Inside Job
Well, sure, we’re all sick of the White House tilt toward Wall Street and, in particular, Goldman Sachs, what with Timothy Geithner and Larry Summers shaping policy and defining alternatives for the President ever since the big financial crisis — and Geithner hiring a Goldman lobbyist as his chief of staff — but of course they have their reasons.
As the theory goes, when you’re threatened by a sudden outbreak of malaria, you simply have to put the mosquitoes in charge of draining the swamp because only mosquitoes understand how the swamp really works.
Sounds plausible. All they want is your blood.
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Excellent observation. Since we’re on the subject of finance, put your considerable talent toward the start of an enlightening discourse about balancing the budget and deficit. reduction. How would you suggest that be done? Given that a tax increase has to be part of the solution, where do we apply a tourniquet on entitlement spending to stop the bleeding?
Comment by JDP — August 12, 2010 @ 7:44 am
I trust that by “entitlements” you’re referring not just to Social Security, Medicare, and Medicaid but also to the vast web of corporate entitlements and those of a few other special interests. Each has powerful constituency. Congress is on the take to all of lthem (though in the case of Soc. Security, etc. it’s actually a segment of the electorate they’re afraid of — as GW found out trying to privatize SS).
Banking/investment banking, pharmaceutical, energy (oil/gas/coal), and telecom industries actually control a majority in congress. How that stranglehold can be broken is beyond me — it will take such a crisis or catastrophe or such desperately long breadlines that a demagogue will get control of the government — which carries its own pathogens, of course.
But right now there’s a (similarly political) obstacle to controlling the deficit — it needs to get bigger to have any chance of significantly shrinking over the next decade. The really ruinous deficits we may incur will be from lack of growth in employment and the economy — which will raise costs and shrink gov’t revenues by far greater amounts than any near-term spending. But people posing as deficit hawks have scared enough people that we’re about to commit the same ghastly error we did in 1937 — try too soon to balance the budget, thus rekindle the forces of deflation and depression that propel deficits entirely out of control.
But even if you were to agree to all of this, John, neither of us know how to implement any of it politically.
Comment by Al — August 12, 2010 @ 7:04 pm
My view on who controls congress differs from yours.
Aside from that, you make no serious mention of the need to reform social security and medicare, the two most thirsty entitlements in the history of the universe. Erskine Bowles and Alan Simpson, co-chairs of Obama’s commission to reduce the public debt, have both stated that reduction is not possible without radical overhaul of both, in addition to a tax increase. Even Lawrence O’Donnell agrees with that, as he goes about his latest project–a feature to be published in Esquire concerning a bipartisan deficit reduction plan developed by retired Senators Bradley, Hart, Packwood and Danforth.
No matter what either panel decides, nothing will be done unless the extreme left and their counterparts on the right agree to put the best interests of the nation ahead of their own unsustainable positions. Personally, I would support any plan that prescribes a tax increase (limited to x years as long as real spending cuts are made annually over the same period of time) along with with reforms in medicare and social security, and a complete overhaul of government pension programs to reflect reality. Think Greece and the other PIIGS of Europe for inspiration.
As for 1937, we would still be mired in an economic depression had it not been for WWII. FDR’s programs did nothing to boost the economy or create jobs, as has been well documented in The Forgotten Man by Amity Shlaes.
At least we agree that corrective action must be taken. Whether politicos have the guts to do so is another matter. Obama, at least, has gone on record as saying everything must be on the table. I hope he’s serious.
Comment by JDP — August 13, 2010 @ 10:55 am
John, you should know better than to base your conclusions on the Great Depression on one very right wing book by an ex-WSJ editorial board member (the crazies among the otherwise solid conservatives at the Journal). It’s the hot book among House Republicans because it’s full of talking points, but it’s also a far-right minority view and has been criticized as inaccurate, misleading, and self-contradictory. The 1937 balance-the-budget reaction was a hideous mistake and it aborted the recovery — which then, as you point out, had to await World War II to revive. Obama (as Bob Herbert points out in todlay’s Times) should have launched a huge infrastructure rebuilding effort (including some WPA equivalent) early last year when the sentiment might have enabled passage. But he didn’t, and thanks to phony deficit hawks (all of whom lined up to give George Bush every deficit raising thing he could wish for — new wars, Medicare prescription benefits (for drug companies), more corporate welfare, tax breaks for George Soros and Warren Buffet, whatever. But having spent us into oblivion, now they’re successfully fanning deficit fears and, apparently we’re about to make the 1937 mistake again. Sell your stocks.
As for Social Security and Medicare financing, those programs isn’t the hard part. It isn’t easy, of course, but we know how to do it, and we know how to package it to make it politically palatable (as has been done before, under Clinton I believe). Which means that most of the necessary tax increases won’t look like tax increases. The age to qualify for SS and Medicare will have to be pushed back, commensurate with prevailing trends in longevity. That’s just common sense.
That will be a “tax” of delayed benefits and extended career years, not of out-of-pocket pain. The effects will be two-fold. Government outlays will be reduced, and Medicare and SS payroll deductions will be extended additional years. retarding the trend of too-few workers supporting too many desiccated old birds — present company excepted, of course.
