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 Public Debate

Steve Ratner is not a simple man. He has a public record of both angelic and devilish behavior. As an angel, he has taken public positions clearly designed to further a general public interest, rather than his private interests, and was instrumental in saving GM and Chrysler, and hundreds of thousands of jobs at a critical moment during the Great Recession. As a devil, he has been heavily implicated, even if not indicted, in his company’s bribing of the corrupt NY Comptroller Alan Hevesy.

This morning, the devilish Ratner made a particularly unfortunate presentation on “Morning Joe,” where he is a regular, and normally quite sensible commentator. He presented charts showing that in addition to the $14 trillion (T) US debt, there are unfunded liabilities through social security and health care totaling perhaps $36T more, bringing total unfunded liabilities to about $50T as compared to a current $16T GNP.

The presentation was unquestionably scary, but in my opinion it was also false, and for reasons I will later provide, irresponsible. What made it false is that (1) it implies a present liability where none actually exists, and (2) vastly overstates the amount.

(1) The additional $36T is a liability only in the sense that you could count the future expenses of any ongoing concern as a liability if you disregard the concern’s revenues. In other words, if you add up all the future expenses of a going concern, you could call that a liability. Ratner has added up all the future social security and medical payment checks that the actuaries think the government will have to write over the next 50 or so years, and calls that the unfunded liability. Of course it’s unfunded: he doesn’t count any revenues. That’s an absurdity, not information.

(2) Moreover, since social security and medical expenses become due over a long period of time, the mathematical total of those payments is not a useful number. Imagine that I owe you $1 million, but pay it to you at the rate of $1 per year. Is my liability really a million dollars, or is it actually the $20 or so I would need to put into a savings account to earn that dollar a year so I could pay it? Obviously it’s the $20 that is the liability, what financial and economic literates like Mr. Ratner call the discounted present value of the amounts to be paid. It’s not the mathematical sum of all those $1 a year payments stretching out over centuries.

Now I come to why I think Ratner’s false presentation was irresponsible. Leave aside my view that any expert who makes a false or seriously flawed presentation of what the expert should know about is being irresponsible, to put it kindly. Here, Ratner has stepped into a volatile public dispute in which one side labors under a tremendous burden of ignorance, and his presentation gives expert confirmation of that ignorance. It’s as if an evolutionary expert gave a presentation appearing to confirm creationism.

In the dispute over the deficit, a large portion of the Republican Party’s base bears this burden of ignorance. These are people who do not themselves know anything about economic or public affairs. Unless they are directly impacted by government action, as when it shuts down, they have no interest, no independent knowledge, and no way to think about such matters. All they know comes through the coordinated propaganda of Fox News, right wing talk radio, fundamentalist clergy, and Republican politicians. Much of that propaganda is deliberately false or deceptive, but the base cannot distinguish between truths and falsehoods in economic or public affairs, and therefore sincerely believes the propaganda.

As a result, many Republicans believe economic absurdities, ranging from the notion that the deficit is the cause of high unemployment to the view that moderately raising taxes on the rich would hurt job creation. These are items of faith or ideology, and not changeable through argument or reason. Nevertheless, there are many other people who may be tempted by the Republican position, and the certainty with which it is advanced. And it is to these folk that Ratner’s presentation does the real harm.

Let me add that the Republican base is not the only one that suffers from great ignorance. Much of the natural Democratic base, like that of the Republicans, lacks knowledge or interest in economic and public affairs, and acts primarily on the basis of personal experience. Since many in the Democrats’ natural base are poor, their personal experience tends to be one of powerlessness. Based on that experience, then, they believe their vote doesn’t matter, and they don’t bother to cast it. In the election of 2010, for instance, the Republican triumphs came about largely because the Republican base voted; the Democratic base did not. As a result, a minority of Republicans nominated the Republican candidates, and a minority of voters elected the winners.

