Obama Won’t Let Our States Be Middle Class

On February 6, 2010, in Background and Research, by Tiffiniy Cheng

David Sirota points out how our Democratic Corporatism is bringing back Reagan’s still-alive corpse. I discussed limousine liberals with John Nichols of the Nation the other day and you know, there’s a real way to have a free market and then there’s a way to let government prop up a few in a dangerous kind of free market.

The video on HuffPo is worth a look:

I’ll let you read the column to see how I believe the Massachusetts Senate race really proves that 21st Century Democratic corporatism is now fueling the revival of Reagan’s most pernicious anti-tax and anti-government messages. But make no mistake about it: That revival is not due to Republican brilliance but to Democrats conflating government with the most hated corporations in the land. Indeed, if President Bush made government synonymous with Halliburton, Democrats have made government synonymous with Goldman Sachs.

Sirota also points out in another column that our states have to cut “life” as budgets are slashed (The Case for Choosing Life):

The phrase “choose life” may be conservatives’ abortion shibboleth, but, as my new newspaper column today shows, it better sums up the economic decision communities all over America must now face when it comes to taxes, spending and budget deficits.

For the last week or so, I’ve been reporting on the state of the tax debate in places like Oregon, Colorado Springs and Pennsylvania (among others). Voters there – and soon, everywhere – are being asked to choose between tax hikes on the ultra-wealthy and massive spending cuts for basic social services. That is, they are being asked to choose between economic life and economic death.

It’s the same choice Congress will be forced to make quite soon, thanks to President Obama’s solid proposal to end George W. Bush’s high-income tax cuts – but also thanks to his awful proposals to potentially ram Social Security/Medicare cuts through a commission and freeze non-defense domestic spending.

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a tale of three cities

On February 5, 2010, in Background and Research, by Joe Costello

a tale of three cities

It was the best of times, it was the worst of times
it was the age of wisdom, it was the age of foolishness
it was the epoch of belief, it was the epoch of incredulity
it was the season of Light, it was the season of Darkness
it was the spring of hope, it was the winter of despair
– Charles Dickens

Yesterday, I warned of IMF austerity coming to a government near you, and Colorado Springs makes the point. The Denver Post has a good piece how the notoriously tax-adverse city is cutting not to the bone, but the bone itself:

More than a third of the streetlights in Colorado Springs will go dark Monday. The police helicopters are for sale on the Internet. The city is dumping firefighting jobs, a vice team, burglary investigators, beat cops — dozens of police and fire positions will go unfilled.

The economic philosophy of the last three decades is alive and well in Colorado Springs:

Community business leaders have jumped into the budget debate, some questioning city spending on what they see as “Ferrari”-level benefits for employees and high salaries in middle management. Broadmoor luxury resort chief executive Steve Bartolin wrote an open letter asking why the city spends $89,000 per employee, when his enterprise has a similar number of workers and spends only $24,000 on each.

No doubt we’d all do well on $24,000 a year. But this raises an important question on the growing discrepancy between public employees, who have been shielded from the wage stagnation and benefit cuts of the last decades and the private sector. Of course those who benefited the most from this, not the city employees, but people like Mr. Bartolin will argue time for the public employees to take their cut. However, without a fundamental rethinking of America’s political economy, this will in the end lead to nothing but misery. The real question is why the American economy no longer works for the majority, the society as a whole, and how to change that.

Meanwhile over the Rockies and across the Pacific, Andy Xie in Shanghai has an excellent piece about the growing Chinese bubble. The nut:

The U.S. Federal Reserve’s low interest rate policy continues to drive money out of dollars and into China-related assets. When inflation forces the Fed to raise interest rates quickly, probably in 2012, this assumption will be tested. In the current speculative game around China, the force is the Fed’s zero interest rate.

Blow Ben, blow! Mr. Xie is expecting inflation, but I’m skeptical about that for one important reason. What Alan Greenspan realized before most others is asset inflation by itself, is not inflationary for the rest of the economy. It’s tremendously distorting, but not by itself inflationary. The reason for this is the trickle down nature of asset inflation. All dollars are not the same. If you raised wages a hundred percent in a year, that would be inflationary, as the majority of money would immediately be infused into the real economy. Asset bubbles float above the economy, most of the dollars hovering above and a few leaking into the economy, for example when you spend an evening at Mr. Bartolin’s resort and tip the servants. What Mr. Xie and many mainstream economists miss is that when the asset bubbles pop, this immediately deflates the economy, all that money is destroyed, or as in our case, remains on the banks books as the living dead, crippling the real economy when the entire financial system is entwined with the bubble.

Now, let’s move back across the ocean and the American continent to the world’s favorite city, Washington DC, whose bubble never seems to pop. Talk grows amongst our elected representatives just what flavor of IMF austerity will be good for us. Now, we need to pay close attention to this, because this is where we will see clearly defined the fantasy of two parties and the reality of minority rule by our homogeneous one party political class. Case and point is how we talk about the budget. For the political class, Medicare and Social Security are problem one. If you look at the Trustees report, you will see costs of these programs in 2008 at one-trillion dollars. However, the White House’s new 2011 budget calls for seven-hundred billion dollars in military spending and with how the budget is accounted this is sorely underestimated. While there will be plenty of talk about cutting Social Security and Medicare, the silence on military spending will be deafening.

Finally, Ed Harrison at Credit Writedowns has a nice piece about the history of military spending and civilizations. In the end, military spending replaces political economy dynamism, and it’s down hill from there. We need to fundamentally rethink our political economy. No one can argue there’s not waste in government, but it is dwarfed by our asset bubble corporatism. How we change this is fundamental to our democratic future. It is not something the experts who got us into this predicament are going to extricate us from. In another good piece on the dysfunctional nature of our democracy, Robert Reich hits the nail on the head:

But reducing the long-term budget deficit has almost nothing to do with expertise. It’s about our nation’s values and priorities. Nothing could be more central to the democratic process.

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