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Et Tu, Barry?

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The United States was once the Julius Caesar of the world’s economies. Like Caesar in his Rome, what America said and did became the standard and the rule for the non-Stalinist nations who emulated everything in their effort to be as prosperous as we became. As for the Stalinist nations, they were undermined as much by Levi’s jeans and rock’n’roll as they were by the huge and very hostile American military presense, which by design surrounded them in ways for which Hitler would have sold his sorry soul many times over.

But as the Stalinist nations collapsed, and Glasnost and Perestroika replaced “global revolution” and “the dictatorship of the proletariat”, there was no longer any opponent to use to motivate the capitalist working class to strive for efficiency and greater productivity. Those potential rivals since held up to replace Stalinism — Muslim extremists and Mexican immigrants — have neither wealth, power, nor any great economic output useful for frightful comparison. Without any such rival, the forces which feed on unbridaled competition required a focus, and it was upon its own that these forces were directed.

America entered this period of economic dominance due to the ravages of war unleashed upon all of the other major industrial nations. The growth of American economic power was an opportunity of historic proportions. But to maintain that power, it was required that no other economy be allowed to achieve parity. One way to block this development would have been to go to war to destroy any nascent rival, as has been done repeatedly throughout written history, and very likely before. But the destruction committed during WWII by all sides demonstrated that the potential to end human life on this planet existed, and atomic weaponry was not the only reason this could occur. Thus following this path was not encouraged.

The other way to prevent rivalries from developing is to subvert them as they grow. After WWII, the world was in perfect condition for the only undamaged industrial economy to direct and control the restoration of the rest of the world so that no such contest could develop. The Marshall Plan — while it did a lot of good for the average European — was the means by which American firms could gain control of ravaged rivals, and which would then be in position to “influence” local governments to see things in certain ways critical to American hegemony. It also helped that their militaries were largely ceremonial, with the heavy defensive lifting being performed by American forces, which still remain in de facto occupation of the former Axis nations today.

This plan worked as long as those who greatly benefitted from this system continued to reinvest in the American worker who made all of this possible. But once it was clear that Stalinism was too stressed to survive much longer, and that there was no convenient enemy waiting on the sidelines, one had to be created. That enemy was the very workforce which created the prosperity enjoyed by the entire nation. Our usefulness to the elites had come to an end, and to protect their blood-stained profits, we had to go.

At least since 1978, the middle-class has been under assault by the investor class. I lived in Chicago in 1978 when the leveraged buyout of Inland Steel left thousands of retired workers without their pensions. Entire neighborhoods were ravaged as the elderly had to sell their homes to live. Many of these elderly had been refugees from Europe fleeing the destruction with nothing, spending their lives struggling to have a little something to retire on, only to see the greed of the wealthy legally take it all away. Inland Steel was only the beginning of the end of the American middle class.

Skipping ahead to the current day, the economic effects of destroying the middle class are clearly evident to those who aren’t willfully blinded by ideology. One of these seers may well have been the recently-resigned chairwoman of Pres. Obama’s Council of Economic Advisers Christina Romer. Ryan Lizza of The New Yorker reports that Romer had run simulations designed to test the effects of various levels of economic stimulus, and had determined from them an amount that was deemed excessive by other Obama advisors. One of these is alleged by David Dayen of FireDogLake to be director of the National Economic Council Larry Summers, of whom he writes “the entire economy reflects the fact that Summers has corraled the White House and isn’t allowing competing information in.” With the White House being legitimately blasted for mistaken assumptions about the severity of the Great Recession, some observers are asking “why Summers isn’t the one that should be taking the fall.”

Allowing Romer to take the hit isn’t going to save Obama. Summers may well be the most influential economic advisor, but the final decisions rest with Obama. Lately, he isn’t helping himself very much as he openly contradicts himself. One has to wonder if he’s even paying attention to what he’s saying as he stumps for votes and financial support for Democratic candidates facing a tough mid-term election.

Implying that America cannot prosper without a strong working class, Obama orated before the AFL-CIO Executive Council: “We are going to keep fighting for an economy that works for everybody, not just a privileged few,” and declared that “this fall’s election is a choice between polices that encourage job creation here in America or encourage jobs to go elsewhere…”

Yet the very next day, Obama announced a $22 million program to train South Asian workers to “provide offshore IT and business services to American companies looking to take advantage of the Asian subcontinent’s low labor costs…” The urge to burst forth with very non-Blogcritic profanity is strong within me, but I will attempt to vent through less vituperative means.