Right Wing Goldbug Rhetoric

Egon von Greyerz (von G) is a goldbug. His writings at zerohedge.com are laced with scary assertions about impending financial doom, mixed with facts that, on close analysis, have little relevance to his conclusions. I admit to some fascination with his rhetorical approach, which seems quite typical of the goldbugs and conservative doomsayers that I have previously encountered. I think his message is mistaken, but like so many theories emanating these days from conservative ranks, the rhetoric is very persuasive. Let me use von G’s essay “A Hyperinflation Deluge is Imminent, and Why, Therefore, Bernanke’s Motto is ‘Après Nous le Deluge’” to analyze this particular goldbug’s reasoning, and why such rhetoric as his makes it seem persuasive.
Von G starts by sarcastically stating what he thinks is the opposing point of view—that “Obama and Bernanke are the dream team making the US into the Superpower it once was.” He follows up with invective: “amazing the castles in the air that can be built with paper money and deceitful manipulation of all economic data. And Madame Bernanke de Pompadour will do anything to keep King Louis XV happy…” Note that all these statements are devoid of fact. But the sneering sarcasm serves a purpose, as it does for Rush Limbaugh and Fox News commentators. It expresses contempt for those who do not begin by agreeing with him. In doing so, it appeals to the authoritarian instinct in all of us, implicitly saying “I know what’s true and right, and I only respect those who agree with what I am going to say.” The sneering and sarcastic tone thus becomes a marker, which frequently reappears to remind the reader of the disrespect that he would earn by questioning the author’s thinking.
The next paragraph is a good example of how the sneering tone signals to the reader how to view the facts that are stated, even before the reader has thought about them for him or herself. While von G truthfully says that Obama and Bernanke pushed a lot of paper currency into the market, he signals his disapproval with the loaded term “flooding the market with paper” (emphasis added), where “flooding” means that the action is destructive. They do this, he says, knowing “they are committing a cardinal sin” to retain power. These additional claims are pulled from thin air, but tell the reader that printing paper is not just a mistaken policy, it’s really an illicit one that only selfish and despicable people would do.
The claimed consequences are then described in a series of apocalyptic statements and predictions, all without evidence or attribution, and some without relevance. A “deluge of unprecedented magnitude is both inevitable and imminent” and “life will be very different for coming generations.” Next, we learn the sad but unrelated fact that “we have reached a degree of decadence that in many respects equals what happened in the Roman Empire before its fall.” Also sad but irrelevant to the financial problem is that “Children are neither taught ethical or moral values nor discipline” and “Both press and television create totally false values and ideals.” There is more of the same, as well as some overstated demographic data: “More than 50% of children in the Western world grow up in a one parent home” (perhaps in the US, but in Europe too?); “Most families do not have a meal around the dinner table even once a week” (ditto); “Everyone must be young and beautiful often enhanced by surgical or digital means”; “Old people have little value.”
With the reader now depressed, frightened, and compliant, von G makes his economic argument. Here it is, in its entirety: “Since most of the prosperity that has been achieved in the last 40 years is based on printed money and debt, it is totally false and unsustainable. A major part of the Western world has improved their [sic] living standard, by exchanging services and swapping houses at ever-rising prices financed by printed paper and credit. The perceived wealth that is created out of this is totally illusory and ephemeral. We have created a world economy which is based on debt and thin air.” (original emphasis) Let us consider his points.
(1) “most of the prosperity that has been achieved in the last 40 years is based on printed money and debt.” There is a name for printed money plus debt: purchasing power. An increase in purchasing power is virtually synonymous with increased prosperity; what von G is saying, therefore, is nothing more than a tautology, or in mathematical terms, an identity. His implication, however, is that while currency and debt have increased, true prosperity has not really grown as well. If his claim were true, there would have been rampant inflation throughout the last 40 years, since adding to purchasing power without increasing real prosperity achieves nothing but a rising level of all prices. Indeed, von G implies that this happened when he attributes this illusory prosperity to “exchanging services and swapping houses at ever-rising prices financed by printed paper and credit.” But that is not true of the last 40 years. The quantity of money and credit has risen without a corresponding rise in inflation. Some prices have, indeed, gone up; many others have fallen. As well over a billion people around the globe, lifted from abject poverty to middle class or better lifestyles, well know, the increase in prosperity has been real.
(2) The prosperity “is totally false and unsustainable.” It makes no sense to claim that 40 years of prosperity are illusory. They happened, and whatever happens now or in the future, those 40 years cannot be taken away. Of what does prosperity consist? My answer would be that it consists of the means to satisfy desire. The more desire, the more is required to satisfy it. The aggregate level of desire was once closely tied to population growth, but in modern times innovation and marketing have become key drivers of desire and prosperity as well. To claim, as does von G, that modern prosperity is illusory is to assert two ridiculous falsehoods: that during these decades there has been no population growth, and no marketing and innovation.
(3) “The perceived wealth that is created out of [“exchanging services and swapping houses at ever-rising prices financed by printed paper and credit”] is totally illusory and ephemeral. We have created a world economy which is based on debt and thin air.” (original emphasis) Without question, both currency and credit have grown greatly. But prices for housing and services have not risen at the same rate; what was exchanged for $50,000 in 1971 is not now exchanged for $300,000 in 2011. Many services have not risen, but actually fallen in price, and most housing prices are back to pre-bubble levels despite huge increases in paper money during the last two years. In other words, the simple correlation von G suggests does not hold and does not make any sense.
As to von G’s claim that “the perceived wealth that is created out of this is totally illusory and ephemeral,” he is not making an argument or providing reasoning; he is simply re-stating an opinion.
At bottom, then, von G’s views rest on factual errors and illogical reasoning. Nevertheless, his writing can seem persuasive. The reason, I believe, is that in addition to the authoritarian and superior posture that he assumes from the start, there are two more rhetorical devices embedded in the key paragraph discussed above. First is the frequent repetition of the same damning charge: that the current prosperity “is totally false and unsustainable,” “totally illusory and ephemeral,” and “based on debt and thin air.” Repetition illustrates the depth and force of his conviction, and since von G writes authoritatively and coherently, the reader who does not or cannot analyze what he says is swept along, just like the listener to a Rush Limbaugh radio broadcast. The second rhetorical device is to mix truthful claims in with the erroneous and questionable assertions upon which he actually relies; for example, von G points out that levels of printed money and debt have risen, and how much, and so have prices. As I think I showed, these true assertions do not lead to the conclusions that von G draws. They are actually beside his point. But just as advertisers pay famous people for endorsements, even of products they never use, so the presence of true factual claims lends plausibility to the other claims and assertions, however illogical or mistaken they may be.
In short, von G’s rhetoric is brilliant and highly persuasive, but his actual point of view is badly mistaken.

