AUGUST 1912

AUGUST 1912

About a hundred years ago, all was supposedly right in the world.

Well settled in the predictable conventions of the 19th century, no one, it seemed, even contemplated the possibility that the century long post-Napoleonic order could or would be rent asunder.  European stability, coupled with attendant increases in trade and economic largess triggered by the greatest surge in labor saving gadgetry the world had ever known, seemed to have ushered in an unending era of relative peace and prosperity.  The railroads, telegraphs and oceanic steamers that made the world a smaller place existed in an easy camaraderie with the elevators, refrigerators and now-available-on-a-large-scale "horseless carriages" that made it an easier one as well. 

Sure, there were pockets of despair -- from the Irish nationalists demanding freedom from an imperial order that had unnecessarily killed millions of their countrymen in an if not created then certainly abetted famine, to the widespread poverty of an industrial order that produced a set of discordant notes running from Marx's manifesto to the Paris Commune to the nascent labor movement -- but things on the whole seemed always to be improving.

And then, two years later, a Serbian nationalist assassinated an Austrian prince and the world blew up.

For well over ninety years now, historians have sliced and diced the causes of World War I from almost every possible angle.  They have lamented the failure of statesmanship that unnecessarily turned a crime into a cause.  They have unmasked the fragility inherent in inter-related monarchies, where Kaiser, Czar and King all had the same grandmother and, perhaps, the same psychoses.  They have plumbed the documentary record to expose the flaws in inter-locking treaty commitments that turned the heirs of Bismarck, Metternich, Gladstone and Disraeli into dominoes that mindlessly fell into their pre-assigned positions, as one after another erstwhile great nation mistook action for strength while dismissing thought as the province of the weak.  They have condemned the leaders who ignored America's Civil War, a stark and recent example of how total war would become in the new industrial age. 

But perhaps the most accurate assessment is this --

World War I happened because no one in any position of responsible authority really thought it could . . . or would.

And in that, there is a lesson for us in August 2012.

We are running around in circles today, and our arguments are often pointless, especially when it comes to the economy.   Neither the temerity of the European Monetary Union nor the austerity plans embraced by various conservative and/or creditor friendly  political parties or governments make any sense in the current economic environment.  When interest rates are near zero, demand has imploded, and growth become anemic, deficits are irrelevant and fiscal stimulus on a massive scale is really the only  solution.  To pretend this is not the case, or to ignore the transparently obvious realities that make it so, is the rough equivalent of assuming in 1912 that a world war lasting four plus years -- and costing tens of millions of lives -- can never happen.  To further assume that austerity will  somehow create a recovery under these circumstances is equivalent to assuming in 1912 that the cavalry will be be relevant in the coming mechanized war. 

Whether fiscal stimulus has to be administered through existing governments, as is the case here in the US and in Britain, both of whom still control their currencies, or must first traduce the barriers of a monetary union that needs to somehow get itself to the point where its supposed central bank is allowed to represent everyone and not just creditors, as is the unfortunate case in most of Europe,  is at this stage almost beside the point.  If it is not done -- both here and there -- there will be no recovery in any significant sense of that word.

What if the opposite is done?  What if Romney becomes president here and implements some version of Rep. Ryan's and the right-wing House of Representatives' budget? What if the European Central Bank continues to dawdle on having member states underwrite continent-wide bonds so that Germany can inflate as Spain, Italy, Greece and Ireland devalue  (growing their economies by making their products cheaper and improving their comparative competitive position)?  What if, in other words, everyone takes their assumed positions and, lemming-like, marches down the road to economic perdition?  What if this all occurs and, as is likely, the consequence is Depression?

The answer is, unfortunately, simple.

One hundred years from now, a new crop of historians will have spent their careers puzzling over the mindlessness of a governing class that ignored reality and assumed the worst could never happen. 

They will ask how it was that science -- in this case, economic science -- could have been so thoroughly discarded. 

They will lament the lives needlessly ruined, the assumptions mindlessly made, the history casually ignored.

And some may even recur to an earlier time and a different world -- the world of August 1912. 

Where a different hell was ultimately produced . . .

For the same reasons.

AURORA AND PENN STATE

AURORA AND PENN STATE

A week ago the big news was whether the statue of Joe Paterno would come down at Penn State in the wake of the university's report that he and other higher ups had covered up Jerry Sandusky's child abuse.  Then, last Friday, a gunman opened fire in a crowded theatre in Aurora, Colorado, killing a dozen people and injuring over fifty. 

The two tragedies seemed completely disconnected.  Different crimes.  Different places.  Different victims.  But they actually have one thing in common.

Denial.

By us.

