Archive for category Economy

Yes to the Trans-Pacific Partnership


In 2005 Brunei, Chile, New Zealand and Singapore formed the  Trans-Pacific Strategic Economic Partnership Agreement with the idea of integrating the economies of countries on both sides of the Pacific.  The US joined in 2011, and now negotiations are underway to expand the zone to include Australia, Canada, Japan, Malaysia, Mexico, Peru and Vietnam (as well as the original four and the US).  Other countries, such as Taiwan, the Philippines, Laos, Cambodia, Indonesia, Bangladesh, India, Columbia, Thailand and China have expressed interest in joining.

Many on the left oppose expanding this agreement, arguing that it would harm the US economy by exposing us to competition from third world countries that pay their workers less and have laxer environmental regulations.  The argument is that this further empowers global corporations to evade democratic oversight and prosper at a cost to American workers.

Maine Congressman Mike Michaud also urged President Obama to bring up alleged currency manipulation by Japan in negotiations with Japan’s Prime Minister Shinzo Abe.   Japan’s currency has been deflating despite economic growth, and it appears that this is intentional.  Yet given the near 25 year stagnation of the Japanese economy, I’m not sure turning this into an economic conflict does anyone any good.

Michaud's argument is sound, but it's not clear his recommended course of action is best

Michaud’s argument is sound, but it’s not clear his recommended course of action is best

Joseph Stiglitz, one of the top economists on the planet, has warned that this agreement benefits the very wealthy, and will contribute to the increasing concentration of wealth in the world.   By trying to push this through on a “fast track” trade agreement (meaning a bill written by the White House could be sent to Congress with no possibility of amendments or alterations), President Obama is likely to anger the left wing of his party.   Indeed, anything sent to Congress will likely be after the 2014 elections so as not to arouse controversy during the mid term campaigns.

So is Obama becoming a tool for big money, showing that once in power Democrats like Republicans serve the rich and powerful, or is the trade agreement good for the economy and US national interest?

Alas, the answer is not easy, nor can it be reached with the usual ideological arguments.  Yes, this is good for big corporations, and in my opinion we are in dire need of a global regulatory scheme to put big money under some form of accountability other than “the market.”   Markets aren’t magic, and in fact can be easily manipulated by the very powerful.   Yes, this could create difficulties for workers facing new competition.

Yet globalization is real.  The greater the connections between countries, the better the world economy will become.  The production possibilities frontier will expand, third world states will use first world markets to grow their own markets, and global economic growth will pull us out of the current recession/crisis.   The risks of not expanding global markets in a time where we face high debt and stagnant growth are greater than the threat to American workers.

Despite the faults, expanding global trade and cooperation is necessary

Despite the faults, expanding global trade and cooperation is necessary

The way to insure a “fair” globalization is not to try to stop cooperation between states, but to use NGOs and social media to expose ways in which the system is rigged and create a movement for change.   That won’t come easily because the system is still stuck in the mode of the old sovereign state schema.   The system is obsolete, in a state of transition, and change won’t come fast enough for idealists who see the problems.   The answer isn’t to try to stop change, but to work to guide it.

So I favor the TPP – Trans Pacific Partnership.  I favor expanding trade and global cooperation.   Yet that is not enough; we must also build stronger international institutions to protect workers and the environment, and expand democratic accountability.  To be sure, I’m keeping my mind open and will listen to alternative arguments.  This is not an easy issue.


The Saudi Problem

US President Barack Obama speaks alongsi

President Obama will soon be in Riyadh, visiting King Abdullah of Saudi Arabia, and no doubt hearing a litany of complaints about American policy towards the Mideast.   While the stated purpose of the trip is to soothe the feelings of Saudi leaders who feel neglected and are discontent with American policy, one reality cannot be denied:  The US and Saudi Arabia are seeing their interest diverge, and nothing the President can say will alter that.   The Saudis have become more of a problem than a trusted ally.

One issue Saudi leaders will push involves Iran.   The United States is trying to solve the Iranian crisis, on going since 2003, by improving relations with Iran’s moderate President Rouhani and working towards an agreement on Iranian nuclear weapons.  The Saudis see Iran as their major rival in the region – a view they’ve held since Iran’s 1979 revolution – and would prefer that Iran remain a pariah state.

Iran has four times the population, a stronger military and a more modern economy than Saudi Arabia

Iran has four times the population, a stronger military and a more modern economy than Saudi Arabia

Both states straddle the Persian Gulf.   Iran could threaten the strategic and economically vital straits of Hormuz, a narrow passage way through which most Persian Gulf oil flows.  With Iraq now developing closer ties to Iran – Saudi leaders openly distrust and will not talk to Iraqi Prime Minister Nouri al-Maliki – they feel the balance of regional power is shifting away from them.  In fact, the Iraqis complain that the Saudis are arming and funding Sunni groups fighting against Iraq’s central government.   Some would argue that Saudi Arabia is at war with Iraq!

In that light, closer US – Iranian ties would cause the Saudis to worry about not only their regional power, but also the royal family’s hold on government.   As the region changes, their traditional and very conservative rule becomes harder to maintain.   And, as much as the West relies on Saudi oil, it may be in our interest to slowly sever the close alliance between the US and Saudi Arabia.

First, compare life in Iran with life in Saudi Arabia.   Most Americans assume Iran is a bit of a hell hole.  Run by an Islamic fundamentalist government, people conjure up images of the Taliban or al qaeda.  The reality is quite different.  Iran is not only far more democratic than any Arab state (though Iraq is working towards democracy), but Saudi Arabia is where living conditions are defined by a fundamentalist view of Islam.   Women cannot drive, they cannot go out publicly without their husband, they cannot work in office where men are present.   They can’t even shop in stores which have men!   Indeed, if we went by human rights concerns, we’d clearly be on the side of Iran over Saudi Arabia!   The Saudis are second only to North Korea in terms of oppression.

After the 2009 elections Iranians took to the street to protest the result; in 2013 a moderate was elected President

After the 2009 elections Iranians took to the street to protest the result; in 2013 a moderate was elected President

In Saudi Arabia not only would such a protest not be allowed, but the woman pictured above would be arrested for simply being out of the house, head not fully covered, and in the company of men.   In short, the Saudis have an archaic system that should dissuade us from doing business with them.  We do business with them because they have oil.  Lots of oil.