Origins of Business, Markets, and Money website

For the latest information on my book The Origins of Business, Markets, and Money published by Columbia University Press, check out this link.

Tax Deal

I have long argued that Obama’s pr people were failing him, and I speculated that because they plunged into the Presidency without any rest from the campaign, they were simply exhausted. Whatever the actual reason, it’s now clear that Obama and his team never heeded the good advice of people like George Lakoff and Drew Westen, who laid out excellent prescriptions for how to communicate about progressive policies. So we find ourselves today in the following economic position:
As a whole, the economy is slowly and weakly recovering from the Great Recession.
Large banks and wealthy investors are doing very well.
Unemployment rates remain near 10%, with the actual number probably closer to 20% and the hardship much worse for minorities and the young.
The savings and wealth of the American middle class has been decimated.
The Tea Party/Republican party will rule the House from January 1, and will use its position to impose fiscal blackmail on all federal programs other than defense spending, not to mention doing their best to foil government activity by holding non-stop hostile hearings.
The possibility of any further fiscal relief for States or for poor or middle class people during the next two years is nil. As is the possibility of any federal “stimulus” money.
The goals of the conservative are twofold: first, to defeat Obama in 2012; second, to return the federal government to its pre-civil war role in which virtually the only legitimate activities were considered to be national defense, the collection of geographic information, and the management of public property.

