s still a free country, relatively speaking.

The Tea Party movement and the Republican party are sucker’s games, talking about getting government off people’s backs, when all they’re really talking about is protecting the highly unequal status quo and keeping taxes low for rich people. […]  (source)

Links 3/21

A couple of articles from the rich troves put forth by www.nakedcapitalism.com and www.ritholtz.com that I’d like to comment on.

Via:  Too Smart to Fail by Thomas Frank

Notes on an Age of Folly

The “sound” banker, alas! is not one who sees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows so that no one can really blame him.
    –John Maynard Keynes

In the twelve hapless years of the present millennium, we have looked on as three great bubbles of consensus vanity have inflated and burst, each with consequences more dire than the last.

First there was the “New Economy,” a millennial fever dream predicated on the twin ideas of a people’s stock market and an eternal silicon prosperity; it collapsed eventually under the weight of its own fatuousness.

Second was the war in Iraq, an endeavor whose launch depended for its success on the turpitude of virtually every class of elite in Washington, particularly the tough-minded men of the media; an enterprise that destroyed the country it aimed to save and that helped to bankrupt our nation as well.

And then, Wall Street blew up the global economy. Empowered by bank deregulation and regulatory capture, Wall Street enlisted those tough-minded men of the media again to sell the world on the idea that financial innovations were making the global economy more stable by the minute. Central banks puffed an asset bubble like the world had never seen before, even if every journalist worth his byline was obliged to deny its existence until it was too late. […]

The thesis is basically that the elites stick together, trash the economy for short-term personal profit (that may be long-term in terms of their own financial futures).  You got to walk the walk, and talk the talk.  You couldn’t say the Iraq was was stupid and budget-busting until a quorum of your peers said so.

This resonates with me personally because I have a few friends on the East Coast, where I’m not, who are part of the Establishment, and it always amazes me how unaware they are of being in the bubble.  Of course, to them, with my free-thinking ways, I’m clearly just an ignorant country bumpkin, not suitable for showing off to their friends.

Via:  No-Growth Capitalism’s post-crash manifesto

“It’s about revolution,” warns Sir Richard Branson, founder and chairman of Virgin Group, in his new book “Screw Business as Usual,” a declaration of war against today’s out-of-control capitalism.

Branson’s at war, on the attack. His command center is the Carbon War Room where message becomes action, rallying an army of entrepreneurs into what I see becoming a game-changing New No-Growth Capitalism.

“My message is a simple one: business as usual isn’t working … business as usual is wrecking this planet … Resources are being used up; the air, the sea, the land are all heavily polluted ... The poor are getting poorer … Many are dying of starvation or because they can’t afford a dollar a day for lifesaving medicine.”

Sounds like a profile of Ike, Patton and MacArthur, generals who successfully waged a near-impossible war. The world needs more like them to wage this war, “turn capitalism upside down-to shift our values from an exclusive focus on profit to also caring for people, communities and the planet.”

Yes, capitalism is wrecking the planet … is using up resources … creating poverty, starvation, disease … epidemics, inequality, climate failure … and yes, warfare … remember the Pentagon prediction that by 2020, the planet’s “carrying capacity” will be so drastically compromised that they’re already planning military defense systems for the coming “all-out wars over food, water, and energy supplies.” Yes, by 2020.

Capitalists are short-term thinkers, don’t care for people, planet

The Carbon War Room is the command center for the counteroffensive: But they better act fast. As economist Bill McKibben wrote in Foreign Policy, it “might already be too late.” Former Greenpeace CEO Paul Gilding went further in “The Great Disruption”: “It’s time to stop worrying about climate change … brace for impact.”

Why? Population growth is out of control, headed for 10 billion by 2050, predicts the United Nations. And Jeremy Grantham, whose firm manages $100 billion, warns the planet can’t feed 10 billion. Still, global leaders turn a blind’s eye to the consequences, ignore this hot button issue to our peril.

Yes, Branson’s heard all these warnings. But his optimism is as infectious as his smile. He senses a new global dawn sweeping the world, a “vibrant and definite sea change from the way business was always done, when financial profit was a driving force.”