Yet Saudi oil isn’t as important as it used to be.    The Saudis were the world’s number one producer of oil for decades.  Last year, the US took their place.   Thanks to natural gas development in the US, as well new oil finds, the United States is producing more domestic oil and gas than people thought possible just a decade ago.  That doesn’t mean our troubles are over, but as we shift towards alternative energy sources and develop our own fossil fuels, the utter dependency on Saudi Arabia is weakened.  We can afford to have them a bit upset.

The US has surpassed Saudi Arabia in oil production last year - which combined with natural gas makes the US the world leader in fossil fuel production.

The US has surpassed Saudi Arabia in oil production last year – which combined with natural gas makes the US the world leader in fossil fuel production.

Beyond that, they have no real alternative.  Oil is a global commodity so they can’t punish only the US by cutting oil supplies.  That affects everyone, especially the Saudis!   They need to sell their oil to keep their economy afloat.   They have not used their oil wealth to build a modern economy, they’ve simply spent it or bought off their population.   When the oil runs out, they’ll have squandered an unbelievable opportunity – with our help.

The Arab Spring of 2011 was the start of a regional transition that will take decades.  The Saudis, despite the brutality and repression of their secret police, are not immune.   Their anachronistic Kingdom has persisted decades longer than it should have.   It will not last deep into the 21st Century.

Therein lies the dilemma for the US.   Actively supporting a dying Kingdom only makes it likely that the successors will be more fervently anti-American.   That’s why Iranian-American relations have been so sour, the US had supported the brutal regime of the Shah of Iran from 1954-79.  Yet as tensions continue with that other major energy producer, Russia, the US doesn’t want to needlessly anger the Saudis or risk some kind of crisis.   So while our actions will reflect interests that are our own, and not those of the Saudis, expect friendly talk from the President.

Our interest is to mend relations with Iran, the true regional power, settle the dispute over Iranian nuclear energy, and work to support change in the Arab world.   The Saudis would love to have us help overthrow Syria’s pro-Iranian government, but that is not in our interest.   Change in the Arab world will come about over decades as the culture shifts, it won’t be achieved with just a change in government – look at the troubles Egypt has had since 2011.

So President Obama’s response to Saudi complaints should be to smile, say he understands, and that he’ll take Saudi suggestions seriously.  He should have his advisers take vigorous notes about Saudi suggestions, promise his full attention, and then simply say goodbye.  If there are symbolic gestures that can soothe their discontent, by all means, soothe.  But overall the US should extricate itself from its close relationship with Saudi Arabia, and work to address the new realities of the Mideast.


Money and Power

I’ve been reflecting on the economic arguments made this election cycle and find myself dissatisfied with a lot of thinking on both the left and the right.

Many people buy into a way of thinking that is essentially materialist and anti-human: that people are at base value creating mechanisms and the market correctly assigns them money according to their work and value.   This leads to false thinking on both the right and the left.   On the right, the state is demonized and the market is seen as almost magic.   On the left the rich are demonized and the the role of the state is seen as equalizing outcomes.   Both views are wrong.

Turning first to the pro-market side, many believe that taxation and efforts to expand opportunity are wrong because they “confiscate” money from those who have “earned it.”   Earning it is defined by being able to take whatever you can get away with in the market.   If one is super wealthy and the other poor, then that’s how “nature” or the “market” justly caused events to turn out.    The rich can choose to help the poor, but have no obligation.

However, no one who buys, sells, works or trades by using federal legal tender has an ethical claim on all his or her own money.   That money is provided by the government to facilitate trade and cooperation.    It brings a tremendous amount of efficiency to the system and allows people to have massively more wealth then they would without this government service.

Render unto Caesar that which is Caesar’s…

If you are part of this system that makes wealth generation possible for large numbers of people, you have chosen to be part of a collective.   You have cast your lot with a web of relationships and interactions that allow you to achieve much more than you could on your own.   Without the state, only organized crime and other thugs would have wealth and most people would be living in poverty.  Only stable functioning states bring about true prosperity for large numbers of people.So if you’re benefiting from this, your money is a result of your effort, ingenuity, and the role of effective government.   Your effort matters, but the level of your success and prosperity is due to being part of a collective.    That means that the state, through legal democratic processes, has a legal claim on a chunk of your monetary wealth.

Moreover, the role of the state must be more than just being a “referee” to make sure nobody is cheating.   Power permeates all social relationships.   If you have wealth, you can structure the game in your favor.   You’re inherently not on an equal playing field with those who lack wealth.   You can get for yourself and your progeny excellent education, opportunities, good health care and if need be, start up capital.   To get a level playing field the state must actively work to assure real opportunity for all citizens, not just those with structural advantages.    

The state acting solely in the role as umpire cannot protect a level playing field because the playing field is already made uneven by the distribution of power and wealth in society.

The winners often don’t acknowledge the vast structural advantages they are able to enjoy in the system

The rich often ignore this problem by denigrating and demeaning the poor, calling them “takers” and making it seem as if they want to live off the work of the rich rather than simply wanting opportunities to succeed.   This was seen in the latest gaffe by Governor Romney (quickly repudiated by other Republicans) that Obama won because he “gave gifts.”   At the height of perversity is the claim that the poor have the same opportunity simply by being in the same legal system, as if all the wealth and power of the rich don’t provide them structural advantages.

The left errs as well when they lose sight of the fact that the goal of government should be to expand opportunity so that everyone has the chance to succeed.    That does not mean equalizing outcomes.   It does not mean demonizing the rich or punishing success.  It only means that the winners pay a portion of what they’ve gained thanks to both government protections and their position in the system to create conditions whereby the losers and their children have the education, health care, legal protections and opportunities to succeed that the rich enjoy.

The rich will always be able to afford better colleges, tutors and equipment for their children.   Trying to level that will do more harm overall, and is not necessary.   Here the materialist delusion hits both the right and the left:  Wealth is irrelevant to success and happiness in life, so long as people have a sense of meaning and personal responsibility for their lives.

