‘Animal spirits’ still depressed

The forecast is based on the assumption that unemployment improves marginally ahead of the 2012 election, and then shoots up in 2013 as fiscal austerity and possibly a bond market rout prevail.

Apostasy, American-glasnost-style

Via:  Rawstory.com  Parallels to the collapse of the Soviet Union.  The Internet = Glasnost.  

Exclusive: US empire will fall due to lack of faith, not finances or war, author warns

By Nathan Diebenow

As many in the American empire longingly talk of "recovery" from the most devastating economic condition since the Great Depression, others have begun thinking in a very different direction, urging fellow citizens to prepare for the worst.

Dmitry Orlov, author of "Reinventing Collapse: The Soviet Example and American Prospects," is one of the later.

Soon, he told Raw Story in an exclusive interview, Americans will "stop expecting anything of Washington," turning the US into more of a "banana republic" than a super power.

Orlov, who witnessed the Soviet Union's collapse from within, lamented that the American empire's condition is so severe there is "absolutely nothing" most can do to keep it alive or hasten its demise.

"Basically the people in this country are powerless," he suggested. "So they should probably focus on things closer to home."

Orlov, born in born in Leningrad (now known as Saint Petersburg), moved to the United States at age 12 and became an engineer. In his book, he detailed his experiences with the Soviet collapse on numerous visits to Russia in the late 1980s, early 1990s. He covered similarities between the two superpowers in their twilight and suggested ways for Americans to adapt to their new post-empire environment.

Amid horrid unemployment and a national deficit soaring past World War II levels, Orlov theorized that the US empire would eventually collapse -- not from finances or war, but from a lack of faith in the system.

It would happen over three overlapping stages, he said: financial, political and commercial.

"We're fairly far along in the financial collapse trajectory while political collapse has now really only started with the last election," he said.

By the next election cycle, Orlov figured, the United States would be in the throes of a "banana republic" such that the voters would exchange one inept political party for another inept political party while expecting different results.

While nothing constructive would result from this behavior, he said, the next meaningless shift in 2012 may be the last straw.

"That will run its course where people walk away in disgust and stop expecting anything of Washington," he said.

Environmental and social catastrophe

As the financial collapse runs its course, Orlov said, people can expect some imports to be cut off. Energy, above all cheap oil, will be the most important import to dry up. Transportation fuels will also become scarce, bringing on the next stage of social collapse: the commercial sphere, he noted.

"People will lose access to various products that they need," Orlov said.

Much has already collapsed in the commercial sphere. Vacant strip malls and deserted grocery stores clutter the landscape in many parts of the country.

"You also have people whose only source of food is food stamps," he said. "That's becoming predominant in a lot of communities."

But let's not fail to mention an overemphasis on military expenditures and unused industrial areas, Orlov insisted, describing them as mis-investments made by both empires.

"To this day, the former Soviet Union is littered with abandoned or semi-abandoned industrial sites just as the United States is," he noted.

By Orlov's estimation, the US military will never voluntarily quit being the world's largest oil consumer and largest polluter. Moreover, any plans suggested to the military to end its oil dependency in 30 years are an act of "desperation," he said.

"They have set their hair on fire and are running around in circles. That's their drill right now," Orlov quipped.

But what really seemed to rock the Soviet empire to its foundations, Orlov explained, was devastation of Russia's physical environment as a result of industrialization. The prime example was the nuclear reactor accident in Chernobyl in 1986. To this day, the site continued to produce a very high levels of childhood leukemia, cancers and other diseases.

"[The Chernobyl accident] caused a great number of people, including people in some positions of authority, especially in the scientific community in Russia, to seriously mistrust the government, and [they] started doing their own research, making their own observations that disquieted them even more," Orlov explained.

Former Soviet President Mikhail Gorbachev's "glasnost" policy allowed enough truth out to undermine the remaining Soviet authority to the point where those who operated the system lost interest in perpetuating it, Orlov said.

On taxing consumption, the rich, and other matters

I read The Atlantic’s colorful piece on The Rise of the New Global Elite with appreciation.  Upon reflection, it makes me wonder if Marx’s historical vision wasn’t right after all.  We’ve been saying for several generations that capitalism won because a rising tide lifts all boats and the immiseration of the proletariat never happened.

While shopping for a vendor to do some analytical work recently, I heard from the Indian firm’s young American sales rep, “Why don’t you play the labor arbitrage?”  Does playing the labor arbitrage justify Jeffrey Immelt’s huge compensation at GE?  How much intelligence does it take to do that?