We have created a culture where individual responsibility is a paramount moral imperative but social or collective responsibility is denied at every turn.  If you look at the commentary on the defrocking of Paterno or on this week's announcement by the NCAA of the penalties it will impose on Penn State's football program, you may be struck by the sheer number of individuals who think these results are unfair.  The football team never molested a child and the players should not be penalized, so the commentary goes.  Maybe it was acceptable to take JoePa off his pedestal, they continue, but that is where it should have ended.

Now fast forward to the commentary on the tragedy in Aurora.  The reaction of many to those who suggest flaws in a legal regime that allowed the killer to confront his intended victims with ammunition magazines that allowed him to get shots off at the rate of 50-60/minute is the same.  Guns don't kill, people do; if only some of the theatre goers had been armed, the carnage would have been abated; in fact, said some, the law was part of the problem because it allowed those theatre goers to carry concealed weapons but prohibited those same theatre goers from firing them.

This is denial on a large scale.  And until we confront it, the tragedies in Aurora . . . or Columbine . . . or Tuscon will continue, and the disgusting crimes committed by the Sanduskys of this world will never be completely unearthed and eliminated as future possibilities.

It is well and good to condemn the Aurora shooter and Penn State's perverted assistant coach.  It is also well and good to condemn the college officials and Happy Valley icon for their head in the sand cover-up. 

But after we have done all that, it might be a good time to look in the mirror.

Intercollegiate football is a multi-billion dollar business.  Those football powerhouses bring in enormous sums to the universities that sponsor them.  In western Pennsylvania, Paterno was untouchable, and so was the football program he repeatedly put on the national map.  When he was told to resign by the university's President years ago, Paterno just ignored the demand.  When he finally retired, he was given a multi-million dollar severance package, complete with access to jets and luxury boxes.  Why?  Because in our cost-benefit world, JoePa was a football entrepreneur whose program funded libraries, endowed chairs, and kept State College more than afloat. 

No one could afford to say "no" to him  until a former FBI Director unveiled what was really going on.

By then, unfortunately, it was too late.

Last Friday, it was also too late in Aurora.  

There is no rational reason anyone needs or should be permitted to buy an ammunition magazine that can enable a firearm to  be unloaded with the rapidity of a sub-machine gun.  None! And the notion that we can even the scales and avoid these tragedies by allowing Joe Average the same firepower as any would be killer is simply ludicrous.  The Aurora gun man had outfitted himself head to toe in bullet proof vests and  body armor.  One reason the hundreds of theatre goers could not escape was that he was able to spray the crowd repeatedly with deadly bullets from his fast action  ammo clips.  Under those circumstances, it's impossible to see what well-armed victims could have done  -- if they got up to shoot, they would have been killed; if they succeeded in shooting, the body armor would have protected their assailant.  

And how many others would have died -- in this proposed 21st century version of the shoot out at OK Corral -- is not even considered.

Guns too are a mutli-billion dollar business in this country.  Because there are no truly protective national laws -- the assault ban was allowed to expire in 2004  --  we labor in an environment of patchwork state laws where gun manufacturers in low-control states grossly overproduce given the demand in those markets, knowing full well that the supply will inevitably (and illegally) find its way to the high-control states.  

Nevertheless, it is considered impossible to pass national gun control legislation given the NRA and a Supreme Court that has turned the Second Amendment into something it never was -- a right to bear arms unmoored from any need to provide for a well-regulated militia, which was that Amendment's original (and only) purpose.  Meanwhile, President Obama says his administration will not propose any further controls, and Mitt Romney --- who actually signed an assault weapons ban in Massachusetts when he was Governor -- claims no new laws, not even renewal of the old assault weapons ban which limited the size of ammo clips, are necessary.

We cheered for Paterno and those Nittany Lions for years.  And we have voted in those NRA-fearing Senators, Representatives, state legislators and Presidents for those same years.  

If we think there aren't more Sanduskys out there in the untouchable venues of intercollegiate sport , or more Auroras in a future beclouded by a distorted Second Amendment, we are in denial.  And until we confront the reality behind those tragedies, they will not end.

Because, as Shakespeare once put it, the fault is not just in our stars . . . 

It's in ourselves.

 

GOING SMALL

GOING SMALL

It was supposed to be historic and certainly was the most anticipated Supreme Court decision since Bush v.  Gore.  The result was also unexpected and therefore surprising

But in the end, if it lives up to all the hype, it will be for all the wrong reasons.

That's my take on National Federation of Independent Business et al. v. Sebellius, the decision issued by the Supreme Court last week on the constitutionality of the Affordable Care Act (ACA), a/k/a Obamacare.  

To begin, the decision contains a number of anomalies. 

One is that it violated the settled practice that High Court opinions generally avoid unnecessary arguments or holdings.  Lawyers call this unnecessary stuff dicta, a kind of judicial throat clearing generally done in the privacy of chambers rather than the pages of opinions.  But National Federation of Independent Business marches dicta into a judicial hall of fame.