Demonizing the rich ignores the complexity of assuring initiative and reward in a complex economy

I am absolutely convinced that the wealthy are no happier or more content than the poor so long as the poor have opportunity and the chance to work to make something of their lives.   Only when poverty is so intense that basic needs are not met, or that there is no hope to be able to build a better life, does lack of wealth lead to despair.    Moreover, a psychology of dependency on government handouts damages that sense of meaning just as much as poverty can.   If the left tries to “fix” the system in a way that simply makes the poor dependent on handouts, the solution is as bad as the problem.

True wealth is far more than that which we buy and sell

Not only is it OK to have rich and poor if the poor have real opportunity and their basic needs met, it’s necessary.   As long as all citizens have access to a quality education, decent nutrition, health care without risking bankruptcy and ruin, and the opportunity to succeed, outcomes should be diverse.   The market then functions properly, reflecting the desires and preferences of the public.   The left should focus on that – true liberty and opportunity for all – rather than worrying about outcomes.

This requires an active state, but also civil society and civic engagement.   Community organizers should be more important than government bureaucrats in social welfare programs.    Most importantly, we need to recognize that money and wealth are not ends in and of themselves, nor are they key to having a happy and successful life.   The rich lose no liberty just by paying more taxes, and the poor need not have equal material outcomes if they have their basic needs protected and an opportunity to succeed.


Unemployment Rate Drops to 7.8%

When Obama took office the country was bleeding jobs. We’ve now had positive job growth for 31 straight months

Great news, the unemployment rate is down to 7.8%, finally below the 8.0% barrier.  Not only were 114,000 jobs added last month, but revisions to the two previous months suggest the job market is stronger than had been thought.   Most people look at this as a good bit of positive news for the President, boosting his argument that we’ve turned the economy around even though there is more to do.

But wait, Republicans say, this isn’t as good as it seems.   We’ll dismiss the conspiracy theorists who say the numbers are cooked (just like the polls are skewed *eyes rolling*), and look instead at legitimate reasons not to see this as being as good as it appears.

1.  Recoveries are usually faster.    Consider the following graph:

Clearly this recovery has been slower than past recoveries.   But this doesn’t mean Obama has failed.   Back in 2009 I labeled what we’re going through the equivalent of “Great Depression II” and predicted it would take a long time for the global economy to restructure and recover.     The economy is now global, and no industrialized state has burst out like we did from past recessions.

Simply, this is not a typical recession caused by over production and the business cycle.   Rather, this is a structural crisis caused by a massive increase in debt (both public and private) and a severe financial crisis.   Moreover, due to high debt the traditional tool to get out of a recession — stimulate the economy — is no longer as useful.   Currencies are also under stress due to large increases in money supply, creating a risk of inflation.   This is more like the Great Depression, a structural adjustment to the global economy which probably will take the better part of a decade – or more.

This crisis could also be compared to other examples of a financial crisis induced recession – in those terms we’re still early in the process!

To be sure, Obama and his economists predicted that they could get out of the recession more quickly, and it’s fair to criticize him for not understanding the depth of the crisis.    Still, the prospects that any President can fix this even in the next four years are dim.

2.   Unemployment numbers are skewed due to increased part time work, a decline in work force participation and under counting the unemployed.   Here are a few charts to consider:

Labor force participation rates are down from a high of 67% at the height of the last boom to 63.6% this month (it’s been under 64% all year).      This means that a lot of people have left the work force.  There are probably more single income households now, as well as people going back to earn degrees.     Fewer people in the work force does lower the unemployment rate.   Also:

All recessions show people moving to part time work due to the recession.  This recession saw the steepest increase in absolute terms, but  those numbers rarely go down until well after the recession ends.    Higher levels of part time employment may be a fact of the new economy for some time.   Consider as well longer term unemployment:

This is usually a lagging indicator of a recovery, but the numbers have already been declining – though the growth was steep during the recession.   The decline could be seen as a good sign.  Finally, there is the issue of the “real” unemployment number:

To say that real unemployment is about 16% makes the situation sound horrid, though by that measure real unemployment is always high – over 10% during the 2004 election campaign.     Moreover real unemployment tends to mirror official unemployment in trend lines, meaning that improvement is still improvement, even if the total is higher.

So what to make from these four issuess – part time workers, lower labor participation rates, long term unemployment and the real unemployment rate?   None of these statistics point to a robust recovery.   That is in line with my conclusion in point one – we’re in a global economic crisis from which there will be no quick and easy escape.

Yet the decline in the unemployment rate and 31 months of increasing job numbers are good things.   This recovery is probably as good as we can hope for given the structural imbalances in the global economy.    And, while Governor Romney is right in saying this isn’t like past recoveries, there is no reason to distrust or dismiss the steady if slow improvements in the US economy.

UPDATE:  It occurs to me there is one other thing to consider – seasonal adjustments.   Both September and October see seasonal adjustments that generally lead to lower unemployment rates.  Clearly that was part of the 0.3% drop in unemployment, though there have also been months where jobs were added and seasonal adjustments led to an increase in unemployment.  Overall, they’re a wash.


Four Years In

The complex (and mostly private sector) causes of this crisis defy soundbites and thus are not really a part of the current political debate.

Although in retrospect the economic slowdown that continues across the globe to this day started sometime in 2007, the realization that we were entering a period of intense economic crisis became undeniable back in September 2008.   The world stood at the brink of a collapse of credit and a spiral into severe depression.    Various fiscal and monetary stimuli helped ward that off, but many of the core problems remain:

1.  High debt levels in the advanced industrialized states from both government and private sector actors.    US total debt is near 340% of GDP, about $50 trillion.   In comparison total global government debt is just under $50 trillion.    Total global debt is at $190 trillion, or about three times the global GDP.   So this is a global problem, and it’s not primarily government debt that’s to blame.

A fetish with government debt has caused people to overlook the fact that the problem is total debt — global debt to GDP ratios are quite high

2.  Shifting demographics in the advanced industrialized states which will require a modification of retirement pension schemes and other reforms in order to stay solvent.