This is the context of the tax deal. What does the tax deal do? Of the 900 billion cost, three quarters go to direct economic stimulus, which not coincidentally also saves millions of people from desperate misery at a time when they cannot possibly help themselves. The remaining quarter does go to the billionaires, who will not spend any appreciable part of it for the national benefit, and is a dead loss. But it is the ransom they require, and what we get in exchange is really important. Without this deal, Obama’s loss in 2012 would be assured, as would the return of a Depression era like we have not seen in our lifetimes. Nor would any other significant legislation have a chance now, such as the START treaty, the HOPE bill, and the DADT bill. With this reform, some or all of those bills might pass, even though they stand no chance whatsoever in the new Congress.

My interpretation of Obama, as a result of this deal, is that he has his eye on the practical realities for people. He is completely pragmatic, and like any good negotiator or deal maker will trade off unpleasant concessions for what he really needs and wants.

Why Democrats Did so Badly

I have been trying to figure out why the Democratic majority in Congress proved to be such a failure. Here is what I conclude. The fundamental reason for the failure was the Senate's filibuster rule. Without 60 votes, the Democrats were essentially helpless to get anything passed. The result was the mishmash we all saw. So the question becomes, why didn't the Democrats change that rule when they came to power in 2008?

The answer, I think, is the same reason why people don't keep their kitchen knives under lock and key. The filibuster was a tool that had never received much use, except when a minority of senators was very deeply and strongly opposed to something, as in the case of Southerners opposed to integration. While the Republicans began using it more often after 2006, it remained only an occasional factor since it was very difficult to rally so many senators to an obdurate stance. 2008 brought about an enormous change. So many moderate Republicans lost, and the party became so dependent on a particular segment of wealthy donors, that the remaining Republican senators could be induced or bullied into total unanimity whenever the leadership required it. McConnell began using the filibuster in a totally new way, as a day to day tactic, and this proved remarkably successful since the Democratic majority included a considerable number of rather conservative "blue dogs," and it only took one of them to make the filibuster succeed. By the time this tactic emerged, the time period during which the rules could have been changed had passed, and therefore the Democrats could not prevent the filibusters.

What remains unclear to me, however, is why Reid did not force the Republicans to actually filibuster, instead of simply winning cloture votes.

The new US constitution

I think we are ignoring several enormous changes that have transformed the US from the hope of the world into a new form of corporate state: (1) since Eisenhower, if not before, the military has become a huge, wealthy, and independent power with its own rulers, its own priorities, and a lordly presence around the world. It will continue to absorb the lion's share of our wealth regardless of the economic and social consequences. (2) Beginning with Reagan, the rich have become vastly wealthier and more powerful compared to everyone else, while middle class and blue collar community and labor organizations have dwindled. Bottom line: wealth now dominates our politics. (3) The George W. Bush presidency destroyed something like $12 trillion of US wealth, mostly in the form of middle class home investments. This one time destruction of wealth vastly exceeds all the losses of all the European powers outside Russia during World War II, and because of other changes enumerated here it cannot be recovered. (4) The Supreme Court's decision in Citizens United definitively marks the end of democracy in the US. Sure, democratic forms remain, and occasionally a rich candidate loses, but with only occasional exceptions, wealth now determines election outcomes. This may be particularly pernicious at the level of judicial elections. Although the judiciary remains for now what it has long been, largely committed to the rule of law, Citizens United and the efforts of groups like the US Chamber of Commerce guarantee that it will become increasingly partisan and corrupt as honest judges are replaced by those compliant with wealth, power, and ideology. (5) A key feature of "globalization" is that the major political actors--the largest corporations--no longer dependent on the American consumer for their profits. They have a sharply reduced stake in the economic viability of the nation, and are therefore relatively free to pursue public policies that further impoverish most Americans. To put it another way, just because a firm is headquartered in the US doesn't mean that it cares much about US conditions. Its leaders are insulated by their personal wealth, and its economic prospects depend on a far larger base than the US.

These fundamental changes render impotent and irrelevant liberal objections to the misdeeds of the present system. Unless an extraordinary new leader emerges, the system cannot be changed back to what it was. We thought Obama would be such a leader, but for all his qualities he clearly lacks essential public leadership skills, and there is no better choice on the horizon. The Republicans are now the only viable political party on the national level, and as far as I can see the only hope for amelioration of the depressing prospects is dissension within their triumphant ranks. Improvement will take a long time if it can be done at all.