He hears more and more people openly shouting “screw business as usual.” More accurately: Screw capitalism. It is “time to start caring for people, communities and the planet,” caring for someone other than just their shareholders and their insiders. Now that shift would indeed be a historic game-changer.

How to survive in a world without Perpetual Growth economics?

In planning ahead, we do need Branson’s sea change, a totally new way of thinking and a dramatically new economic system that focuses on three goals for the next generation outlined in our earlier “Save the World” manifesto, goals that parallel Branson’s. Goals that today’s capitalists are certain to fight, just as they’ve been fighting to kill all reform efforts since the 2008 crash.

But after the coming global economic collapse these essential goals will define the New No-Growth Capitalism, if the planet is to survive:

• Does it support the prosperity of all economic classes worldwide?

• Will it help create a sustainable planet for the future generations, in 2050 and beyond?

• Will our leaders encourage stabilization of the world’s population?

Classical economics is fatally flawed, driven by Perpetual Growth mind-set. We will self-destruct unless we “turn capitalism upside down … shift our values.” […]

Now the manifesto makes some common thought errors, like saying that the planet cannot feed the existing population.  The problem is the distribution, gentlemen.  However, at least they are acknowledging that.

What makes this interesting is that it recognizes that we are getting closer by the day to the “stop” event, the next collapse, when the most pressing question will be “Am I my brother’s [and sister’s] keeper?”

These leaders are saying, “Yes, I am,” and urging us to figure out how to equitably take care of our species before we self-destruct…. And I would judge a return to animal barbarism and war as the solution to every problem as a form of self-destruction.

Picture of a broken country

The problem with America is that the owners of corporations don’t control them, looting corporate managements belonging to a cozy ruling class do; “corporations are people” and can buy elections outright (so can anyone in the world, since the money can be contributed anonymously); income and wealth are being split up largely along class membership lines (with the rare entrepreneurial exception who didn’t start off in or near the upper class—look at who gets funded by VC); and the only thing that will prevent America from descending further into banana republic neofeudalism will be renewed democratic commitment to collective welfare:  health, education, and work for those who need it.  Our emerging competitors may easily leapfrog past America as they see that countries that strive for “government that works” outperform countries where the prevailing attitude is “government is evil.”

I continue to hope.  Many have given up, and have become survivalists waiting for collapse.  To lose hope in the possibility of reform is to become a serf.

Hat tip to www.businessinsider.com:

Striking it Richer: The Evolution of Top Incomes in the United States (Updated with 2009 and 2010 estimates).

The basic gist: After losing big during the Great Recession, the top 1% have dominated income gains in the Great Recovery.

From the report:

During the Great Recession, from 2007 to 2009, average real income per family declined dramatically by 17.4% (Table 1),1 the largest two year drop since the Great Depression. Average real income for the top percentile fell even faster (36.3 percent decline, Table 1), which lead to a decrease in the top percentile income share from 23.5 to 18.1 percent (Figure 2). Average real income for the bottom 99% also fell sharply by 11.6%, also by far the largest two year decline since the Great Depression. This drop of 11.6% more than erases the 6.8% income gain from 2002 to 2007 for the bottom 99%.

The sharp fall in top incomes is explained primarily by the collapse of realized capital gains due to the stock-market crash. Aggregate realized capital gains fell from $895 billion in 2007 to $236 billion in 2009. Indeed, including realized capital gains, the top decile income share dropped from 49.7% in 2007 to 46.5% in 2009 while excluding realized capital gains, the top decile income share remained virtually constant from 45.7% in 2007 to 45.5% in 2009.

..

Mexican standoff

We have entered one of those periods when things are happening so fast it’s difficult to update one’s mental maps in a meaningful way.  You know what was there, but you don’t know what’s there now.  The last time I felt this way was in the fall of 1990 when the Iron Curtain fell.  The map was crumbling.