3.   An imbalance between consumption and production, with the former focused on the advanced industrialized states of Europe, the US and Japan, and the latter in emerging markets such as China, Brazil, and India.

Consumption rose to unsustainable levels after 2000, even as production declined – the era of consumerism was a fools’ paradise.

4.   Environmental factors involving global warming, over population, chemical poisons and other results from over a century of unprecedented material economic growth.   We don’t know how bad all this will be, but those who dismiss or minimize the danger are living in a fools’ paradise.

5.   Potential problems with natural resources, particularly oil, water, and minerals needed in order to maintain economic growth.    Energy shortages are the most visible (and have been experienced in small doses), but crises involving water and in the near future other valuable minerals may define the next century.

Political leaders are still trying to grapple with how to handle this transition.   There are no easy solutions.   Despite the election year rhetoric, no President would have fared any better than Obama on the economy – this is a global, structural crisis that defies quick policy fixes.     The two favorite solutions are dubious.   From the left you get the Krugman School that points to the need for a massive stimulus of trillions of dollars to retool the economy and get the country moving.     On the right there is a call for less government regulation and less spending.

Less government spending will slow the economy, and in fact slows it faster than tax hikes would.   Less regulation might be good in many sectors, but in some such as the financial sector it was the cause of allowing things to get so bad.   The housing bubble (which helped fuel the growth of private debt) is directly attributable to lack of regulation of derivative markets and the collapse of effective financial regulation in general.    Government regulations on small business may choke innovation, but lack of regulation of big corporate actors that buy government favors and transcend borders has been fatal.

This chart shows the problem, a massive increase in debt from 2001 to 2008 (not government debt, total debt). This is a private sector crisis, not created by governments.

Government stimulus would cause a short term spurt, but the evidence is strong that once you reach about a 100% debt to GDP ratio the increased debt does more harm than the good done by the stimulus.   In Japan goverment debt soared to 200% of GDP without stimulating growth.   Moreover, unless its directed in a manner that is assured to improve productive capacity and build the economy the money could end up going into consumption of foreign produced goods or risky financial speculation.   In short, if not done right a stimulus would leave us no better off but with much more debt and a deeper structural crisis.

So four years in, here’s my assessment of where we are – an ambiguous assessment, I admit!

1.   Gloom and doom has been overstated.   This is a long term crisis, but not the collapse of western or global civilization.  We have fiscal and monetary tools to avoid collapse or depression era numbers.

2.  Debt levels in the private sector are down significantly (total US debt has gone from about 375% of GDP to 340%).   That paying down of debt is a big deal — and is also one reason the stimulus from more government debt didn’t do more.  In a best case scenario this will continue and level out and over time economic conditions will improve.  However, the old “normal” of very low unemployment, easy credit and consumerism was built on sand – we won’t go back to 2006.

3.  Big structural issues – especially demographics, energy, water and global warming — remain unknowns.   Demographic change is less dangerous than global warming.     Demographic problems can be solved through reform of pension systems and a growing economy with more reliance on technology.  Ultimately too many people is more dangerous than too few.   We are seeing a start of a transition from fossil fuels to alternatives, and relatively large natural gas supplies suggest this could be a stable rather than sudden transition.   Global warming can make all these problems worse, however, and very little has been done on that front.   That remains the gravest threat facing humanity.

4.  Inflation is coming.   An odd aspect of this whole crisis is the way deflationary fears have overshadowed inflation fears despite weaknesses in major global currencies.   On the plus side, the ability to pay down (private) debt despite low inflation rates is a very good sign that we don’t need to inflate our way out of this crisis.   However, to keep the Euro viable loose monetary policy will be embraced by the ECB to handle Spanish, Italian and Greek debt.   The Federal Reserve may engage in another bout of “quantitative easing” (akin to printing money).   This shouldn’t yield a currency collapse or hyper-inflation, but robust inflation rates of 5 to 10% probably will occur and create new difficulties.

5.  The weatlhy are not always job creators.   The growth of debt in the last ten years have yielded a growth of wealth for the investor class.   This has not been earned through job creation but easy money schemes built on debt – the very thing that threatens the global economy.   It was built on bubble money that yielded no productive gains; this kind of easy money at low tax rates is part of the problem, not the solution.

All told, I’m more optimistic now than I’ve been any time in the last decade about the future of the economy.   I think we’re still five years away from emerging into a new kind of global economy and there are still difficulties and pain to endure.   We’re four years in, and at least four years from the conclusion.   But there is some light at the end of the tunnel.

The real crisis is the gap between the first world and third world; while globalization is improving conditions in some areas, most of Africa and much of Asia still faces intense poverty


Givers vs. Takers

Some Republicans want to demean those who receive federal aid by labeling them “takers,” as if they didn’t work and struggle, but just snatched hard earned wealth from the “givers” — those middle class and wealthy people who supposedly deserve every cent the market will allow them to take.    There are many fallacies with such an argument, but what gets interesting is if you look at states.

In terms of federal funds, the following states are givers – states that pay more to the federal government than they receive in aid.   They are the ones that Republicans should be trying to defend:  NH, MA, NJ, DE, NY, MI, WI, IL, MN, CO, TX, CA, CO, NV, OR, and WA.

Note an interesting fact about these “giver” states?   Only one, Texas, is a so-called red state.   All the rest are blue states which pretty consistently vote Democratic.

The so called taker states include six “blue” states, 21 “red” states and seven “swing” states.  This should give pause to those on the right who mutter about “succession” if Obama gets re-elected.   They have more to lose than to gain by breaking with the largesse, er, “shackles” of the federal government.

But, red state Republicans might protest, this is too crude an analysis.   You can’t just label states “takers” without looking at the reasons, the nature of the programs, and whether or not that money is both needed and yields good results.   There are contextual factors in play which make a crude “giver vs. taker” label misguided in such a measure.


That’s true at the state level and at the individual level.   “Takers” include farmers receiving agricultural subsidies, so called “corporate welfare,” and individuals for a variety of reasons.     The class warfare rhetoric of ‘givers vs. takers’ breaks down when you actually look at where money goes.  Do they really want to demonize the retired WWII vet who receives VA health care in his waning years?