Tea Party

Who could fail to resonate with the Tea Party desire for less federal spending, a smaller government, and a balanced budget? Who would disagree that many of the elected officials in Washington are crooks, chiselers, beholden to special interests, or otherwise unworthy? Because of the widespread popular agreement with these views, and the strange inability of the Obama administration to present its own relatively sane programs coherently and persuasively, the officials who will be elected or retained in office with Tea Party support will constitute a majority of the House, and perhaps of the Senate as well. And then what will they do?

People like Kelly O'Donnell and Sharon Angle seem to have no ideas at all; those with ideas, like the "young blood" Republicans who sympathize with the Tea Party, have ideas that either cannot be implemented, or would destroy the country. The leading idea seems to be to repeal the healthcare reforms. Presumably over the dead bodies of the healthcare industry that crafted and supported them, not to mention the liberal Democrats. But for the most part, the "shrink the government" movement has no ideas at all. We all want to shrink the government. But how? There lies the rub.

"Our" Freedom

Most of those who follow the Wall St. Journal's editorial page, listen to Rush Limbaugh, or regularly watch Fox News seem to share a belief--no, actually a fact so obvious that it requires no proof--that liberals are constantly threatening "our freedoms," the freedoms that people like them--the salt of the earth--hold most dear. Liberals, those unworldly do-gooders, constantly advocate policies that increase the size and responsibility of government, and the required level of taxes. As opposed to people who live and work in the real world, this account believes that liberals generally come from academia, or pursue intellectual activities, and accordingly know nothing about the way the world actually works. Or at least that's what they think until they need someone who actually knows something, such as how the markets work, or how to improve a machine, or what motivates people. At that point, of course, these realistic folks are likely to seek out experts, aka liberals.

When we examine more closely just which of our freedoms are being attacked by the pointy-headed types, however, it turns out that the circle of "us" is rather small, and the "freedoms" for these few are rather harmful to the rest of us. "Our freedoms" include the freedom to spend what we want on political campaigns, a freedom treasured by more foreign corporations than American citizens, if you examine who will use that freedom. "Our freedoms" include the right of power plants and energy producers to heat the earth without paying the cost, indeed to receive enormous subsidies for doing so; the right of the top 1% of earners to have the lowest tax level since the Great Depression, the right of corporations to injure their workers or their neighbors without significant consequence to themselves, the right of financial firms to lie, cheat, and steal, and the right of people who negligently or deliberately harm the lives or property of others to be free of regulation or payment. To put it in other terms, "our freedoms," as the Republican base would have it, consist of the rights of feudal lords to act without regard to the welfare of the peasants.

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.

Prosecute the Scum

In two succeeding articles, the Wall St. Journal recently reported that the large banks at the heart of the current recession, Citibank, Bank of America, and so forth, all have followed the practice of falsifying their capital to loan ratios in the quarterly reports they are obliged to give to the federal banking authorities. They have done so, apparently, by using off-balance sheet maneuvers, like those that Lehman Brothers employed, to "move" many of their liabilities off their balance sheets. By doing so, they make their equity to debt ratio look healthy when in fact it is not.

They claim that in doing so they are adhering to the letter of the law, in that on the exact day in question, the last day of the quarter, they do not have the liability. They also claim that despite the uniformly favorable result for them, these maneuvers happen in the ordinary course of business.

I don't know the details, but on the surface, at least, they are violating criminal prohibitions against filing false reports and conspiring to defraud others (bank examiners, investors). Their technical defense should not hold water; plenty of people have claimed that they adhered to the letter of the law in avoiding taxes, only to have the courts invalidate their action because it had no legitimate business reason other than tax avoidance. I am sure there are many other examples in which the deliberate circumvention of a law and its goals have resulted in criminal prosecutions. As t their second claim, it is so preposterous that it calls out for investigation at the very least. I am waiting for Attorney General Holder to launch a criminal inquiry.

