Koch Brothers and Debt Crisis

I am responsible for managing a substantial investment portfolio, and consequently have been watching the government shutdown/debt ceiling discussions with considerable care. As early as late June I was turning some of that portfolio into cash (prematurely, as it happened), out of fear that the Republican radicals would shut down the government and cause a default on the debt, with virtually incalculably bad consequences for the country and the world, as well as the markets.

Noting that the stock market did not seem to share my concern I kept wondering why, and exploring all the possible reasons. The most plausible was that Bernanke's warning of the end of stimulus had caused bonds to drop in value, sending a lot of cash into the stock market seeking returns, while during the summer there were no significant new threats looming, China's slowdown seemed to have halted, and the European economy was gradually improving.

Last week John Boehner stated unequivocally that he would not allow a debt default to happen. I regarded this as a major turning point, because I thought Boehner could not say this without having some reason to believe that the crisis was in the process of resolution. I therefore put some of my cash back into the market. But over the weekend he seemed to reverse course, putting forward a new series of demands, and Eric Cantor voiced confidence that the Republican demands would be met. This made me think that Boehner is not as disciplined in his comments as one might expect of someone in his position.

Over the weekend there was another development, at least for me. A NY Times report detailed the long planning for this "crisis" on the part of the Koch brothers and similarly loony Republican billionaires. I had long thought that discussions of the Tea Party positions were deficient in leaving the money out of the equation and focusing only on the ideology of the radicals, since it was the money that gave them their teeth, convincing saner Republicans that they would lose their jobs if they did not hew the radical line. This article not only confirmed that view, but explained some of the more mystifying sideshows, such as the recently surfaced demand that to lift the debt ceiling Obama had to approve the Keystone pipeline, which the article said was 20% owned by Koch Industries.

My bottom line conclusion for the moment, therefore, is that the billionaires are running the show for the radicals, and dictating Boehner's positions. If so, then I return to a more optimistic view because despite their vicious and repellent views, these people are not actually crazy. They are excellent bluffers, and I believe they are running out a strong bluff here. Then they'll fold, because defaulting on the debt will be ruinous for them and they know it.

After November 2012

The overwhelming financial advantage of the Republicans, their ability to undermine Obama by sabotaging the US recovery, the weak Democratic political campaign, and the grinding problems of Europe ensure a Republican sweep in November. Romney will be the new President, and he will have a majority in the Senate as well as overwhelming control of the House--and they of him. The question, then, is what will happen over the next 3-4 years.

The Republicans believe that economic recovery requires, first, an unpleasant period during which we get our fiscal house in order by cutting back on entitlements and government spending, and second, government support for private investment. They do not believe in government investment as such, apart from the military and police sectors. Consequently, a dramatic remake of the federal budget will be enacted, as they forthrightly promise. A balanced budget without tax increases on the investor class--that is, corporations and the wealthy--will be the goal, and will include increased defense spending. The Obama healthcare bill will be repealed, and the Republicans will seek to replace Medicaid and Medicare with a voucher system whose levels are geared to reducing federal deficits. Most other social programs, including the EPA, welfare, and industrial regulation will also face drastic financial reductions or total elimination. Farm welfare and tax incentives for carbon-based energy production will survive, however, and probably even increase.

Although Democrats will protest and use parliamentary maneuvers to block what they can, and the surviving liberal press will likewise fuss and fume, they will be talking only to themselves, and a continuing din of right wing advertising and media favoritism will largely drown out their objections. Nor can Democrats at local, State, or federal levels realistically hope to regain office, because the Republicans have a permanent and overwhelming monetary advantage, which has been demonstrated to be highly effective with the electorate, and they will also continue to benefit from voter eradication strategies in the States, of which they will control many more in the Romney sweep.

As  economic theory predicts, and the experience of Europe is now demonstrating, the austerity program that Romney promises will not actually restore fiscal order, and it will very clearly increase disparities of wealth. We can expect an increasing number of Americans to become jobless, members of the underground economy, dispirited, disqualified for 21st century jobs, and, in more and more cases, very angry. Although similar trends will grow throughout the world, the highest performing levels of the US economy should be able to sustain their sales and increase profits through their international operations. Similarly, those businesses that cater to the wealthy should thrive, and a flood of people moving down the income ladder might sustain sales and profits at the businesses like Walmart or Dollar Stores that cater to those with low income.

I say that US corporations should be able to sustain international sales, but that possibility would disappear if Romney pursues the beligerant foreign policy he has suggested. Even if he does not start a shooting war with Iran, however, anything like a return to the W. Bush policies would probably trigger international trade wars that could go far toward dismantling the free trade measures that have prevailed since World War II. Since that would, of course, be very problematic for the corporate world I tend to discount the possibility that a Romney foreign policy would resemble his campaign positions.