Five justices, including the Chief Justice, decided that the ACA's individual mandate  was a constitutional exercise of Congress's taxing power.  Their take was that the penalty imposed on those who remain uninsured was essentially a tax, which Congress has the power to levy under Article 1, Section 8 of the Constitution.  Under that view, the individual mandate could be construed simply as imposing that tax on those who avoided insurance, rather than as mandating insurance coverage from those who would refuse it.  If you do not want to be insured, the claim goes, you do not have to be.   You just have to pay the tax (to defer the cost your free riding inevitably imposes when you get sick and go to the emergency room anyway).  

That ended the argument on constitutionality per se, and consequently there was no need for the Chief Justice to sally forth with his claim that the Act was not  Constitutional under the commerce clause.  But sally forth he did.  On the theory that he, Roberts, would have upheld the law under the commerce clause if he could have, so he had to first determine that he could not  . . . 

So that he could then find it Constitutional under the taxing power.

This, however, is no theory at all.

Because if it were, two centuries of Supreme Court jurisprudence go out the window.   Every case involving multiple claimed bases for Constitutionality necessarily presents the option of deciding them all.  Nevertheless, the practice of refusing to do so has -- until last week -- triumphed anyway. 

Another anomaly was the Court's market analysis, which was part of its unnecessary holding that the individual mandate was not a proper exercise of Congressional power under the commerce clause.  The Court focused on one ostensible market (the market in health insurance) while ignoring the other far more important one (the market in health care itself).  This was the only way the Court could get to its determination -- with which five Justices agreed -- that inaction (in the form of not insuring, which was what the mandate is designed to end) could not constitute the act of engaging in commerce.

The problem here, however, is that the insurance market is really not an independent market.  Insurance is simply a mechanism that health care consumers use to obtain and pay for health care.  Without the market in health care, there would be no insurance market.  Most importantly, those who refuse to buy insurance are not passively inactive in the health care market.  To the contrary, they are very active when they need care.  They march to the nearest hospital emergency room and get it.  And the rest of us then pay for it.  Consequently, the more accurate economic take on insurance refuseniks is not that they are doing nothing.  It is that what they are actually doing -- namely, self-insuring, or more accurately, "free riding" -- is running up the costs for the rest of us and for the system as a whole.  Those "acts" unmistakably affect commerce, and the Congress thus had the unimpeachable Constitutional right to regulate them.

Under the commerce clause.

Anomaly Number Three -- the Court's majority holding that the ACA's Medicaid expansion is unconstitutional because it gives the states no real choice other than to accept the expansion.  

This was truly poppycock.  For as long as anyone can remember, the federal government has had the right to offer states money in return for the states agreeing to be bound by the terms of the offer.  That is how Medicaid works, and has worked since its passage in 1965.  Last week, however, the Supreme Court junked that right.  Now, if the feds give the states the option of receiving money under federal terms, and the states accept that offer, the feds cannot later amend the offer (even if the original grant comes replete with a bold warning that the feds were retaining the right to do so) and condition receipt of all the funds on compliance with the newly amended program.  

The Gang of Five who held the ACA's Medicaid expansion illegal claimed that requiring the states to lose all their Medicaid money if they did not agree to the new expansion of eligible recipients --to those whose incomes were 133% of the federal poverty level -- constituted a "gun to the head" of the states and left them no option but acceptance.  It was OK, so the Court said, for the federal government to withhold the new money if the states did not cover those eligible under the new rule, but they could not lose their old Medicaid money.

This was ludicrous at two levels.   On the one hand, the "gun to the head" analogy pretty much dies once the actual terms of the ACA are examined.  Under it, the federal government pays for 100% of the costs of the newly eligible Medicaid recipients for the first two years the Act is in effect, and for 90% thereafter.  This is hardly a gun; it's more like a Congressional wet kiss. On the other, there really was no basis for the decision in any Supreme Court precedents, all of which have allowed the federal government to condition grants and to amend those conditions later on so long as the states were advised of that possibility in the first place.  

What the Court did, in fact, was to basically turn federalism on its head.  Now, instead of the federal government retaining the right to control how its (or the country's federal income taxpayers') money is spent,  the states get to say yes once, on one set of conditions, and the feds can never thereafter alter those conditions, even if they told you they could when they gave you the initial grant.  It's a bit like Mom and Dad being duty bound never to reduce the initial allowance they give the kids.

Contra the Gang of Five, this sort of behavior does not respect the sovereignty of the individual states.  It just institutionalizes (or Constitutionalizes) their dependence.

Which is not what conservative jurisprudence is supposed to be about.

So why all the anomalies?