Are the elderly couples who paid social security taxes and now live month to month on their meager social security checks really easily dismissed as “takers?”   Perhaps raising a family they couldn’t put away investment money; worse, perhaps they thought they had a retirement nest egg but Wall Street shenanigans led to the dissolution of investments they were told were safe and AAA rated.

To be sure, the left’s caricature of Republicans is often just as demeaning – both sides may believe it, but most Americans have more in common than not

But the Wall Street financiers that sold them those products are the vaunted “job creators” with wealth, while the elderly couple now are “takers.”  Caveat empor.   They should have known that the experts in suits at the prestigious bank who explained how Moody’s ranks investments weren’t to be trusted.   Never mind that most of the banking industry and government experts didn’t realize what was going on, the small time investor should have known better.

That doesn’t mean social welfare programs can’t be criticized.   Just as extremely low tax rates on the super wealthy and corporate welfare can be seen as counter productive to the health of the country, social welfare programs that promote dependency ahead of opportunity should be criticized and reformed.   There can be real substantive discussions about taxes and spending.   There need to be – the world we’re entering is different from the world that we’ve left.   The crisis of 2008 was like an temporal exit, we’re in a new era.

So let’s ditch the class warfare rhetoric of “givers vs. takers.”  Cut out silly euphemisms like “job creators.”    For all the complaints about ‘class war’ the harshest rhetoric has come from the right.   When nearly half the country doesn’t make enough money to owe federal income taxes, they’re derided as being ‘takers.’   As they – most of them working class, many unemployed and desperately seeking work – struggle, some Republicans say that the lower middle class doesn’t have “skin in the game.”   Taxes should be raised on them, rather than the wealthy.   Some have suggested that if you don’t pay taxes you shouldn’t vote.

Such claims are obscene, yet they are out there.   I don’t think they are always motivated from a kind of malicious McScrooge Duck/Montgomery Burns thinking many on the left imagine it to be.   I think fear of the changes taking place in our culture and country cause many to be too easily pulled in by rhetoric that makes it seem like some group – liberals, “takers” etc. – are changing what it means to be American.   I believe many people got caught up in the attempt to connect free market economics and low taxes with freedom.   That connection was shown false with the 2008 economic breakdown, but ideologies are hard to let go of, even when the world changes.

Finally, none of this says that the Democrats are right and the Republicans wrong.   Rather, our conversation about the issues has gotten polarized in unhelpful rhetoric and mutual misunderstanding.   That won’t go away until after the election, too much money, too many attack ads on all sides, and too much emotion are in play.

I am the 1%. Smithers, release the hounds

But we have a debt to GDP ratio of 100%, created by both parties working together.   We have problems moving forward in developing a sustainable budget.   We have big issues concerning energy, global warming, security, and the environment.   In that we’re not givers vs. takers, we’re Americans who get something from being part of this country and give something back with our work and actions.

Don’t demonize the rich, don’t demonize the poor.  The rich aren’t all greedy jerks who don’t care about the plight of others, the poor are often hard working folk caught up in circumstances that make life rough.   The rich often give generously to charity and believe opportunity should be expanded, the poor aren’t all simply sitting at home having babies and getting checks.

The biggest gain we made as a country – as a civilization – is to move more people towards the middle class and starting to work against the historic gap between a small elite with wealth and a very large underclass who does most of the work and gets very little reward.  I think both sides can agree that a strong middle class is something to maintain, or perhaps regain.


There’s Something About Julia

The Republicans  are shooting themselves in the foot in response to an Infographic on the Obama website that demonstrates how Obama’s programs compare with Romney’s in the life of a fictional woman named Julia.

It starts at age three, when she gets to participate in a head start program to help prepare her for Kindergarten.   Romney’s plan would cut Head Start by 200,000 spots.   The idea behind Head Start is to identify children who might fail to make the grade in school and give them support so they can succeed, this usually involves children in poverty or who have some developmental problems.

Next Julia benefits from quality public education and prepares her SAT.   Romney, we are told, wants to cut spending in public education.   Julia then goes to college, with her family benefiting from a tax credit and Julia earning a Pell grant.   Romney wants to eliminate the tax credit and cut Pell grants.   (To be fair, a lot of people qualifying for Pell grants may not benefit from the tax credit.)

At 22 she needs major surgery and luckily has her health care covered.   This would not happen if the Republicans repeal Obamacare.   Having known students whose educational path was severely rocked by such health problems (some never finished), this is definitely a very real possibility.

She then goes to work and gets a job as a web designer, helped by the Lilly Ledbetter fair pay act.   I suspect web designer positions are not those which suffer large gender pay gaps, but OK.     She also benefits from lower interest rates on her student loans (Romney, the site says, would have interest rates double).     And of course her insurance covers birth control and preventive care.  As much as the GOP harps on “religious freedom,” the idea that insurance might cover viagra but not contraception or preventive women’s health makes this a winning issue for the Democrats.

She has good pre-natal care when she has a child.   As a web designer she might have good insurance anyway, but a lot of women now don’t get that care, which increases infant mortality and adds to the burden of poverty.   Romney would repeal Obamacare, which guarantees such coverage.   When she’s 37 her son starts Kindergarten, benefiting from better funded schools than the GOP budget that would supposedly take money away from public education.

When she’s 42 the entrepreneur mom wants to start her own web design business.   She qualifies for a small business loan, a program Romney’s budget would supposedly cut by 20%.     When she retires she has medicare and full coverage, rather than the voucher the Republicans support, which Obama’s camp says would add over $6000 per year to the cost.   In retirement her social security benefits are solid (the GOP, the ad claims, wants to cut them by 40%).   The final slide concludes:  From cracking down on gender discrimination in health care costs to fighting for equal pay, President Obama is standing up for women throughout their lives.

What’s interesting is how this reflects the dynamic of the campaign.

First, the Obama campaign knows it has an advantage with women and wants to keep it.   Gaffes like the Hillary Rosen remark have very short half lives, real policy differences endure.    Second, note who Julia is — a web designer who becomes an entrepreneur raising a child.  Single, married or divorced?   We don’t know, it presumably doesn’t matter.   This is an “every woman” kind of life, but Julia is also a hard working business woman – no leeching welfare queen.