In the past week we’ve learned that because of “language arbitrage,” another word for sharp business dealings, the entire CDS market is compromised.  The Greek default may be deemed “voluntary” by the banks who wrote the worthless paper, and, surprise surprise, also comprise the “regulatory agency” that makes the rules about what is and is not a default.

As the formidable Reggie Middleton says, the CDS market is shot to hell one way or the other, and the five big banks that hold the vast majority of the trillions of dollars of exposure and now effectively unhedged.

It’s a Mexican standoff.  Can we trust bankers to honor the rules of Mutual Assured Destruction?  Not hardly.  Look at how Hank Paulson took advantage of the opportunity to nuke Lehman.  At the first whiff of blood in the water the sharks will attack.

The miracle cure of inflation, which really would have been a better way to get out from under bad debt, is not going to happen in a debt deflation.  In the banks unwillingness to recognize that their bad debt is not going to be repaid in full, and the whorish accounting profession’s willingness to let them carry it at fictitious values on their books, the downward spiral of debt deflation is guaranteed. 

One of the scariest things I’ve seen this Halloween was an interview with Larry Fink of Blackrock Investments on FT in which he (licking his lips) expressed a willingness on the part of the trillions of dollars of Big Money parked on the sidelines worldwide to participate in the rebuilding of some of these troubled economies at equity-like rates of return (with credit enhancements provided by governments and the IMF, if they could only learn how to behave and keep mostly out of the way)…. 

If the Greeks are smart they’ll tell the EU to shove and just default on their debts.  Once bad debts are written down, it’s amazing how quickly new money can appear.

The world economy will stagnate and tend toward war until honesty returns to the financial statements of the big banks.

As John Hussman has pointed out recently, and as I’ve pointed out all along, the failure of big financial institutions does not necessarily mean the economy falls into depression.  In the 1930s, the problem was that deposits were wiped out.  All the Feds had to do when the crisis hit was to tell Americans their deposits were insured.  When a bank fails, the biggest change from a depositor’s point of view is that the sign changes. 

Would the investors in the bank, equity holders and probably most bond holders, have been wiped out?  Sure.  That’s what risk taking is all about. 

But our leaders elected to send good money after bad, and bail the banks out on the taxpayers’ backs.  The Germans and French and Americans should just admit they made some really bad loans—and were stupid enough to believe the toilet paper CDSs they were selling each other were actually going to protect them from anything.  But then, the big banks were stupid enough, in some cases, to hold the “AAA'” securitizations of sub-prime mortgage paper that Wall Street conned them into creating on their own balance sheets.

There’s plenty of equity-backed liquidity sitting on corporate balance sheets. 

Can the global financial oligarchy survive a Mexican standoff?  That’s what this historical moment will decide.

And if the oligarchs turn to fratricide, and the strongest become even stronger, and exercise their greed even more, how long until the population of the world coalesces into a hard-edged resistance to financial feudalism through outright rebellion?

See also:

Consent Needed for Debt Repayments Michael Hudson, Credit Writedowns

In Praise of Papandreou's Referendum Decision; Eurocrats Terrified of Democracy; Parade of Cowards – Mish

Give the People a Vote on Bank Bailouts? Markets and Politicians Horrified at the Thought – Economic Populist

Links 3/23/2011

Some particularly good links on where we’re at h/t www.patrick.net :

James Grant Testifies On The Federal Reserve (dailybail.com)
The Origin of Central Banking and Possible Alternatives (Mish)
Federal Reserve and the opaque banking syndicate (mybudget360.com)
New Civil War erupts, led by super rich, GOP (marketwatch.com)
Rising Wealth Inequality: Should We Care? (nytimes.com)
Educating College Graduates So They Can be Unemployed Mike Konczal, New Deal 2.0

A propaganda blast from Morgan Stanley

Via:  Mish  Download “USA, Inc.” here.

Here is a trenchant, cutting analysis (not) of what ails America, looking at the USA as if it were a private company, not a nation—and we all know how American companies deal with excessive costs.  They take it out of labor’s hide.