It is difficult to avoid the conclusion that more is going on here.  Some have suggested privately that Roberts switched his vote in the last weeks after Sen. Leahy criticized the Court on the floor of the Senate.  Others have claimed that the decision itself puts new and not so hidden arrows in the conservative quiver (e.g., the commerce clause holding and the Medicaid expansion holding) that will come back to bite those who try to use the federal government to solve any national problems in the future.  Still others have raised Chief Justice Roberts to new heights, arguing that he has put the interests of the nation ahead of his party and, in the words of the New York Times's Tom Friedman, "gone big."

I vote for a modified version of the first and second options.

I think Roberts knows the Court has been losing its luster for some time now and is increasingly viewed as just another partisan operator in today's highly charged political environment.  Its decision to award the Presidency to George W. Bush in 2000 began this walk down the slippery slope of judicial partisanship, and the Citizens United decision in the last term (which unleashed unidentified and unlimited corporate money on the political process) more or less capped it.  Now the Court's public approval rating is in the thirties. 

Nothing like Congess, but worse than it has ever been.  

Roberts had to do something to reverse this trend and pulling the ACA off the Constitutional cliff may do it.  The best way to rebut a claim of partisanship is to do the unexpected.  No one expected John Roberts to uphold Obamacare.

So he did.

He, of course, also wrote a wacky and unnecessary commerce clause opinion that smacks of the sort of judicial ignorance of economic reality characteristic of pre-New Deal Supreme Court rulings .  In that world, manufacturing was not commerce; it just preceded it.  In the Gang of Five's world, marching to the emergency room is not commerce if you decide beforehand not to be insured (or, more probably, if an insurance company decides that for you).  And he also wrote an equally wacky attack on Medicaid expansion that Constitutionally binds the federal government to deals it never struck in the first place, and then makes those deals un-amendable unless the states agree to the actual amendment or unless those initial deals are so small that ending them does not really matter to the states in any case. 

The combined effect of these rulings over time will be to limit the federal government's ability to solve national economic problems.  Instead, the national government will be Constitutionally bound to make its programs small enough so that any offers to the states do not become too big to amend or improve.  The commerce clause -- which has more or less saved every piece of national economic legislation since 1939 -- will be  back in a danger zone where phony semantics substitute for real economics.  And the only thing left will be the taxing power.  Lots of luck with that.   

Because no one other than the cognescenti is reading all of Chief Justice Roberts's opinion right now, he gets credit for "going big."

When what he really did could turn out to be . . . 

Pretty small.

 

IDEOLOGY MATTERS

IDEOLOGY MATTERS

Who would have thunk it?

In this post-modern, post-Marxian, post-it seems-everything world, ideology turns out to matter.  

This was not supposed to be the case.  For years now, politicians, academics, businessmen and women, and -- it seems -- pretty much everyone else, have been telling us the exact opposite.  With the fall of the Berlin Wall in 1989, and the Soviet Union a few years later, ideology -- the notion that decisions are made in a fashion pre-ordained by an all-encompassing theory or world view -- was to have died.   Even the Chinese seemed to have killed it, though they refuse to re-name it.

We were all Einsteins now.

Or, if not that smart, at least Deweyites (as in John, not Tom) -- practitioners  of the possible and the practical, pragmatists who always kept their eyes on the facts. 

Yeah, right!

The number of ideological waves hitting our existential beach is starting to be uncountable.  On the economy, both here and with a vengeance in Europe, Hayek's heirs have turned austerity into a religion to be practiced at all costs and in the face of any evidence to the contrary.  Like the good apparatchiks of old, no fact is too true to be ignored in pursuit of fidelity to the overarching idea.  

This past week, the European Central Bank (ECB) decided not to lower interest rates ostensibly to keep political feet to the fire and force continued fiscal austerity.  This was done in the face of unemployment rates across the Eurozone that are north of 10% overall and astronomically high in certain countries and demographic groups.   In Spain, the rate is way over 20%, and the same is true among Eurozoners under the age of 25.  For Spaniards under the age of 25, the rate is over 50%.  These are catastrophic numbers.

Though the ECB continues to promote the theory that fiscal excess caused the financial collapse of the last four years (and therefore the current problems), this is false.  The collapse occurred as a result of conduct in the private (principally housing) sector, and there is no real correlation between debt to GDP ratios (an ostensible measure of fiscal profligacy) and national crisis.  In fact, both Spain and Ireland had pre-crisis ratios below those of Germany but the latter is thriving while the former suffer enormously, mostly because there were private credit-induced housing bubbles in Spain and Ireland which never materialized in Germany, a nation of renters (and bankers, who were stoking the bubbles -- in housing and later in sovereign debt -- everywhere else).