The emphasis on health care is also telling.   The Obama team hasn’t been talking alot about Obamacare (except to take ownership of the label the Republicans slapped on it), but is trying to subtly send messages that get people to like what it does.    Given how bad the US system was in comparison to every other industrialized state, this should be a winning argument for the Democrats if they frame it well.

But where the Republicans show their weakness is the knee jerk response by many on the right.   Pundits and even the RNC jumped on it as a “socialistic” narrative of a woman needing the ‘nanny state’ to succeed.   This, they claim, is Obama’s vision, success only through big government handouts.    Typical is a response from Michelle Malkin:    “I will read Life of #Julia to my kids to show them how NOT to live their lives – tethered to Nanny State.”

Really, an enterpreneur mom is ‘tethered to the nanny state?’   But that’s not the point.   That kind of response is red meat for the core Republican constituency, it’s the kind of reply you’d make in a GOP primary campaign.   People ready to buy that “socialist nanny state” rhetoric have already decided long ago against Obama.    That kind of rhetoric helps the Democratic narrative that the Republicans are ‘out of touch ideologues’ so focused on abstract ideology that they forget real people.

Another reaction is to say things like “Julia will have no job in the Obama economy.”   OK, it’s hard getting jobs now, though the economic debate is a murky one since Obama inherited an economy in collapse and most people don’t blame him for its condition.

But the GOP could approach it another way.   They could say the facts are wrong and otherwise ignore it.   There are many claims about what Romney would do that are indirect at best.     They come from statements made in the primary campaign (when Romney was trying to prove he was a ‘true’ conservative) supporting things like the Paul Ryan budget, not from actual Romney campaign positions.     The point is that much of what Julia gets are things that Romney would not cut.

By calling the programs listed ‘socialist’ or ‘nanny state,’ it makes it sound like Republicans think prenatal care, spending on schools, and small business loans are things the GOP opposes.   The GOP response makes it seem like the Republicans oppose any assistance, thereby advancing the Democratic narrative.    Again, they seem to have forgotten that the general election has a different audience than primary season.

Finally, if I were in the RNC I’d just ignore this.   It’s an infographic on a campaign website.   Big deal.   The Republicans already have a problem with women’s issues, and the more this gets talked about the less time people spend on issues the Republicans want to talk about.   By making it the ‘subject of the day’ and taking it seriously, they elevated Julia’s importance and her efficacy.

The GOP just can’t help but obsess on Julia

The way the RNC and conservative pundits have botched their reaction to this shows a fundamental weakness of the Romney camp in this election cycle.    They’re clumsy at messaging and they’re reacting to the Obama campaign rather than guiding the discourse.    Or maybe there’s just something about Julia.   Maybe she’s just too enthralling to ignore!


Paul Ryan: Class Warrior!

Class warrior Paul Ryan, fighting for "Team Wealthy"

If you had any doubt that class war was being waged in America, doubt no more!   Paul Ryan’s proposed GOP budget was a direct assault on the poor by the rich, cutting programs that benefit the poor by $5.3 over ten years, while giving tax cuts to the wealthy worth $4.3 trillion.    He promises that he can get the GOP House to pass his budget — something that could give Democrats real fodder in the House campaigns this summer!

What’s perverse and audacious in this effort is that he is trying to make it sound like he’s actually helping the poor.   Dana Milbank points out the “Orwellian euphemisms” in Ryan’s rhetoric.   From Milbank’s column:

Ryan’s budget outline omits specifics about how much he would take from programs. Instead, it provided a string of Orwellian euphemisms. The budget “repairs the safety net” by allowing the states to award public assistance to fewer people — “those who need it most.” Financial aid for college would be slashed — er, “put on a sustainable funding path.” And the Ryan plan would give workers “the tools to thrive in the 21st century” — by killing off various job-training programs.

Ryan would cut Medicaid by a third and ship the remnants to state governments to handle. Or, as the congressman described it: “We also propose to strengthen Medicaid by empowering our states.

What makes this class war instead of a bold initiative to cut spending is that so much of the money “saved” doesn’t go to deficit reduction but instead to tax cuts.   The claim is that this will grow the economy more and wealth will “trickle down,” much like the right claims happened when Reagan cut taxes.   Rather than go over all the lists of what is cut, how is hurt and all that — articles delineating that are ubiquitous — there are four clear reasons to reject Ryan’s approach.

The blue box shows the huge spike in total debt during the Reagan years, hyperstimulating an economy already benefiting from a recovery and lower oil prices.

1.  The Reagan years were driven by debt, not tax cuts.   The 1980s saw economic growth, but that growth was due to declining oil prices and a massive increase of both governmental and private debt.   Government debt soared from 30% of GDP to 60% by 1990.  Private debt grew as well, meaning that the country was partying on borrowed time.   It was like the early stages of someone who borrows their credit card to the max and then takes out new credit cards to make payments.  For awhile you’re living on top of the world, but then reality bites.  Reagan economics were voodoo economics because it was deficit spending in a boom.

2.  Tax cuts harmed the economy and worked against investment.   Those who argue for tax cuts rest their case on a myth — a belief that has been shown false, but still lives on in the ideological heart of some on the so-called right.  The myth is that these new tax cuts provide money that will be invested and create jobs here in the US.    However, that doesn’t happen on a scale that helps the economy; perhaps it could have back in the 60s when economic affairs were state-centric, but in an era of globalization the rules have changed.

Money from tax cuts goes to four different places:  a) some money is used to consume goods and services — that can help the economy, but much of that spending is for foreign produced goods and oil; b) some money gets invested overseas, c) a lot of this money helps create bubbles and ‘unreal’ investments out of a desire for ‘something for nothing,’ and d) a small fraction gets invested at home in businesses that create jobs.    During the dot com bubble and the real estate bubble low taxes fed two consecutive bubble manias as people were less concerned about long term “real” investment and more interested in playing the casino.   It seemed it was a casino where everyone won!   Easy money!