Of course, the recommendations are to cut the entitlements of everyone, including “those for whom there are few alternatives” (paraphrase).  And naturally, we should tax consumption (make the tax system more regressive)—because everyone else does.  (In Euroland they get a lot more for their money, but that isn’t mentioned.)  I will credit them with showing that we could basically solve the fiscal problem by raising the marginal tax rate on the highest two tiers of income to around 75 percent, something I’ve been advocating for a while.

The basic flaw of the report—other than treating a nation as a private corporation, which carries a frightening amount of pernicious subliminal baggage—is its excessive reliance on arithmetic, scenarios and other corporate finance style BS that has nothing to do with what ails us (IMHO), namely, that our social contract no longer works.  Prima facie evidence of which is the prevailing kleptocracy that has replaced democracy in the United States.  The rules of corporate governance, the interlocking boards and CEOs, the tax system, the bought-and-paid-for Congress and its major client, the military-industrial complex, the massively messed up health insurance system—everything today conspires to make the USA, our nation, a banana republic.  Yes, we have no democracy.  The rich get richer, the poor get poorer.

How do you address a massively unequal rigged economic system, according to Morgan Stanley?  By cutting the entitlements of those at the bottom.  To make us more competitive, so the rich can get richer on the backs of American serfs.

The American social contract is broken.  It will take more than arithmetic to solve this problem.  It will take a massing of social will to reinstitute democracy in America. 

 

See also:  Fix Congress First!

America, the barbaric

Here is a cogent exposé of America’s bankrupt value system.  And even America’s poor have been taught to blame themselves (Low incomes make poor more conservative, study finds - physorg).  It is instructive that it is the “liberal”—and often bellicose—Paul Krugman gets the honor of being shredded here.

Via:  Truthout

Reconsidering Japan and Reconsidering Paul Krugman

Sunday 12 December 2010

by: Steven Hill, t r u t h o u t | News Analysis

Shibuya, Tokyo. (Photo: - reuben -)

The New York Times is doing a series on Japan, which the Times describes as an examination of "the effects on Japanese society of two decades of economic stagnation and declining prices." Reading the series is about as cheery a task as rubbernecking at a car wreck on I-95, but, unfortunately, the Times series simply repeats the "conventional wisdom" about Japan put out by the same economic experts who missed an $8 trillion housing bubble in the United States, and, in fact, have been wrong on most of the big economic issues over the past two decades.

Look at it this way: In the midst of the Great Recession, the United States is suffering through nearly 10 percent unemployment and 50 million people without health insurance. A new report has found over 14 percent of Americans living below the poverty line, including 20 percent of children and 23 percent of seniors, the highest numbers since President Lyndon Johnson's War on Poverty. That's in addition to declining prospects for the middle class and a general increase in economic insecurity.

How, then, should we regard a country that has 5 percent unemployment, health care for all of its people, the lowest income inequality and is one of the world's leading exporters? This country also scores high on life expectancy, low on infant mortality, at the top in literacy, and low on crime, incarceration, homicides, mental illness and drug abuse. It also has a low rate of carbon emissions and is doing its part to reduce global warming. In all of these categories, this particular country beats both the US and China by a country mile.

Doesn't that sound like a country from which Americans might learn a thing or two about how to get out of the mud hole in which we are stuck?

Not if that place is Japan. During and before the current economic crisis, few countries have been vilified as an economic basket case as much as the Land of the Rising Sun. Google "Japan and its economy" and you will get numerous hits about Japan's allegedly sclerotic economy, its zombie banks, its deflation and slow economic growth. This malaise has even been called "Japan syndrome," a monicker that sounds like a disease to warn policymakers - as in, "You don't want to end up like Japan."

No one has been more influential in defining this narrative than New York Times columnist and Nobel-Prize-winning economist Paul Krugman. Throughout the 1990s, and still occasionally today, Krugman has skewered Japan's economy and its leaders. In the late 1990s, Krugman wrote a series of gloom-and-doom articles, complete with equations, theories and titles like "Japan's Trap" and "Setting Sun," bluntly stating: "The state of Japan is a scandal, an outrage, a reproach. It is operating far below its productive capacity, simply because its consumers and investors do not spend enough."