Meanwhile, the hammerlock that is the European Currency Union marches on.  The union is a sort of financial Articles of Confederation, the grossly unworkable plan of union initially created for the United States.  The Articles made it impossible to fashion national policy, leading to different currencies and de facto trade policies throughout the country, which were then rendered impermeable to change given the narrow writ granted the national government and the power individual states effectively had to veto any national plan.  The treaty establishing the ECU created an equally hamstrung central institution (the ECB), which lacks the power most other central banks (e.g., the Fed and the Bank of England) have to act as lenders of last resort, but with a mandate to combat inflation above all else.  Inflation is the bugaboo of Germans who have studied the Wiemar '20s and do not want to repeat them.  So instead, the Germans -- who are enthrall to fiscal austerity -- are endorsing policies that repeat the global '30s -- namely, Depression.

The solution here could be Eurobonds backed by all nations in the ECU.  So far, however, Germany has resisted that tack, and even as it seems to ease its opposition, it attaches long term fiscal conditions to any possible policy reversal that, if not disingenuous, will certainly delay any response.  And delay here is Europe's enemy.  The unemployment Europe faces is exacting its toll now, and will continue to do so going forward (the data on the effects of underemployment and  unemployment on new entrants into the labor force -- principally college graduates -- are scary;  indeed, if you come of age in a Depression, your lifelong prospects are considerably reduced, and for some, just ended).   There is also no evidence of structural problems, like a mismatch between jobs and skills.  The austerians, of course, trumpet the need to take a long view.  But (1) most of the austerians themselves have jobs, and (2)  as Keynes remarked, "In the long run, we are all dead."

In a non-euro world, Spain, Ireland and Greece all would have devalued their currencies by now and solved any competitiveness problem vis a vis the north by simply producing cheaper goods and services.  The ECU, however, makes this approach impossible for those in it.  Not, however, that this necessarily matters to the austerity ideologues.  Great Britain, for example, is not in the union and could have devalued the pound,  but its conservative government has practiced fiscal austerity with such abandon that the British are now suffering a second recession along with the rest of Europe.  This did not have to be the case.  Iceland, which also is not in the union, suffered the same real estate bubble induced implosion that killed Europe and the US, but it just devalued its currency and told the banks to behave like good capitalists and suck it up (i.e., fail), which is what is supposed to happen in our ostensibly free market but often does not among the "too-big-to-fail" banks that get a pass (and a government handout to survive).

This is the ideology of austerity.  In it, government debt is the villain (even when it isn't)  and fiscal rectitude the solution (even when it won't be).  Real villains -- like the lenders who induced the Spanish real estate bubble -- often get a pass, and  institutions that in the past would have combated the problem -- like the European Central Bank -- lack the tools to do so.  Sensible solutions like Eurobonds are suffocated in the ponderous treaty changes that would have to occur for them to take effect.  Meanwhile, spectators who do not have to follow this path nevertheless do so.   This is the case with Britain and it is the case with the American Republican Party.  They are both preaching at the altar of austerity and  embracing the false claims necessary to keep that failed approach afloat and alive. In this, they are in league with their Euro-brethren.

Ideologies are magnets.  They create force fields of group think so strong that few are able to resist.  

They did not end in 1989, or in our post-modern world of supposed uber-empiricism.

They just changed.

ELITISM AND ITS ERRORS

ELITISM AND ITS ERRORS

The history books are filled with the errors of the elite.

Whether it's European policymakers and monarchs assuming, on both sides mind you, that World War I would be a gloriously short march to victory unencumbered by the carnage of machine guns, chemical weapons and mass death; or Robert MacNamara and his State Department whiz kids assuming that they could arbitrarily measure and then predict victory in South Vietnam on the basis of dubious body counts; or Andrew Mellon, captain of finance in the first third of the 20th Century, confidently advising anyone who would listen that the proper response to the Great Depression was to "liquidate" everything,  those who are supposed to know better have proven with regularity that they often, very often, do not.

So you would think that, armed with this evidence of error, either today's elites would be suitably humble or all of us would be suitably skeptical.

But they aren't . . .

And neither, it appears, are we.

Here in the United States, Americans are entering into a Presidential general election campaign.  In that campaign, the opposition party -- the GOP -- has staked its chances on the claim that, by cutting government deficits and reducing marginal income tax rates,  the country's current anemic recovery can be turned into something robust enough to create jobs.  Meanwhile, Republicans are also claiming that President Obama is somehow responsible for the economy -- that he now "owns it," in the parlance of all those Sunday morning talk show pundits.  

Neither claim is remotely accurate.  

The former ignores today's economic reality, while the latter ignores the reality of the eight yesteryears when Obama was not President.