When the bubbles burst, that money was gone.   It would have been far better to tax and use much of that money for infrastructure or business loans/aid.   Instead, the misguided belief that tax payers know best how to spend their money (the two bubbles show that proposition to be decidedly untrue) brought us to a crisis that just about took down the world economy — and still could!

Ryan's cuts will harm states already hurting

3.  States will be devastated.  States right now are seeing their deficits grow due to increased medicaid and medicare costs.  State budgets are being pushed to the brink across the country.  If the feds simply cut that spending and claim they are “empowering the states” (but not enriching them!), then state governments will be forced into massive layoffs.   This will hurt the poor the most (such cuts always do), but could severely damage state economies.   Ryan’s plan is an attack on every state budget, and should get the opposition of every Governor, Republican or Democrat.

It's hard to blame children for their poverty - and they can't "pull themselves up by their bootstraps" without education, health and a stable environment

4.   The human cost is immense.   Ryan’s budget is a fantasy of ideology.  It’s not built on practical observations or the use of real world wisdom.   He has a theory and extrapolates the theory into a budget that would intensify the problems of the poor while adding to the wealth of the rich.   It’s a grand experiment on the basis of an ideology.

Ideologies appear persausive.  They simplify reality and then set up internally consistent propositions based on the definitions and assumptions of that theory.   Ideologies can never lead to truth, they simply provide one interpretation of real world evidence.  Ideologies are always simplifications — the world is too complex to be captured by any human theory.

Ideologues always put humans second to their “ism.”  The “ism” promises to solve all problems, if only people would embrace it. While Ryan’s ideology isn’t as dangerous as the utopian fantasies of Mao or Pol Pot, it is similar to the kind of thinking Marxists engaged in, just with different base assumptions.   Any time you put theory above people you’re putting fantasy above reality.

In this case, the ideology must already be doubted for the three reasons above.  Taking from the have nots and enriching the haves is not only immoral, but could lead to social breakdown.   It would push us towards a third world kind of economy and ultimately Ryan’s fellow class warriors on the right might find that they’ve awoken a sleeping giant — the potential class warriors amongst the poor and middle class.   In an ironic twist, adopting Ryan’s plan might put us on a path to a socialist revolt!


The Folly of Striking Iran

Iran's Grand Ayatollah Ali Khamenei

Right now President Obama’s chances of re-election look good.    The Republicans are in disarray, he has no primary challenger and most importantly the economy appears on an upswing.   Taken together, the stars are aligning for the President better than any time since early in his Administration.   In politics, timing is everything.   However, lurking under the radar screen of most Americans is the possibility of an Israeli or (less likely) American strike on suspected Iranian nuclear facilities.

Already President Obama is being criticized for not giving Israel high tech bunker busting weaponry that could increase the chances (but not guarantee) that an Israeli strike would work.    The CIA has consistently said that they do not think Iran is close to possessing a nuclear weapon and many doubt they actually want to go through with producing one.   There are also serious doubts about Iran’s delivery systems.

The reason both Presidents Bush and Obama have tried to hold Israel back is that such a strike is not at all in the US national interest.   A nuclear Iran (like the nuclear North Korea) would be an irritant, but not a major threat.

If Israel or the US struck Iran, however, the results could be devastating.  Oil prices would certainly skyrocket putting the economy back into recession just in time for the election.    President Obama would likely lose, especially if his base was infuriated by him starting another offensive war.   The Euro crisis would deepen as well, and the world economy would be back where it was in 2008 – or worse.   And that’s a best case scenario!

Israeli Prime Minister Netanyahu and Defense Minister Ehud Barak: What are they thinking?

In a worst case scenario the bombing unleashes a series of attacks on US interests in the region.   The Shi’ites in Iraq radicalize and ally with Iran, the Taliban uses this to incite the youth in Afghanistan, Hezbollah and Hamas launch terror strikes against Israel, and the region drifts towards the worst regional war since 1973.

Hezbollah remains a threat - one that Israel underestimated in 2006

Oil prices could rise to astronomical heights, the straits of Hormuz could be closed, Saudi oil facilities attacked, and unrest against even stable regimes like that of Saudi Arabia could grow.

From the US perspective there is little upside to an attack on Iran.   The only interest the Iranians can directly threaten is the oil supply, but the risk is small.   Especially since prices are unlikely to drop precipitously, the US and Iran share an interest in keeping Persian Gulf oil flowing.   And the Carter doctrine still applies – nobody thinks that Iranian nukes would deter a US response to Iranian aggression threatening the flow of oil.  Iran would be loathe to escalate such a crisis to the nuclear level since that would mean the end of the Islamic Republic.

The Persian Gulf

Iran’s power would grow in a region includes the Arab states, Israel, Russia, China, Pakistan and Afghanistan.   All other things being equal the US would prefer Iran be a weaker rather than a stronger regional power, but there are many options to balance Iranian power and contain any effort to extend it.   There would be concerns of further proliferation, but there would be many ways to prevent that.

Another indirect threat would be that Iran would give nuclear technology to terror organizations.   That sounds scary, but a country that works hard to gain a nuclear weapon does not give up control of them to people they can’t control.    Even now Iran limits what it gives groups like Hezbollah – and the Iranians certainly don’t want Hezbollah hotheads provoking a nuclear strike on Iran!

Remembering how wrong the US was about the Iraq war it would be a mistake to assume an attack on Iran would be low risk.   The war in Iraq was supposed to be easy, cheap, and yield a stable, safe pro-American ally offering us permanent regional bases.   None of that turned out to be the case.

The main dangers in striking Iran:  1)  There might be no benefit at all as Iran may have successfully decoyed its program; 2) This could severely undercut the reform movement in Iran, whose success would do more than anything to support US regional interests; 3)  After years of decreased influence and appeal, al qaeda and other radical groups could benefit from the US launching another war of aggression and the terrorist threat could spike dramatically, undermining our counter-terrorism efforts; 4) An oil price spike could not only bring us back into recession, but if the crisis were to drag on global depression is quite possible; 5) Iran could respond to an attack by escalating the war to create regional instability.