What we don’t know how to handle is deflation and depression, and most of our bag of tricks has already been exhausted. The really horrendous deficits you should be worrying about are in the swelling tide of higher costs and lower revenues that are part and parcel of a slow-growth, no-growth, or negative-growth economy.
You won’t be worrying about entitlements then.
Comment by Al — August 14, 2010 @ 2:26 pm
Hallelujha! We agree on specifics regarding overhaul of social security and medicare. Much of the financial health of those entitlements depends, of course, on the effect of Obamacare on budget numbers in future years. Even the CBO has doubts about the original savings projections, and is constantly raising estimates of budget deficits resulting from O-care on practically a monthly basis. If history is any indication, government’s ability to adhere to budget constraints shows little promise for future savings. By the way, Al Gore’s concept of a ‘lock box” for Social Security is still a good idea.
Now, on to Ms Shlaes and her book. I read it while at sea, which gave me ample time to check claims and counterclaims, and to discuss the book with intelligent people on both the right and left concerning her conclusions. You refer to Ms Shlaes as a right-wing crazy. In her own words, she describes her feelings about the New Deal during an interview this way:
Q: “Was the New Deal wholly unnecessary?”
A: “When I sat down to write this book I didn’t know. I used to work at the Wall Street Journal where we’d kick our toes against these great edifices. . . the Wagner Act, the SEC, Federal Deposit Insurance. Then there were the Civilian Conservation Corps and other New Deal programs that seemed questionable.
I came out, however, believing these entities were good or neutral–or, at the very worst, bad precedents. Having an institution like the SEC helps sustain America’s competitiveness in international markets, though that surely is under threat now. Even deposit insurance, the holy of holy targets, was not so bad. The worst part of the Hoover-FDR legacy was the concept that life is just a series of Katrinas with lulls in between and government needs to be present to manage these Katrinas. In fact the lull is the important part, it is where American growth inheres.”
Q: “What surprised you most writing the book?”
A: “The extent to which Fabians in Britain, German cartels and social democrats, Mussolini and Stalin influenced the New Dealers. One whole chapter of the book, very early, treats a junket made to the Soviet Union in 1927. Rex Tugwell, Paul Douglass, Roger Baldwin–all were together in Russia around the same time. I try to capture their excitement. One of the travlers, Stuart Chase, wrote a book called The New Deal. at the end he asks: Why should Russians have all the fun? The European Left’s influence upon the New Deal was central, not parenthetical.”
To this, I add that Euro lefties who participated in our discussion groups (and there were many such over the course of the cruise, including a few politicians and journalists) share Ms Shlaes’ sentiment.
I suggest that Ms. Shlaes is far less crazed in her political outlook than are such hacks as Keith Olbermann and Rachel Maddow. Unfortunately, Chris Matthews seems to be rapildy encroaching on that territory. Robert Gibbs was right about that bunch.
Anyway, I recommend that you read the book. You’ll find it a lot more thoughtful than the review written by the ankle-biters at the Huff ‘n Puff Post.
Comment by JDP — August 16, 2010 @ 8:43 am
In equitable exchange for your material on Ms.Shlaes (for which, thanks — very thoughtfully sorted out), here’s your friend Paul Krugman (today’s Op-Ed) on Social Security/Medicare. He disagrees with both of us:
http://www.nytimes.com/2010/08/16/opinion/16krugman.html?_r=1&ref=opinion
I realize there are no Krugman statues on your mantel and, as for me, I’ve misplaced my Nobel. I don’t pretend to have definitive answers to any of these complex issues,but I am a pretty fair judge of who’s blowing smoke — and today’s Republican economics, as enunciated e.g. by Republican senators, is an oxymoronic tangle of cynical mischaracterizations with no sincere underlying attempt whatever to tackle the problems of most Americans — unless you accept the goal of destroying Obama as a plan.
Re: New Deal programs, I appreciate your explorations — both into published sources and through direct contacts — but as I’m sure you know the Shlaes point of view is nevertheless a fractional minority view. There is a formidable complement of economists (including, I believe Krugman today and Keynes in his day, but also many centrists) who believe that the only thing wrong with the New Deal programs was that they were nowhere near big enough to do the job. That’s the fatal mistake we seem to be about to make again, no doubt with similar consequences. There are always too many powerful self-interested captors of congressmen plus rote ideologues trying to preserve the system that just failed so spectacularly. And it’s a little late to be spooked by Russian influences on 1930s seekers after solutions to 25% unemployment and nationwide misery. Communism has been tried. True stimulus to revive the economy has not.
Comment by Al — August 16, 2010 @ 2:32 pm
Krugman loses, 2 votes to 1.
Too little stimulus? Too much? Call Rent-an-Economist today for a supporting opinion.
But I wonder. . . if we’re not throwing enough money at the problem, could it be perhaps that we haven’t spent what has already been allocated for stimulus? And could it be that too little is appropriated for job-creating infrastructure programs and too much for purposes that don’t create jobs but merely delay the inevitable? (Like bailing out states with money to sustain the unsustainable, such as overly-rich and unaffordable municipal employee and teacher pensions.) Kick the can down the road qualifies as a strategy, I guess. Hey, a trillion here, a trillion there. Somebody will pay it off someday, I guess.
Anyway, let’s continue this discussion over breakfast sometime after 9/1. My fingers are tired.
Comment by JDP — August 17, 2010 @ 9:46 am