We are in what professional economists call a "liquidity trap."  These occur when interest rates approach zero and growth is still anemic.  At the point of this zero lower bound, there is nothing more the monetarists at the Fed can do other than buy enough short term Government debt to drive down long term rates, known to the wonks as "quantitative easing."  Though the Fed -- to its credit and in the face of idiotic blow back from the right wing --  is doing plenty of this as well,  demand still lags as a long term consequence of the financial implosion of 2008.  Consumers -- the actual buyers -- just don't have the money.  They are saddled with too much debt of their own, many in the form of underwater mortgages.  So  corporations are holding back enormous amounts of productive capacity and naturally will not produce what their customers cannot buy.

None of these problems can be solved with more tax cuts for the rich or cuts in Government spending, and every economist worth his or her salt knows as much.  In fact, they have known as much for about eighty years.  The only solution is Government spending sufficiently targeted to restore robust consumer demand.  That means infrastructure spending (road, bridges, highways, and yes, even clean energy, and even in the face of Solyndra, which was a loser in a sector that is still a sea of success).  It means getting money to the states so they do not have to lay off teachers and police and firemen  or close hospitals, all of which takes money out of the pockets of the middle class.  And it may even mean an FDR-like commitment to public jobs, lest this generation of college graduates wind up permanently underemployed.

There was a time to worry about the deficit.  It was when the economy was growing.  Clinton did that in the '90s and solved the problem; Bush didn't from 2001 to 2008 and it  has come back.  Now, however, is not the time to compulse about the deficit  George W. Bush left us.  Now is the time to end the Depression he put us in.

So why won't the Government do it?

The answer is simple.

First, the GOP-- which controls the House and can filibuster in the Senate -- will not permit it.  And second, too many elites -- in think tanks, at the University of Chicago, on the Sunday talk shows, and on K and Wall Streets -- are pushing a false narrative on how we came to this pass  and what can be done to solve it.  The false narrative starts with the notion that de-regulation had nothing to do with the financial crisis of 2008, continues by blaming the Government for the real estate bubble and all those toxic mortgage backed securities, and then ends with the claims that businesses are not selling because they lack confidence (either as a result of over-regulation, over-taxation, or (preferably) both) and that the bond markets will turn us into Greece if we don't end the deficit now .  

All of these claims, however, are false. 

The repeal of Glass-Steagal in the '90s allowed commercial banks to get into the securities business.  Private sector giants liked Countrywide -- aided and abetted by their investment bankers -- then invented those never under-written (and thus toxic) mortgage-backed securities that Wall Street doubled down on with credit default swaps and that fueled the real estate bubble long before Fannie or Freddie tried to catch up.   The ensuing debacle that followed the inevitable burst left consumers with the debt but not the dough.  Demand then imploded.  

There is not a single piece of economic data to support the claim that businesses lack confidence rather than customers.  Nor is there any data to support the notion that inflation is about to rear its ugly head or that the bond market is about to revolt and send interest rates through the roof on account of the deficit.  To the contrary, rates are so low that the United States is literally refinancing its debts at near 0%, which more or less means that paying down the debt at this point would not just be counter-productive . . .

It would also be stupid.

But the elites march on.  

You cannot watch a Sunday talk show without some airhead with a title or a fancy degree ignoring these facts as he or she seriously suggests that Government spending has skyrocketed under Obama (it hasn't) and must be cut by orders of magnitude (it shouldn't).  A whole generation has been raised on the platitudes of right wing ideology that make these sorts of empirically false assertions a kind of transcendent truth that cannot ever be questioned.  The carnival barkers of this drivel have oodles of cash backing them, not to mention a Supreme Court that laboriously does their bidding under the guise of merely construing the First Amendment (memo to Scalia: money is not speech, it's property, and the Founders never envisioned a world where only the rich got to talk).

Political  pundits are aghast that President Obama now has the temerity to run on a platform that calls out the do-nothing GOP and accurately notes that their obstruction eliminated the Administration's ability to win a bigger stimulus, fashion tougher financial regulation or  craft a better health care bill.

Too bad.  

Because it's all true.

Too many of the elites have gotten it wrong over the course of the last thirty years, attempting to repeal settled economic lessons learned in the hard days of the Great Depression.  

This election has to be about telling them they are wrong.

As they have been so often in the past.

IT'S A DOG'S LIFE

IT'S A DOG'S LIFE

Mitt Romney is now the presumptive Republican nominee for President and after tomorrow's round of GOP primaries, that result will be all but official.  He has managed to be the last man standing in a field notorious for its extremism on the one hand and transparent lunacy on the other.  In doing so, however, he has raised the political flip-flop to an art form.

He was pro-choice as the GOP Governor of Massachusetts from 2004 to 2007 and now says he is not.

He was for gay rights when he ran the Bay state and now claims to have gotten right-wing religion on that issue as well. 