For every genuine innovator who becomes a billionaire there are a hundred twenty hedge fund managers who take their money out of the markets by trading, often manipulatively, if Jim Cramer can be believed on anything (maybe just this).  One hedge fund manager of my acquaintance said in a moment of weakness that he really didn’t believe (the neoclassical economics-finance line) that what he did contributed in any way to “efficient allocation of resources.”

So, we have a class of ultra-rich folks who control the government and its labor and tax laws, and the markets, who think they are smart enough to deserve everything they get.  It’s private property, right? 

And now that the bottom 90 percent in America have been expropriated of much of their share of the nation’s wealth, the conventional wisdom says, “Tax consumption, all the other developed nations do.”

Why?  To provide funds for investment?  And where will that investment be?  Not in America, in all likelihood.  The rich will invest in the high-growth areas (as anyone can do through a mutual fund).  With the wealth lost in the housing bust and household deleveraging, consumption is already going to take a hit. 

How is this not going to further the descent into serfdom of the majority of Americans?  The last thirty years have proven that trickle down economics doesn’t work.  How to kill domestic demand.  Anything to avoid having the rich pay their fair share of taxes.

But The Atlantic’s article makes clear that the global elite sees themselves as world shape-shifters:  if a deal can lift three Indian families into the middle class at the expense of one American family, they call it a win.  They are blithely unconcerned with the rising gulf of inequality between their class and everyone else.

The big money has no national allegiances.  They see themselves “doing God’s work.” 

The moneychangers rule the world.  National governments take their orders.

+    +    +

U.S. aggregate demand, not adjusted for inflation:

To show how in-your-face the don’t-tax-the-rich movement has become, see this article from the Heritage Foundation (bold added—or read The Economist’s special report on the global elite):

Slow-Growth U.S. Now Ripe for Consumption Tax: Kevin Hassett

Kevin Hassett, On Sunday January 23, 2011, 9:00 pm EST

The prospect of meaningful tax reform has become the hot topic in the hearing rooms and, just as important, the back rooms of Washington.

House Ways and Means Committee Chairman David Camp, Republican of Michigan, devoted his first hearing to the topic, and President Barack Obama’s team is talking up the subject in private and in public.

“We’re examining whether we can find the political support for a comprehensive tax reform,” U.S. Treasury Secretary Timothy Geithner said on Jan. 12. Two days later, he met with financial officers from major companies, including Microsoft and Cisco Systems, to discuss the corporate tax rate.

The last overhaul of the tax code was in 1986, when President Ronald Reagan and congressional Democrats including Representative Dan Rostenkowski and Senator Bill Bradley crafted legislation that should be in the Tax Policy Hall of Fame, if there was one. In pairing lower marginal rates with an assault on exemptions and other loopholes, the Tax Reform Act of 1986 proved the benefit of broadening the tax base.

Now it’s time to take that one step further.

In 1651, the English philosopher Thomas Hobbes became the patron saint of tax geeks when he called for government to switch to a consumption tax -- one based on the money people spend, not what they earn. Such a tax, he argued in his book, “Leviathan,” was morally preferable:

“For what reason is there that he which laboureth much and, sparing the fruits of his labour, consumeth little should be more charged than he that living idly, getteth little and spendeth all he gets; seeing the one hath no more protection from the Commonwealth than the other?”

Passing Favors

Like Hobbes, those who today decry the irrationality of the tax code and advocate fundamental reform are ignored by elected officials. Rather than a simple-to-understand code, politicians prefer the current mess, a tangle of exceptions that makes it easy to pass out favors without being noticed.

Just figuring out what you owe is so complicated that few Americans dare do their own taxes. Talk about busywork: In her annual report, the Internal Revenue Service’s national taxpayer advocate, Nina Olson, estimated that American taxpayers and their hired preparers spend 6.1 billion hours annually complying with the law. That’s equivalent to the hours of 3 million full- time workers.

What might we accomplish by dedicating the work of these hypothetical 3 million people to something more productive?

Big Idea

Persistently slow growth has become the kind of problem that calls out for a big idea, one that can produce steady improvement, not just a short-term jolt. Moving toward a consumption tax would encourage investment in capital, potentially increasing future growth.

Lawrence Summers, writing in 1981 -- more than 25 years before he would serve as Obama’s chief economic adviser -- estimated that “a complete shift to consumption taxation might raise steady-state output by as much as 18 percent.”