Some writers have posited that Romney's election and a sweeping Republican triumph in November would lead to something like permanent oligopolistic rule, with the only significant disagreements being within the ruling class. That does seem to me a possible endpoint of what must be a devolution that takes several election cycles. Several conceivable scenarios could seriously derail that development, such as warfare, civil chaos, Democratic resurgence, the formation of an effective new political party, plague or other cataclysmic natural disasters, or technological breakthroughs that overturn the existing economic structure.  So there is always hope.

Congratulations to WSJ, Koch Bros., Scaife, Murdoch, Limbaugh

Those named above, their genial front men Reagan and W. Bush, and their fellows on Wall St. and in the churches, brought about the current financial mess. Then, with the necessary help of their appointees to the Supreme Court they ensured that they would come to own it, and once Romney defeats Obama, and a majority of the Senate is Republican, it will be their mess to deal with. Congratulations.

Obama and Geithner came into office facing the worst mess since the Depression, and a far more difficult, chaotic political scene than existed even then. They certainly made mistakes in trying to deal with the mess they inherited. But I think that much of the retrospective advice now pouring forth about what they should have done instead seems to me unreasonable, given what they did not know at the time.

In the first months of 2009 they could not know that the Republicans would form a solid and virtually treasonous opposition to everything Obama sought to do, or that any such effort would prove wildly successful and publicly popular. Nor could they expect that Republican operatives and billionaires would successfully gin up the Tea Party movement, or foresee the Citizens United Supreme Court decision. That decision led directly to the suicidal debt ceiling impasse last summer, and the super-committee's failure now. It has opened wide the right wing political spending spigot, forced every Republican politician who is not suicidal to toe the radical right's line (however hateful and imbecilic it may be in terms of the general public interest), and thus destroyed our constitutional democracy. Hence, what was right economically proved implausible politically, and vice-versa. The reality is that Obama and Geithner have struggled cleverly and valiantly against these developments, and won some brilliant victories. But the war is lost. The radical right now gets to deal with the problem--if they even think of it as such. Given their cruel and pitiless nature, I fear that great pain lies ahead for us all.

The Afghan Leaks by Wikileaks

I think this leak and the blogosphere reaction to it highlights a crucial failing of the Obama administration. We need a coherent and honest explanation of some confusing and difficult circumstances here. We are dealing with murky and ambivalent governments in Afpak, and if we stop doing so their resources and people are likely to fall into the hands of Islamic extremists. Imagine the US nuke arsenal in the hands of the militias of Idaho, and American women subject to retrograde sexist strictures. It is also true that our own military has conflicting views on how to handle the guerilla warfare in Afpak, and many of the commanders still think that brute, brutal force is best.

But except when the President speaks in reaction to something like this leak, we don't get that kind of communication. It is not enough that Obama's intelligence and good will are widely respected. The people in charge of his political operation, such as David Axelrod, need to provide a stream of information about the situation, why we are there, what we are doing, and what the prospects are. Without it, they leave the public to the tender mercies of duplicitous self-aggrandizing groups and Fox News. The Wikileaks information would have a very different impact if the Obama Administration were paying more attention to keeping the public properly informed.

Requiescat in infernus

Today Obama's personal approval rating has sunk to 47%, a larger percent disapproves of his performance, and nearly 50% more poll respondents reject the healthcare plan than want it. Lieberman and Nelson seem on the verge of scuttling the healthcare bill, Obama's cap and trade law seems DOA, and the merger between the Republican Party and the Teabaggers is being consummated. It seems like a good time to take stock.

As far as I can tell, the Great American Voter (GAV) reasons as follows: (1) The Republicans left the country in the biggest mess since the Republicans last messed up the economy in 1929. (2) Th Democrats have failed to clean it up, thanks to Republican obstructionism. (3) Therefore the GAV should support the Republicans.

It is entirely possible, even likely, that this reasoning will prevail next November, and even more in 2012. Apart from the crazy logic, there may actually be a coherent philosophy behind these developments, and it is worth considering whether, in fact, most of the GAV doesn't actually subscribe to that philosophy.

That philosophy denies that we share a national community in the normal sense of the term. Tony Judt noted in the NY Review of Books, December 17 2009, "And indeed, it is not by chance that social democracy and welfare states have worked best in small, homogeneous countries, where issues of mistrust and mutual suspicion do not arise so acutely. A willingness to pay for other people's services and benefits rests upon the understanding that they in turn will do likewise for you and your children: because they are like you and see the world as you do. Conversely, where immigration and visible minorities have altered the demography of a country, we typically find increased suspicion of others and a loss of enthusiasm for the institutions of the welfare state."