He more or less invented the individual mandate as a practical alternative to near universal health care in Massachusetts, a feat justly praised when he accomplished it in the middle of the last decade as his erstwhile opponent Ted Kennedy stood proudly by his side while he signed the bill . . .

But now he pledges to repeal the mandate at the federal level, and -- if the Supreme Court follows the hints all those conservative justices tossed out at the recent oral argument on the ostensible un- Constitutionality of Obamacare's mandate -- acquiesce in its repeal at any state level as well.

In sum, a few years ago Mitt Romney was a moderate Republican Governor, the trifecta of a throwback to (1) his Dad (himself a moderate Governor of Michigan in the '60s), (2) the well traveled road of GOP moderation in Massachusetts itself (see Governor Weld, Senator Brooke, Governor Peabody, etc.), and (3) the historic moderation and at times progressivism of the national GOP (see Teddy Roosevelt, Charles Percy, Clifford Case, Jacob Javits; indeed, even Nixon, the author of the EPA and OSHA as President from 1968 to 1974).  Today, however, Romney professes to be the right wing's standard bearer, all the moderation and progress of his former self thrown by the wayside in his single-minded obsession to become the 2012 Republican Presidential nominee.

Romney, of course, will now try to tack to the center.  His campaign manager all but told us that a few weeks ago,  comparing the primary and general election campaigns to separate Etch-A-Sketches where the latter can simply erase the former.  So as we head to the general election, we can expect Romney to tone down his love affair with the right wing and -- at least in the swing states -- dust off his former Massachusetts moderate self for a re-appearance this fall.

This presents an enormous problem for the American electorate.  

For Romney, more than any recent candidate for President of the United States, has basically bet his electability on which of his various selves the voters think will show up on January 20, 2013 if he is actually elected.  

And we now have to decide.

The simplest answer -- indeed, the one which most base Democrats will immediately embrace -- is that Romney cannot be trusted.  One who careens with equal ease from utterly incommensurable positions is playing the voter for the fool.  Case closed.

But for the independents out there, the case will not be closed.  They will give Romney the chance to make his case.  In fact, with polls tightening as the Republican primary season closes and the general election effectively upon us, they already are.

So the question remains . . . 

Which Romney will show up on January 20?

Fortunately, the answer is simple.

It'll be the guy who strapped his dog Seamus to the hood of a car years ago as he undertook a day long journey to his vacation spot while the poor beast hysterically unleashed its innards.

The dog-on-the-roof story has been around for awhile and from time to time rears its (from Romney's viewpoint) ugly head.  Gail Collins of the New York Times  has, shall we say, doggedly kept the story alive in her own twice weekly column.  And now a number of independent groups have decided to run with it (full disclosure:  as the owner of a rescue dog, a deaf and blind shih-tzu, I am the Chair of one of them; for any interested, the web site is www.mittismean.org).  The response of the Romney campaign, the RNC, and Romney supporters as a whole has been derisive.  They basically maneuver from a smug "Are you serious" -- using the large issues this election will decide to blow off what  amounted to either animal cruelty or weird insensitivity  -- to an incredible "The dog really liked the trip."  The latter, of course,  is unbelievable on its face and turns out to be false in fact.  

Because the first thing poor Seamus did when Mitt finally arrived at his destination was . . . 

Run away.

Which is exactly what we should do this November.

Because the dog on the roof story is not a joke.  In fact, it tells us a lot more about Mitt than his tenure as a businessman, a Massachusetts Governor, or a Presidential candidate.  Yes, the guy comes off as a robotic automaton, and yes, in those years as a leverage buy out specialist at Bain & Co., he destroyed more American jobs than he created, and yes, he has flip-flopped his way to the GOP nomination -- and air brushed his gubernatorial term along the way -- with the grandeur of a political Houdini who thinks we won't notice.

But the real problem is this.

Mitt doesn't care.

He is an ends-justifies-the means kinda guy.  Once he decides to go somewhere, he does not for a moment worry about how he'll get there, who he'll run over, who will fall by the wayside, what things will be like when he finally arrives, or what promises he made on the way.  He has demonstrated this with abandon in his Presidential campaign.

But it has always been there . . .

And always will . . .

And if Seamus could talk . . .

He'd tell you so.

RADICAL

RADICAL

Time to go radical.

Reasonable is not working.

If I hear one more politician or ersatz journalist rail about the need to find bi-partisan common ground in the sweet spot of a centrism where immediate deficit reduction and job growth live in some sort of economic harmony, I am going to get sick.  It isn't going to happen.

It can't. 