Harvard University economist Dale Jorgenson, in a 2003 article, said a U.S. move to a true consumption tax is unlikely because it “would shift the burden of taxation from the rich to the poor.”

Instead, he proposed redrawing the existing income-based system so that that earned income is taxed at 10 percent, investment income is taxed at 30 percent, and every dollar of a business’s income generates a credit against its taxes. Jorgenson estimated that such a system would produce gains “equivalent to 19 cents for every dollar of U.S. national wealth.”

Boosting Output

For a book on fundamental tax reform that I edited in 2005 with Alan Auerbach of the University of California-Berkeley, we looked at literature on different models and concluded that switching to an ideal system might eventually increase economic output by 5 to 10 percent.

Our glaring need for economic growth is why, after so many years of talk, there seems to be a growing consensus behind real improvement to our tax code.

The groundwork for this consensus was established by President Obama’s National Commission on Fiscal Responsibility and Reform, which recommended reducing individual tax rates to three tiers of 8 percent, 14 percent and 23 percent, and reducing corporate taxation to a single rate between 23 percent and 29 percent, down from today’s top rate of 35 percent.

Political realities also argue for progress. House Republicans need to give their animated base a win, of course, and Obama needs a big reform as he approaches his 2012 reelection bid.

It’s been 360 years since Hobbes first called for the elimination of income taxation and wholesale adoption of a consumption tax. Its time may finally have come.

Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. The opinions expressed are his own.)

Links 1/17/2011

A defense of a working program – angrybear.com.    Social Security.  Read the Brookings link.  Fighting the plutocracy’s propaganda (“We are happy to send you on the road to serfdom!”).  I really should put these guys on my recommended sites list.  They get very pedantic and go off on highly academic economics polluted tangents, but do good work in general.  It’s my distaste for academic economics that has prevented me from adding them.  I’m going to work on that.

Central Bank steps up its cash support to Irish banks financed by institution printing own money Independent (Ireland). Yves’ commentary:  “You have to love this, no one else seems to be reporting that the Irish Central Bank is “printing” euros. Yes, they did inform (note merely inform) the mother ship, the ECB, which is pretending this is all OK. Now if the Irish can take the position that they don’t need approval, what is to prevent any other eurozone central bank from doing the same?”  Hyperinflation, here we come?  This is mind boggling.

Forget Brain Age: Researchers Develop Software That Makes You Smarter – Wired.  The only scientifically validated “brain training” method, now implemented in freeware at http://brainworkshop.sourceforge.net/   Brain Workshop was created by Paul Hoskinson, and is maintained by Paul Hoskinson and Jonathan Toomim.  Thank you!  I downloaded it have played a couple of dozen times…. Challenging!  I made the suggested $5 donantion as well.  “Brain training” is now a multi-hundreds of millions of dollars a year “industry” (scam?).

Links 1/14/2011

"The United States of Inequality" – Slate

Nader hails 'exciting' progressive-libertarian alliance

This time may truly be different – balance sheet adjustment under population ageing Kiyohiko G Nishimura, a January 7 speech posted at the Bank of International Settlements (hat tip Yves)

Can Europe Be Saved? Paul Krugman, New York Times. This account will be old hat to reader of the financial press, but a good summary for laypeople who’ve decided to get up to speed (h/t/ Yves)

Links 1/10/2011

Equality, a True Soul Food - NYTimes.com  New book details the social pathologies of inequality.

Income Inequality as a Factor in Economic Well-Being - NYTimes.com

This is Your Brain on Income Inequality - NYTimes.com

Income Inequality and Financial Crises - NYTimes.com

Deepening crisis traps America's have-nots – Telegraph.co.uk

Even the legal owners of American corporations, the stockholders, cannot control the compensation that our god-like ruling class pays itself.  And these same moneyed interests control the politicians.

America has adopted fascism.  Will the empire need to collapse before we can break this stranglehold?

Niall Ferguson on empire collapse

http://fora.tv/2010/07/28/Niall_Ferguson_Empires_on_the_Edge_of_Chaos#fullprogram 

Worth watching.

America’s Catch-22

How can Americans get the Money out of politics, when it is Money that makes the laws? 

The Supreme Court, not even monetarily beholden to Money, has pledged its troth to Money; they’re no help.

To get an effective third party would require a coincidence of very low probability events to get a majority elected to Congress.  And then it would require them not to be corrupted by the wiles of Washington, which are very, very persuasive.

It will take a massing of the public will unprecedented in our lifetimes to get America out of its rut.  Or in this rut we will stay for generations.