Krugman was commenting on Japan's so-called "lost decade" of the 1990s, when the Japanese economy was considered sluggish and underperforming. But let's look at some of the Japanese metrics during that time. Throughout the 1990s, the Japanese unemployment rate was - ready for this? - about three percent. Not 30 percent, that's three percent: about half the US unemployment rate at the time. During that allegedly "lost decade," the Japanese also had universal health care, less inequality, the highest life expectancy and low rates of infant mortality, crime and incarceration. Americans should be so lucky as to experience a Japanese-style lost decade.

Reopening the case of Japan raises some important questions. How do economists such as Krugman decide what to value and prioritize, or what to measure? What is an economy for? To produce the prosperity, security and services that people need? Or to satisfy economists and their equations, theories and models? For too many economic Cassandras, if their spreadsheet columns don't add up, if the surplus nations don't balance the deficit nations and the supply doesn't meet the demand, then disaster surely awaits.

Krugman has gone on the attack again recently, this time in a debate over fiscal stimulus versus deficit reduction as a strategy toward economic recovery. As a stimulus hawk, he has written that the Germans - one of the few economic bright spots in a struggling global economy - "seem to be getting their talking points from the collected speeches of Herbert Hoover." He is criticizing Germany for the same reason he criticizes Japan; he says the country is not spending or consuming enough to stimulate its economy.

But what exactly are the Germans or the Japanese supposed to buy more of? Surely Krugman has visited both countries, and it's plainly evident that neither are lacking in any material goods or modern trinkets to speak of. Americans are the only ones who seem to think they need three refrigerators, four televisions and a car for everyone in the household. Too many economists have yet to figure out that it is this consumer-driven economic model that has crashed and burned.

Japan's economy has been and remains successful. Germany's is thriving as well. Unlike the trickle-down US economy, Japan and Germany have reached an economic steady state in which they don't need roaring growth rates to provide for their people, and here's why: they are better at sharing the wealth produced by their economies to foster a more broadly shared prosperity among their populaces.

But for the economic experts, apparently, it doesn't matter if people's needs are being met; what matters is whether their theories and equations balance. It's no different with media outlets such as The New York Times, which has been getting it wrong for years – they also missed an $8 trillion housing bubble, as well as the lie on weapons of mass destruction in Iraq (prompting the Times to issue an unprecedented mea culpa to their readers). In the same way, the Times and the rest of the media have been missing the real story about what is occurring in Japan and Europe.

As a result, there is a commonsense aspect to this story that gets lost amid the rhetoric and the headlines. Two lessons of our times are that economic bubbles eventually burst, and that the environmental consequences of unbridled growth in this age of global warming are severe. The world needs to figure out how advanced economies can provide for their people without relying on roaring growth rates driven by asset bubbles. If consumer-driven growth was the order of the day in the post-World War II era, going forward it is going to be steady-state economic growth - growing not too fast, but not too slowly - and learning to do more with less. Yet stimulus hawks like Krugman don't seem to get this; they want to crank the "growth machine" into full gear with huge government stimulus spending.

But the real game is no longer strictly about economic growth; it's also about sustainability. The era of US-style trickle-down economies is over for wealthy countries because trickle-down is neither economically sound nor ecologically sustainable. The developed nations must lead the way towards a different path of development. This is not an easy challenge, yet it is the course that Japan and Germany have chosen. If the US didn't have such a trickle-down economy that has produced so much inequality - if it was better at sharing its wealth - perhaps it wouldn't need so much fiscal stimulus and growth.

At the recent G-20 meeting in Seoul, South Korea, German Chancellor Angela Merkel rebuffed President Barack Obama and Treasury Secretary Timothy Geithner's appeals to go back to the toxic economics of Wall Street capitalism. Said Merkel, "It is essential to return to a sustainable growth path." One cause of the crisis, she said, was that "we did not have sustainable growth. In many countries growth was built on debt and [speculative] bubbles."