In the case of number 5, the US would see no alternative but to try to create “regime change” in Tehran.   This would cause unrest in the US.   Strong, angry domestic opposition to such a war would be far more intense than the opposition to the war in Iraq – national stability would be jeopardized, especially if an unpopular war were to be accompanied by deep recession or depression.    In short, this could lead to a crisis far more severe than any yet faced by the US or perhaps the industrialized West in the modern era.

Protests against the Iraq war were relatively mild; a war with Iran could unleash far more division

To be sure, it is possible that a strike could succeed and Iran would refrain from responding.  That’s the best case scenario.    The best case scenario is probably more likely than the worst case scenario, though most likely is something in between.

I cannot imagine people at the Pentagon and in the Department of Defense seeing any persuasive rationale for a strike against Iran.   I can imagine they will pull all the stops to assure that Israel refrain from its own strike, perhaps even suggesting that US support for the Jewish state cannot be assured if they start the war.


Learning from Germany

Chancellor Konrad Adenauer and Ludwig Erhardt deserved to celebrate Germany's Wirtschaftswunder

Das Wirtschaftswunder, or economic miracle, is what Germans called the quick recovery of their economy after WWII.  After a horrible winter in 1946, Germans went to work to rebuild their country, getting off rationing even before the victorious French and British.    In the 1950’s Erhardt as Economics Minister  presided over the regeneration of the German economy as he pushed for rapid free market reforms, even surpassing the pace suggested by the allies.   Erhardt was Chancellor from 1963 to 1966 (replacing Adenauer, the first West German Chancellor who came to office in 1949), promoting both market economics and European economic unity.

Central was the concept of the Soziale Marktwirtschaft or social market economy.   In terms of economic theory this relates to the Freiburg school or Ordoliberalism.   Essentially the role of the state is to try to assure that the free market economy produces as close to possible the maximum amount it is capable of producing.   Ordoliberalism rejects the idea that markets can function ‘magically’ or efficiently without the state – the state has a key role to play.    This includes social welfare protections, collective bargaining, and state support of some industries.   However, it is a liberal theory, rejecting socialist planning and socialist goals.   The desired end result is not based on a theory of social justice or exploitation, but on having the market economy work as well as it possibly can.

(To American readers who haven’t studied political philosophy:  liberalism here means a belief in limited government and a capitalist market economy — Ronald Reagan and George W. Bush were ideological liberals.  The jargony use of liberal to mean leftist in the US is idiosyncratic to US politics!)

Even when the Social Democrats were in power from 1969 – 1983 and 1998 – 2005 they did not veer from the main components of Erhardt’s vision.   The Christian Democrats never embraced a more radical form of liberalism like what Thatcher brought Great Britain or Reagan brought the US, also remaining true to the social market economy.

Social Democrat Helmut Schmidt's economic policies were pragmatic rather than ideological and earned Germany the label "Modell Deutschland," the Social Democratic slogan for the 1976 election.

Right now Germany is out performing almost every major industrialized economy, except perhaps some of the Scandinavian states.

Think about what that means.   Here in the US pundits want to tell us that higher taxes, social welfare spending, and more regulation are all “job killers” that would destroy our economic recovery.   Yet the best performing states during this recession (and Germany’s record is solid for the entire post-war history) have far higher tax rates, more social welfare spending and more regulation than ours.   Indeed, thanks to the power of Germany’s Green party the environmental regulations in Germany are among the most extensive in the world.   Germany has met and gone beyond the Kyoto protocol goals.   The first lesson from Germany is not to believe the ideological punditry!

That doesn’t mean we should emulate Germany; US culture is different, as are our strengths and weaknesses.   Germany has also done some things Republicans would admire.   The two major parties – Christian Democrats and Social Democrats – agreed on a balanced budget amendment designed to assure that German debt doesn’t increase.   That sent a clear signal to bond markets and currency traders that the Euro’s anchor is secure.   Regardless of what happens on the periphery, the underlying value of the Euro will remain strong because the German economy is stable.

A second thing we should learn from Germany is the strength of pragmatism.    Pragmatism means avoiding ideological thinking in order to figure out the best way to solve a problem.   Moreover, pragmatism for Germans is rooted in principle – the idea that the social market economy reflects support for a free market economy that operates as best as possible, with the public interest protected.   That means all citizens should have a chance to succeed, and basics such as health care, education, pensions, job training and a decent standard of living are guaranteed.   It’s not an effort to equalize out comes — there are many extremely wealthy Germans — but to assure equal opportunity and a minimum standard of living.

This pragmatism means that the two parties share a deep set of principles that unite them.   As much as they disagree on various policies and programs, they know that its most important that Germany deal with problems through compromise and avoiding either an ideological lurch to the left (massive debt, redistribution and spending) or to the liberal right (deregulation, massive tax cuts, leaving the poor to their own devices).    Moreover, the social market economy is based in part on understanding the power of incentives — all policies from the tax code to social welfare programs should be structured in a way that does not create incentives to cheat the system or avoid work.   Germany’s balanced all this better than most advanced industrialized states.

It works.   It’s not perfect.  The budget contains inefficiencies, there have been recessions and economic problems, but looking at Germany’s economy today one can’t help but be impressed.   If it weren’t for Germany, the situation in Europe would be far bleaker.

Those reading this blog over the past couple years recall that I’ve started rather bold research programs involving the media, consumerism, and the construction of values.    These questions have intrigued me and helped guide my teaching.   But ultimately I found myself unable to push the research along, it was too daunting to really shift my focus.

Will my 2003 book finally get a sibling?

So I’m back to what I’ve published on, wrote my dissertation about, and remain keenly interested in: German politics, and by extension, the European Union.    My focus is going to be to write a book that gives an accessible history of German economic policy and the keys to on going success, and then investigate what we can learn from Germany’s experience.    Does Germany’s success mean we have to rethink the theoretical and ideological arguments so common from both the right and the left in the US?    Does Germany have the capacity to help guide the EU into a much brighter future?   Moreover, might this be a complete metamorphosis of Germany from a state that wanted to dominate Europe to one that embodies the best European values, building a European Union based on cooperation, markets, and values?  I’ll keep you informed of my progress!