Tea Party: the New Black Panthers

As it happens I have been reading "White Dog," Romain Gary's memoir of 1968, when King and Robert Kennedy were assassinated, the Black Panthers were riding high, and students in Paris and elsewhere were revolting. Then, yesterday, I also read Mark Lilla's diatribe in the NY Review of Books, April 29 edition, against the Tea Party. There is a striking resemblance between the anarchic tendencies of the 1968 Left, and the 2010 Teaparty Right. Both think that nihilism is a productive response to the undeniable troubles they see around them. Both are ignorantly idealistic. The Black Panthers and the students of 1968 carried on for ideals of equality, justice, and an end to oppression; the Teaparty Right does so for individual autonomy, at least in Lilla's credible view. While both have been eye-catching and irresistably newsworthy, neither has ever enunciated a plausible program to achieve what they scream for. Each has seemed dangerous, but ultimately works as part of the ongoing parade of entertaining spectacles.

Dishonesty Today

One factor that has rarely been mentioned in the national discussion about the current recession is the rise of dishonesty. There have always been crooks and liars, of course, but for centuries if not longer, lies and thievery have been socially disapproved. In the 21st century United States, however, blatant dishonesty has become commonplace not only by people who are sociopathic, needy, or crazy, but also by society’s leaders—our most important politicians and businessmen, leading corporations, and others whose attainments formerly earned them public respect.

Although it may not be politically correct, I also observe that this normalization of dishonesty is taking place largely under Republican auspices. Obviously, Democrats have their usual complement of crooks and liars, just as Republicans do. But what we are seeing today is something extraordinary. A political scientist friend, deeply immersed in contemporary politics and a former liberal Republican, says that what has happened is the takeover of the Republican Party by the South, and with it the traditional Southern political style which is rooted in dishonesty. He's usually right about such things, but in any event the national success of dishonesty reflects its one-sided nature. If the Democrats used dishonesty as a normal tool of political competition the way Republicans do, they would not be reduced to ineffectual sputtering whenever the Republicans perpetrate another lie. Yet time and again, that has been their reaction to Republican lies. We have seen this with the Swift Boat ads, with Republican propaganda about the healthcare bill, and with their outlandish claims about President Obama, just to mention a few of the better known examples. The Democrats remain perpetually surprised and shocked by such lies, still taking honesty and honor as the norm.

The spread of blatant dishonesty to the highest reaches of private society, which traditionally consists largely of Republicans, has occurred in step with the Republican use of dishonesty for political ends. Republican policies have been highly influential in creating the current atmosphere in which dishonesty is accepted as a normal part of the “game.” For example, George W. Bush’s administration refused to pursue illegal offshore entities and practices that allowed corporations to avoid billions of dollars in taxes, and gutted the enforcement capabilities of the SEC as well as of the EPA, OSHA, the Bureau of Mine Safety, the FDA, the FCC, and the Consumer Product Regulatory Commission.

The current recession traces almost entirely to dishonesty practiced by the largely Republican financial establishment. At its base were the firms that extended mortgage loans to people they knew to be unqualified. They then sold those loans to highly respected financial intermediaries who, with little examination, packaged and sold them to professional investors with unfounded assurances that they were safe, supported by the lies of rating agencies that had examined them only formally, and in some cases hardly understood them. The investors, in turn, falsely assured the pensioners, workmen, and others who depended on their expertise that they were working hard to protect their assets. The investment advisers who got their institutions to buy these securities fought tooth and nail against regulatory requirements designed to provide transparency, and won important victories like preventing the Commodity Futures Trading Corp. from regulating the “shadow” financial structure that had become the largest of these institutions.

Finally, what prompted this note from me was a Wall St. Journal article of April 9, 2010, stating that according to a NY Federal Reserve Bank study, all the major banks have, for the last 5 quarters, submitted false statements about their loan levels, with the falsehood designed to make their riskiness seem less than it truly was. The article states that the false submissions were not criminal in nature since, at the moment of submission, they were technically true. But when Al Capone “proved” that he was not a crime boss because his tax returns showed only a small income, he was convicted of perjury if not of other crimes. Why, then, should a banker escape prosecution for perjury if he reports in a sworn statement that his hands are clean, simply by virtue of handing off his excessive loans for one or two days?