Her finance minister, Wolfgang Schauble, was even more blunt. He described American policy as "clueless" and said the American growth model is stuck in a deep crisis. "The USA lived off credit for too long, inflated its financial sector massively and neglected its industrial base." Catch the irony: Germany - previously sneered at by US pundits for its "weak and sclerotic" economy - is lecturing America about how to grow our economy. Given Germany's 6.7 percent unemployment (compared to 9.6 percent in the US) and an impressive record at manufacturing things that the rest of the world wants to buy, the Obama administration, as well as Paul Krugman, should be listening attentively.

This work by Truthout is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.

Free speech under attack

Joe Lieberman wants to be able to shut down the Internet.  The most recent canard from the State Department is that Julian Assange is not a journalist because he has a political agenda (is there a journalist anymore who doesn’t have a political agenda?).

It’s important to remember that the police are on the government payroll and will do whatever they are asked to do to “preserve order.”  The Espionage Act criminalizes thought crimes.  The American ruling class has hardened their hearts to the crimes of their empire and to the suffering of their fellow citizens.  The Republican Party has taken the lead in hard heartedness but it is a bipartisan effort.  Already it is a crime to electronically record the police.  I am concerned that the jack boot of fascism will come down hard in the next collapse of "animal spirits.”  The ruling class clings greedily to its spoils, and is willing to take the country down to do so, since there are more attractive investment opportunities abroad….

The New McCarthyism – Gonzalo Lira.  Detailed deconstruction of the mind-f**k that the MSM media have done to you in the past few weeks.  Extremely refreshing and alarming.  We have a lynch mob mentality forming in America.  A must read.

Naomi Wolfe on the Espionage Act – Any indictments based on this act should be met with horror.

This week, Senators Joe Lieberman and Dianne Feinstein engaged in acts of serious aggression against their own constituents, and the American people in general. They both invoked the 1917 Espionage Act and urged its use in going after Julian Assange. For good measure, Lieberman extended his invocation of the Espionage Act to include a call to use it to investigate the New York Times, which published WikiLeaks' diplomatic cables. Reports yesterday suggest that U.S. Attorney General Eric Holder may seek to invoke the Espionage Act against Assange.

These two Senators, and the rest of the Congressional and White House leadership who are coming forward in support of this appalling development, are cynically counting on Americans' ignorance of their own history -- an ignorance that is stoked and manipulated by those who wish to strip rights and freedoms from the American people. They are manipulatively counting on Americans to have no knowledge or memory of the dark history of the Espionage Act -- a history that should alert us all at once to the fact that this Act has only ever been used -- was designed deliberately to be used -- specifically and viciously to silence people like you and me.

The Espionage Act was crafted in 1917 -- because President Woodrow Wilson wanted a war and, faced with the troublesome First Amendment, wished to criminalize speech critical of his war. In the run-up to World War One, there were many ordinary citizens -- educators, journalists, publishers, civil rights leaders, union activists -- who were speaking out against US involvement in the war. The Espionage Act was used to round these citizens by the thousands for the newly minted 'crime' of their exercising their First Amendment Rights. A movie producer who showed British cruelty in a film about the Revolutionary War (since the British were our allies in World War I) got a ten-year sentence under the Espionage act in 1917, and the film was seized; poet E.E. Cummings spent three and a half months in a military detention camp under the Espionage Act for the 'crime' of saying that he did not hate Germans. Esteemed Judge Learned Hand wrote that the wording of the Espionage Act was so vague that it would threaten the American tradition of freedom itself. Many were held in prison for weeks in brutal conditions without due process; some, in Connecticut -- Lieberman's home state -- were severely beaten while they were held in prison. The arrests and beatings were widely publicized and had a profound effect, terrorizing those who would otherwise speak out.

Presidential candidate Eugene Debs received a ten-year prison sentence in 1918 under the Espionage Act for daring to read the First Amendment in public. The roundup of ordinary citizens -- charged with the Espionage Act -- who were jailed for daring to criticize the government was so effective in deterring others from speaking up that the Act silenced dissent in this country for a decade. In the wake of this traumatic history, it was left untouched -- until those who wish the same outcome began to try to reanimate it again starting five years ago, and once again, now. Seeing the Espionage Act rise up again is, for anyone who knows a thing about it, like seeing the end of a horror movie in which the zombie that has enslaved the village just won't die.