The Republican/Teabagger view sees Americans as a highly diverse federal union whose citizens hold in common only a minimal number of common interests: defense against foreign attack or interstate internal disorder; protection of commercial interests and interstate commerce (but not of citizens from commerce); the creation and maintenance of interstate public works; the management of US government property; the protection and promotion of traditional social values; etc. In this view, many of the federal programs that now exist or are proposed have no legitimacy at the federal level. Social security, medicare and medicaid, welfare, tax subsidies for the poor, and other programs to assist the weak or afflicted are for private charity or local efforts. The federal government's obligations in this regard run only to its own employees or veterans.

In this conception, we are on the national level a competitive and individualistic society in which the successful or lucky ones have no obligation toward the rest. As Margaret Thatcher reportedly said (see Judt, above), "there is no such thing as society. There are only individual men and women and families." Another foundational belief seems to be that largely unregulated businesses will efficiently meet all our needs, or at least the needs of those who count, the ones able to pay, in a free market; and yet another is that a claim for the existence of externalities or interstate consequences must be taken with great skepticism since those who make it have suspect personal motives. The federal government should do no more than is necessary to satisfy the selfish needs that are common to ALL its citizens.

This is a coherent point of view, heavily drawn from libertarian thought, and its basic theory--that government has no business acting where it is unnecessary or unwanted--can hardly be disputed. Unfortunately, it is also premised on a false view of how society, the physical environment, and the world economy now work. It ignores realities that largely negate the effect of purely local action, such as the ease of travel and communication, the interconnectedness of things, the short-sightedness of business, and the impacts of technology. One might compare this view to Newtonian physics: an admirable intellectual achievement, and highly functional under circumstances that prevailed in the 17th century and in some places today; but no longer a realistic or usable framework for understanding or working with the world as we now know it.

Obama's Nobel Prize Speech

I have heard fine and noble talks, JFK's "ask not" speech, MLK's "free at last" speech, but I believe that Obama's Nobel Prize speech was the greatest of all. It was brilliantly constructed, starting with gracious acknowledgements of his famous and unsung predecessors and of the controversial nature of his own selection at such an early point in his public life. He then used the apparent irony of his selection while leading the US in fighting two wars as the launching pad for a searching discussion of the uses and abuses of war. Recognizing that there is evil in the world, and that nonviolent resistance could not have stopped Hitler's armies, he persuasively made the case for the use of force. But he also made the case for doing so justly, only as a last resort, to the degree necessary, in compliance with the Geneva Convention, and in a way that as much as possible avoids injury to innocent bystanders. This led to another point, that acting to bring about peace is a very difficult task that goes far beyond the mere assertion of its desirability or the blanket condemnation of war. He stated that despite its 60 year history of protecting the world from a 3rd world war, the US can no longer act alone. The changing nature of war requires concerted action if malefactors are to suffer the consequences for their evil behavior. As war has become increasingly hard on civilians it has also become increasingly important to reduce nuclear arsenals, an effort that the President said was the centerpiece of his foreign policy. The President made many other important and thought-provoking points as well. To choose just one example of the brilliance and originality of his thinking, he noted that while we rightly glory in the bravery, accomplishments, and self-sacrifice of the soldiers who fight in war, war itself is Hell. I am writing this before having heard all the rest of his speech, but this was enough. I am proud of our President, and of our nation for having elected him. Whatever the difficulties with democracy, and they are many, the election of Obama and the continuing support for him as he navigates the incredible mess that Bush et al have left vindicate the democratic idea.

Will health reform pass?

As I write, at the end of July 2009, the fate of Obama's health bill seems uncertain. Listening to public commentary, the most likely outcomes are either outright defeat of anything, or passage of something that just rearranges the deck chairs on the Titanic. But quite possibly something better is being forged behind the scenes; we won't know until we see it.

If the result is a debacle, I believe that it will again illustrate a hard truth about popular democracy. Liberals, and intelligent conservatives, tend to look at trends, forecast future consequences, and advocate action to deal with those consequences. But most voters do not operate that way; their forward vision stops at the tip of the nose. Given the desire of vested interests to preserve the status quo that enriches them, and the persuasive power of propaganda, this voter orientation towards the immediate makes change very difficult. Change happens only when the problems with the present course of action hit home broadly and forcefully. That's why the villainous Bush and Cheney team got close enough to re-election in 2004 that Kerry's blunders put them over the top. While any thinking person could see how terribly they were governing, the robust stock market and high employment at the time kept their evils from hitting home broadly and forcefully enough.

In other words, if the health plan loses, it will not be due to Obama's errors. He has in fact proceeded with enormous care and skill, building on the brilliant Clinton White House's effort and correcting its errors. The loss, if it occurs, will be due to timing: the fact that not enough voters have suffered sufficiently from the present setup, so that they remain susceptible to the mendacious scaremongering of the Republicans and the special interests who wish to maintain the present lucrative system.

Perhaps the loss will politically cripple Obama. Whether it does or not, though, it will mean that health reform must wait a while longer: until more employers drop the coverage, more obese people lose their insurance, and more people are turned away from overwhelmed emergency rooms to die in the streets.