It is time that we start severely punishing the liars, cheats and thieves at the upper levels of society. Let’s make it once again socially disgraceful to engage in such behavior.

Why Congress Can't Act

The reason Congress cannot act is that bipartisanship is now a term for what happens within the Democratic Party. The Blue Dogs are the new Republicans, and those who call themselves Republicans constitute a new party, the Radicals. They cannot be reasoned with, so their presence in Congress is as though the voters had decided to elect 41 lunatics from an asylum to the Senate, and whatever their number is to the House. Before Reagan, or perhaps Bush I, a bill required just 50 or 60% of the members to pass; a bipartisan goal that was often attainable. Now, however, the bipartisan goal to pass a bill is virtual unanimity, since the Radicals are out of it entirely. What is now impossible in the Senate would become merely very difficult if Reid would restore the true filibuster, or change the rules to prevent it entirely. 50 Senate votes would still require 85% agreement among the liberal and conservative Democrats.

As Germany entered the Depression of the 1930s, angry voices began to blame the economic disaster on outsiders: Jews, Communists, foreign conspirators, bankers, and the like. They were increasingly strident; their stupid and incendiary claims were highly newsworthy; their appeal to military force resonated with German tradition; and the simple core message--that the ordinary, hardworking German volk were innocent victims of evil forces--was very attractive to people who never normally thought much about public affairs. So they elected a demagogue named Adolph Hitler.

In the United States today, a similar scenario has been shaping up. Without a tradition of anti-Semitism, or a serious threat from Communism, the alleged conspirators are somewhat different: Terrorists, Moslems the Chinese, liberals, immigrants, and of course bankers. But like their radical predecessors in Germany, America's radical right makes stupid and incendiary claims that capture the media's attention; their love of force appeals to traditional values; and their simple core message--that the ordinary, hardworking middle-class American is the innocent victim of it all--is wonderfully appealing, especially to those unaccustomed to thinking about public affairs.

There are, however, significant differences. Unlike in Germany, the radical right's perspective clashes with important American values. Despite repeated claims to love liberty, their programs obviously trample the Constitution and traditional commitments to human rights. And to a certain degree, the radical right in America had a much larger role in creating the current problems than did Germany's radical right. The current crisis is really the culmination of a decades-long trend that began in California under Ronald Reagan, when an anti-tax movement focused on cutting services to the poor and the lower middle class took hold. Since then, the radical right has repeatedly cut taxes and public services, including regulation, but at the same time ran up huge deficits by spending vastly more on armaments and wars.

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.

Either We Hang Together or We Hang Separately

The Nov 2009 elections have little significance in themselves, but they do suggest that if the Democrats fail to enact significant healthcare and climate change legislation, they will face severe defeat, Blue Dogs first. With bad candidates and a depressed economy, the NJ and VA Democratic base hardly bothered to vote, leaving the field to right-wing ideologues and people hoping for change, any change. The Democrats had nothing to offer, and their control of Congress made it seem all the worse.

In reality, on the same day as the election, the business news made it clear that the Obama measures to deal with the economy are working, but as the President has repeatedly said, it takes time. It now seems likely that the economy will be visibly improving by the November 2010 elections.

But if the Democrats get distracted by passing uproars manufactured or capitalized upon by Republicans and the broadcast media, they could still lose. There is a repeating pattern here, folks: Republican Presidents screw up the economy, then Democrats spend all their effort and credibility fixing it up again, with Republican opposition forcing them to sacrifice their other agenda goals to that end. Happened to Carter and Clinton, now Obama.

Preventive Detention

After reading Adam Serwer's good article in the September 2009 issue of The American Prospect, I realize that the fundamental issue in preventive detention is political risk management. Obama can't just release all the detainees who can't be convicted or sent away, because one of them might do something for which the Limbaugh Republicans could beat up the Democrats. If we did not have a Constitution and a Bill of Rights the same reasoning would lead to the detention of half the country, or at least everyone in NY and SF (Limbaugh and Beck presumably excepted). Given the current mad dog nature of the Republican Party's leadership, Obama's best choice is probably what he seems to be doing: trying to make the problem disappear by sending all these people far away.

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.