I predicted in 2006 that the forces that wish to strip American citizens of their freedoms, so as to benefit from a profitable and endless state of war -- forces that are still powerful in the Obama years, and even more powerful now that the Supreme Court decision striking down limits on corporate contributions to our leaders has taken effect -- would pressure Congress and the White House to try to breathe new life yet again into the terrifying Espionage Act in order to silence dissent. In 2005, Bush tried this when the New York Times ran its exposé of Bush's illegal surveillance of banking records -- the SWIFT program. This report was based, as is the WikiLeaks publication, on classified information. Then, as now, White House officials tried to invoke the Espionage Act against the New York Times. Talking heads on the right used language such as 'espioinage' and 'treason' to describe the Times' release of the story, and urged that Bill Keller be tried for treason and, if found guilty, executed. It didn't stick the first time; but, as I warned, since this tactic is such a standard part of the tool-kit for closing an open society -- 'Step Ten' of the 'Ten Steps' to a closed society: 'Rename Dissent 'Espionage' and Criticism of Government, 'Treason' -- I knew, based on my study of closing societies, that this tactic would resurface.

Let me explain clearly why activating -- rather than abolishing -- the Espionage Act is an act of profound aggression against the American people. We are all Julian Assange. Serious reporters discuss classified information every day -- go to any Washington or New York dinner party where real journalists are present, and you will hear discussion of leaked or classified information. That is journalists' job in a free society. The White House, too, is continually classifying and declassifying information.

As I noted in The End of America, if you prosecute journalists -- and Assange, let us remember, is the New York Times in the parallel case of the Pentagon Papers, not Daniel Ellsberg; he is the publisher, not the one who revealed the classified information -- then any outlet, any citizen, who discusses or addresses 'classified' information can be arrested on 'national security' grounds. If Assange can be prosecuted under the Espionage Act, then so can the New York Times; and the producers of Parker Spitzer, who discussed the WikiLeaks material two nights ago; and the people who posted a mirror WikiLeaks site on my Facebook 'fan' page; and Fox News producers, who addressed the leak and summarized the content of the classified information; and every one of you who may have downloaded information about it; and so on. That is why prosecution via the Espionage Act is so dangerous -- not for Assange alone, but for every one of us, regardless of our political views.

This is far from a feverish projection: if you study the history of closing societies, as I have, you see that every closing society creates a kind of 'third rail' of material, with legislation that proliferates around it. The goal of the legislation is to call those who criticize the government 'spies', 'traitors', enemies of the state' and so on. Always the issue of national security is invoked as the reason for this proliferating legislation. The outcome? A hydra that breeds fear. Under similar laws in Germany in the early thirties, it became a form of 'espionage' and 'treason' to criticize the Nazi party, to listen to British radio programs, to joke about the fuhrer, or to read cartoons that mocked the government. Communist Russia in the 30's, East Germany in the 50's, and China today all use parallel legislation to call criticism of the government -- or whistleblowing -- 'espionage' and 'treason', and 'legally' imprison or even execute journalists, editors, and human rights activists accordingly.

[…]

The big economic story, and why Obama isn’t telling it

A Democratic clear thinker on the essential worthlessness of the President to his party or to his professed beliefs.  The Plutocracy (aka the Kleptocracy) rules!  Blame Government!  Cut your own benefits so the rich can have more! 

The only weakness of the article is that Reich doesn’t recognize the (in my estimation) primary cause of the increasing inequality, namely the glorification of greed that has consumed the national psyche since Reagan.  This represents the opportunistic streak in the genetics of the mostly self-selected American people run amok.  Why should a CEO of an American corporation today be worth 400 times the median income when thirty years ago he or she worked for 30 times it?  No reason other than the winner-take-all economy we’ve developed, a reflection of our social values.  The depression will in all likelihood deepen until the distribution is flattened out.