Hey, Barry, let’s get a few of your obvious misconceptions corrected. to begin with, South Asians did not vote for you. American workers did. American workers who increasingly seek unemployment assistance since the highly-vaunted private sector continues to not create employment over fears that consumers won’t spend. This is a realistic fear, as consumer borrowing fell in June for a fifth straight month. American workers are hurting, with as many as 1.6 MILLION expected to file bankruptcy this year despite the very hostile Bush-driven Bankruptcy Abuse Prevention Act of 2005 which makes it so much harder to file. A record 40.8 million Americans are living on Food Stamps (while at the same time Congress is cutting funding for same), and you send jobs to South Asia and Armenia using American working-class tax dollars to do so. (Or is this just a way of raising taxes on foreigners to pay for the increased border patrols the homeland conservatives demand but won’t fund?)

WHAT THE HELL ARE YOU THINKING? How long do you think Americans are going to put up with this hypocrisy on your part? Do your advisors really think that lip service is going to prevent serious losses to the Republicans this November due to your sorry economic performance and your employment betrayals?

You tell the AFL-CIO that you would want a union to represent you, yet you knife unions in the back. Do you really think these same folks are going to give you their money, their energy, and their time, and their votes after suffering such an injury? Get real! Paul Krugman was awarded a Nobel Prize for Economics, and he clearly takes the position that “when America had a strong middle class, it also had a strong union movement.” A strong middle class is considered vital to economic growth, and the lack of such is seen by many economists as the reason why the economy refuses to reverse direction.

For some reason, spitting in your supporters’ faces seems to be something you do. I’m amazed that the Nobel Peace Prize you were awarded wasn’t recalled once you gave your “acceptance” speech justifying making war. But having a Nobel Prize yourself should mean that you understand what it represents, that you are considered very knowledgeable and active in support of the cause for which it was given. You should be listening to those who have them as well.

One such is Edmund S. Phelps, who was the 2006 Nobel Laureate in Economics. I don’t agree with everything he proposes, but I find his suggestions a good place to begin the work you have put off since you were elected in November of 2008.

Phelps decries “state-run” entities and implies that corporations are treated like the enemy by your White House (has he been ignoring how you have been BP’s lackey for the last three months???). He’s right that business needs to feel confident that they aren’t alone in investing in the future, but all of the opportunities he wants business to have they already do. They just have no one leading them to the opportunities you are shipping offshore as fast as you can fund them with our tax dollars.

But let’s look at Phelps’ ideas that I feel we can work with. He wants to create “a First National Bank of Innovation” -which he defines as “a state-sponsored network of merchant banks”- to invest in innovative projects. This would be instrumental in the installation of the green power generation and national high-speed Internet connection projects you proposed as a candidate. He also advocates exempting start-ups from corporate income taxes, which I can accept with sufficient oversight that this won’t be abused by existing enterprises, and wants firms who hire low-wage workers into newly created jobs to receive tax credits. Let’s also exempt these lower-wage workers from their taxes. That one is my idea.

Phelps also wants to see executive compensation tied to longer-term performance-based standards, and to install guidelines on how fund managers’ compensation is determined via the increased value of their stock picks instead of their successful marketability. Putting some kind of control and imposing some kind of responsibility upon the American executive is vital to the success of any economic correction if we are to avoid getting back into this sorry situation in the future.

No thanks to Citizens United, the corporate sector is expected to spend huge sums this fall working against you, Barry. You can’t afford voters deciding that you have “the backbone of a worm”. But if you don’t begin standing up for them, and accomplishing things which benefit them, what other conclusion will they be able to draw?

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  • Of course, the real problem here is the gross inefficiency of the administration’s approach to stimulus. Spending money to stimulate the economy is an indirect approach which wastes more money than it puts to good use. By taking this approach you have to spend literally 10 times as much or more than you would if you implemented your stimulus through substantial tax cuts, especially ones directed at the middle and working class.

    The reason Romer’s demands were unacceptable is that they were based on this false assumption that government spending is a sensible way to stimulate the economy. What her situation revealed is that the law of diminishing returns makes that kind of stimulus more and more inefficient the more you spend.

    They need to rethink the whole approach they are taking, but as you point out, with Summers behind the wheel and ideologues at the helm they are never going to get outside of their big government box.