Over the last thirty years, conservative orthodoxy has simply pulled too much demand out the economy.  That is what happens when (1) wages stagnate,  the result of unions collapsing and globalized wage arbitrage taking over, and (2) bankers get unregulated free rein to peddle "products" that put consumers in long term hock, which is what they accomplished when everyone was allowed  to use their home as a credit card.  Once those same bankers turned mortgages into cash for speculators via the now infamous mortgage backed securities, the con was complete.   The ensuing real estate bubble created the impression that there was a free lunch (in the form of ever rising asset values).

And then the bubble burst.

Today, consumers are still over leveraged (thanks to that explosion of private debt over the last decade), but banks can't lend enough (given the shakiness of their balance sheets -- where all those mortgage backed securities are still being held at par -- and the perceived need to adhere to credit standards that were ignored in the run up to 2008).  So private spending is still weak.

The March jobs report was a big disappointment.  The private sector produced a mere 120,000 jobs that month.  Wall Street (and just about everyone else) expected the number to be in the 200,000 range and it wasn't even close.  The recovery from 2008 continues unabated.  But its pace is anemic and uncertain.  In this world, conservatives continue to talk about immediate deficit reduction, business confidence and fears of inflation, certain that dealing with the first and the second is necessary to curb the third and produce jobs.  

All of this, however, is pure economic bunk.  

As Paul Krugman has continually pointed out to anyone willing to listen, we have not begun to put a dent in the job losses that came in the wake of 2008.  The percentage of "prime age" workers who are actually employed -- a real number, unlike the unemployment rate, which is distorted by failing to count those who stop looking -- went down by about five points during the collapse and has gone up by less than one in the "recovery."   At the same time,  our nominally low inflation rate  (about 2% overall, even with the recent gas price hike) shows no sign of precipitously rising any time in the near future.  Businesses are not hiring and producing because there is not enough demand (unemployed debtors don't have a lot of walking around money) , not because they are worried about the tax and regulatory environment.

The near term solution to all of this was a sufficient stimulus and some inflation.  The conservatives, however, made the former impossible, and the chattering classes (including a lot of professional economists who should know better) have scuttled the latter.  What we have, therefore, and have had for some time now, is an economic crisis that our political culture seems powerless to confront and solve.  

The problem here is not a lack of ideas.  We have known how to pull ourselves out of depressions and severe recessions for at least 80 years.  You do it by getting the government to increase consumer demand given that the private sector can't or won't.  This typically involves some form of government spending -- either on infrastructure (which creates both an immediate bump up in demand and also helps with long term productivity), welfare spending (food, housing, etc., which just increases demand), or targeted tax cuts (which increase demand so long as they are properly targeted to those who will spend the money rather than bank it).

None of this, however, is politically possible now.  A deficit which could create problems in the medium and long term is being used to eliminate any rational economic response to demand problems in the short term.  It is also being used to eliminate any policies which could devalue private debt, which is what inflation and/or various forms of foreclosure relief would do.  And the folks manning the barricades as deficit hawks circa 2012 are the same people who brought you the Bush tax cuts of 2001 and the two unpaid for wars of the last ten years, which cumulatively turned the Clinton surplus into Bush's sea of red ink. 

But hypocrisy has no cost in American politics. 

So it is practiced with abandon. 

I am a believer in incremental progress.  I understand that American federalism is very slow.  It is far easier to stop something than it is to pass anything.  And that was the Founders' collective intent.  Over our two hundred plus years of history, therefore, progressives have always had to fight a two-steps-forward-three-steps-back war against reactionaries and the status quo.  Their opponents changed -- from slaveholders to industrialists to stock speculators to sexists.  But the process rarely changed.

Except when it did.

Because, from time to time, progressives have abandoned the marble temples of incremental American federalism and . . . 

Gone radical.  

They've raised hell, hit the streets, jumped to the front of the bus, crossed the bridge, burned the draft cards, or camped out on the Mall.  Unable to change the conversation from within, they altered it from without.  Unwilling to defer to authority, they defied it.  And underestimated by a smug establishment, they created a new one.

That is where we are today.  The system isn't working.  Twenty years ago, in his Presidential campaign, former Massachusetts Senator Paul Tsongas made a point of admonishing unreconstructed New Dealers and trade unionists to stop bashing business.  And the Democrats heard him and stopped.  But now the other side has turned bashing labor . . . or women . . . or gays . . . into a cottage industry.  And that has to be stopped too.   Progressives have to hit the streets.  The kids have to vote like they did in 2008.  The Wall Street occupiers have to return to Zuccotti Park.  The conversation has to change.  

The people who change it will not be the bankers, hedge funders, or politicians checking out the "internals" on their polls.  Because we have to stop talking just about margin . . . or return on investment . . . or individual responsibility . . . or the swing voter.  And begin talking about redistribution . . . and economic fairness . . . and justice.   

We need to rediscover what it means to be a citizen in a democratic republic.

Rather than just a consumer in a capitalist economy.

We need to go radical.