Via:  Robert Reich

Quiz: What’s responsible for the lousy economy most Americans continue to wallow in?

A. Big government, bureaucrats, and the cultural and intellectual elites who back them.

B. Big business, Wall Street, and the powerful and privileged who represent them.

These are the two competing stories Americans are telling one another.

Yes, I know: It’s more complicated than this. In reality, the lousy economy is due to insufficient demand – the result of the nation’s almost unprecedented concentration of income at the top. The very rich don’t spend as much of their income as the middle. And since the housing bubble burst, the middle class hasn’t had the buying power to keep the economy going. That concentration of income, in turn, is due to globalization and technological change – along with unprecedented campaign contributions and lobbying designed to make the rich even richer and do nothing to help average Americans, insider trading, and political bribery.

So B is closer to the truth.

But A is the story Republicans and right-wingers tell. It’s a dangerous story because it deflects attention from the real problem and makes it harder for America to focus on the real solution – which is more widely shared prosperity. (I get into how we might do this in my new book, Aftershock.)

A is also the story President Obama is telling, indirectly, through his deficit commission, his freeze on federal pay, his freeze on discretionary spending, and his waivering on extending the Bush tax cuts for the rich.

Most other Washington Democrats are falling into the same trap.

If Obama and the Democrats were serious about story B they’d at least mention it. They’d tell the nation that income and wealth haven’t been this concentrated at the top since 1928, the year before the Great Crash. They’d be indignant about the secret money funneled into midterm campaigns. They’d demand Congress pass the Disclose Act so the public would know where the money comes from.

They’d introduce legislation to curb Wall Street bonuses – exactly what European leaders are doing with their financial firms. They’d demand that the big banks, now profitable after taxpayer bailouts, reorganize the mortgage debt of distressed homeowners. They’d call for a new WPA to put the unemployed back to work, and pay for it with a tax surcharge on incomes over $1 million.

They’d insist on extended unemployment benefits for long-term jobless who are now exhausting their benefits. And they’d hang tough on the Bush tax cuts for the wealthy – daring Republicans to vote against extending the cuts for everyone else.

But Obama is doing none of this. Instead, he’s telling story A.

Making a big deal out of the deficit – appointing a deficit commission and letting them grandstand with a plan to cut $4 trillion out of the projected deficit over the next ten years — $3 of government spending for every $1 of tax increase – is telling story A.

What the public hears is that our economic problems stem from too much government and that if we reduce government spending we’ll be fine.

Announcing a two-year freeze on federal salaries – explaining that “I did not reach this decision easily… these are people’s lives” – is also telling story A.

What the public hears is government bureaucrats are being paid too much, and that if we get the federal payroll under control we’ll all be better off.

Proposing a freeze on discretionary (non-defense) spending is telling story A. So is signaling a willingness to extend the Bush tax cuts to the top. So is appointing his top economic advisor from Wall Street (as apparently he’s about to do).

In fact, the unwillingness of the President and Washinton Democrats to tell story B itself promotes story A, because in the absence of an alternative narrative the Republican story is the only one the public hears.

Obama’s advisors explain the President’s moves are designed to “preempt” the resurgent Republicans – just like Bill Clinton preempted the Gingrich crowd by announcing “the era of big government is over” and then tacking right.

They’re wrong. By telling story A and burying story B, the President legitimizes everything the right has been saying. He doesn’t preempt them; he fuels them. He gives them more grounds for voting against raising the debt ceiling in a few weeks. He strengthens their argument against additional spending for extended unemployment benefits. He legitimizes their argument against additional stimulus spending.

Bill Clinton had a rapidly expanding economy to fall back on, so his appeasement of Republicans didn’t legitimize the Republican world view. Obama doesn’t have that luxury. The American public is still hurting and they want to know why.

Unless the President and Democrats explain why the economy still stinks for most Americans and offer a plan to fix it, the Republican explanation and solution – it’s big government’s fault, and all we need do is shrink it – will prevail.

That will mean more hardship for tens of millions of Americans. It will make it harder to remedy the bad economy. And it will set Republicans up for bigger wins in the future.