  • Tax cuts for the middle class will not matter here, since it’s not our economy that they want to stimulate.

    using foreign aid money to specifically help private corporations “take advantage of low labor costs” in the developing world – that’s absolutely grotesque.

    so, why only blame Obama?

    : ) Hi Realist! Long time no see.

  • Dave, your ideological view of economic stimulus is not shared by a lot of economists. Some, but certainly not universally.

  • Ruvy

    So, Realist is finally waking up! Man, it took a long time!

  • This article is massively over the top [as usual]. Just one example: Obama has been “BP’s lackey”??!! Ludicrous.

    The size of the Feb 2009 stimulus bill was determined largely by the political ability to push it through Congress. It was derided by the right as huge and wasteful, and by the left [i.e. Krugman] as a good start but not big enough given the size of the hole.

    [By the way, about a third of it consisted of tax cuts aimed at middle class families and small businesses. Over $250 billion!]

    The recent Alan Blinder/Mark Zandi evaluation of the success of TARP and the 2009 stimulus was pretty convincing: Those actions prevented a 10% unemployment rate from becoming a 15% or 20% one, and kept a scary Wall St economic meltdown from spiraling all the way down the drain.

    Don’t you think that if there were a “magic bullet” solution to unemployment, the president would go for it? He’s hardly unaware of that 9.5% jobless rate’s effect on his poll numbers.

    Companies are sitting on cash reserves and not hiring. That’s the key to the eventual solution.

    But even recent small-bore attempts to get small-business tax breaks and a small-business loan fund through Congress have been made hostage to election-year partisan hostilities.

    Mr. Obama ain’t perfect. But this piling on from left and right accomplishes nothing.

  • John Wilson

    Phelps article is bad economics. I suspect it reflects his political views.

    All these ideas to help businesses are misdirected: the USA is WAAYYY over capacity already. We have a capacity glut. No amount of money given to suppliers and builders will cure our unemployment problem for the simple reason that there is no market for products.

    It’s the endpoint of ‘supply side’ economics, which should only be used as a monor correction to demand-side econ, which is what powers our economy. Suppliers are camp-followers: they go where there is business, but markets are set by consumers.

    It is useless to pump more resource into the producer side. Unless, of course, you wish to subsidize export of US business to foreign lands to save them, which will be done at the expense of US citizens and workers.

    It is worse than useless, it is a negative because it takes money and attention away from where it is really needed: at the low end of the earning scale where big consumerism thrives.

  • I didn’t read Phelps’s piece that way, John. He says there is insufficient venture capital because there is insufficient innovation, and vice versa. A vicious cycle.

    He also says companies are thinking short-term when they should focus on the long haul. And for public companies, the stock price is the reason for the short term-itis.

    He suggests tax breaks especially aimed at lower-paying jobs. That doesn’t sound right wing or supply side to me.

  • President Obama is not perfect, but he is a hell of a lot better than the last guy!

  • John,

    It is useless to pump more resource into the producer side. Unless, of course, you wish to subsidize export of US business to foreign lands to save them, which will be done at the expense of US citizens and workers.

    Hasn’t that already been done?

  • Chlotilde

    Of course there’s a market for products. We could be selling all those consumer goods which were selling 5 years ago and are not selling now.

  • Ludwik Kowalski

    You wrote: “But as the Stalinist nations collapsed, and Glasnost and Perestroika replaced ‘global revolution’ and ‘the dictatorship of the proletariat’, there was no longer any opponent to use to motivate the capitalist working class to strive for efficiency and greater productivity….”

    Glasnost and Perestroika also did not happen without reason. They demonstrated the faulty nature of Marx’s idea proletarian dictatorship.

    Ludwik Kowalski, the author of two books:

    1) “Hell on Earth: Brutality and violence under the Stalinist regime

    2) Another short book, also free for on-line readers, is “Diary of a Former Communist: Thoughts, Feelings, Reality.”

  • Excellent and entertaining conversation from an unexpected source:

    Former Treasury Secretaries Paul O’Neill and Robert Rubin on Fareed Zakaria’s show today on CNN. O’Neill is often hilarious, and both men have a lot of common sense wisdom on the current economic situation. Good stuff [even those who enjoy sliming Rubin may find themselves impressed].

    [I just watched it live on cable; the clip may not be posted on the web yet.]