My CBPP colleagues contributed many important graphics to the debates of 2011 in lots of different areas, including fiscal, poverty, inequality, health care, and more. But which ones to highlight in this end-of-year look back at the best of 2011? I generally used a market test: these are the ones that were most widely circulated.
Economic writers in earlier times were more ready than their modern counterparts to confront the problem of debts growing so large as to be unpayable. In The Wealth of Nations (V, iii), Adam Smith observed that “Bankruptcy is always the end of great accumulation of debt. The liberation of the public revenue, if it has ever been brought about at all, has always been brought about by a bankruptcy; sometimes by an avowed one, but always by a real one, though frequently by a pretended payment.”
The United States is facing significant and fundamental budgetary challenges. The federal government's budget deficit for fiscal year 2011 was $1.3 trillion; at 8.7% of gross domestic product (GDP), that deficit was the third-largest shortfall in the past 40 years. (GDP is the sum of all income earned in the domestic production of goods and services. In 2011, it totaled $15.0 trillion.)
“Now, as to paper money, so called every on knows that paper money is the money of civilized people. The higher you go in civilization the less actual money you see. It is all bills and checks. What are bills and checks? Mere promises and orders. What are they based on? Principally on two sources—human energy and the productive earth. Humanity and the soil they are the only real basis of money.
WASHINGTON -- With the economy in a slump for nearly four years, corporate executives and conservative politicians have repeatedly invoked "uncertainty" as a major barrier to American job-creation. The "uncertainty" jab is a go-to talking point for any congressional Republican looking to tag President Barack Obama as a tax-raising, regulation-obsessed foe of American businesses.
But according to banking data compiled by economic research firm Moebs Services, the uncertainty plaguing the American economy has nothing to do with government regulations or taxes on millionaires. It's an uncertainty driven squarely by consumers and small-businesses who are worried about their short-term financial prospects. And it's been going on since well before Obama took up residence in the White House.
Billionaire brothers Charles and David Koch finally got their way in 2011. After their decades of funding the American Legislative Exchange Council, the collaboration between multinational corporations and conservative state legislators, the project began finally to yield the intended result.
Progressives had some fun last week with Frank Luntz, who told the Republican Governors' Association that he was scared to death of the Occupy movement and recommended language to combat what the movement had achieved. But the progressive critics mostly just laughed, said his language wouldn't work, and assumed that if Luntz was scared, everything was hunky-dory. Just keep on saying the words Luntz doesn't like: capitalism, tax the rich, etc.
It's a trap.
When Luntz says he is "scared to death," he means that the Republicans who hire him are scared to death and he can profit from that fear by offering them new language. Luntz is clever. Yes, Republicans are scared. But there needs to be a serious discussion of both Luntz's remarks and the progressive non-response.
We’ve Known for Thousands of Years
We’ve known for literally thousands of years that debts need to be periodically written down, or the entire economy will collapse. And see this.
We’ve known for 1,900 years that that rampant inequality destroys societies.
We’ve known for thousands of years that debasing currencies leads to economic collapse.
We’ve known for hundreds of years that the failure to punish financial fraud destroys economies.
We’ve known for hundreds of years that monopolies and the political influence which accompanies too much power in too few hands is dangerous for free markets.
We’ve known for hundreds of years that trust is vital for a healthy economy.
We’ve known since the 1930s Great Depression that separating depository banking from speculative investment banking is key to economic stability. See this, this, this and this.
We’ve known since 1988 that quantitative easing doesn’t work to rescue an ailing economy.
We’ve known since 1993 that derivatives such as credit default swaps – if not reined in – could take down the economy. And see this.
We’ve known since 1998 that crony capitalism destroys even the strongest economies, and that economies that are capitalist in name only need major reforms to create accountability and competitive markets.
We’ve known since 2007 or earlier that lax oversight of hedge funds could blow up the economy.
And we knew before the 2008 financial crash and subsequent bailouts that:
The easy credit policy of the Fed and other central banks, the failure to regulate the shadow banking system, and “the use of gimmicks and palliatives” by central banks hurt the economy
Anything other than (1) letting asset prices fall to their true market value, (2) increasing savings rates, and (3) forcing companies to write off bad debts “will only make things worse”
Bailouts of big banks harm the economy
The Fed and other central banks were simply transferring risk from private banks to governments, which could lead to a sovereign debt crisis
Given the insane levels of debt, rampant inequality, currency debasement, failure to punish financial fraud, growth of the too big to fails, repeal of Glass-Steagall, refusal to rein in derivatives, crony capitalism and other shenanigans … the financial crisis was entirely foreseeable.
Here’s how I saw this back in the mid-2000s, in the heart of the GW Bush years, when the YOYOs were riding high (from my book, All Together Now: Common Sense for a Fair Economy):
… One central goal of the YOYO movement is to continue and even accelerate the trend toward shifting economic risks from the government and the nation’s corporations onto individuals and their families. You can see this intention beneath the surface of almost every recent conservative initiative: Social Security privatization, personal accounts for health care (the so-called Health Savings Accounts), attacks on labor market regulations, and the perpetual crusade to slash the government’s revenue through regressive tax cuts — a strategy explicitly tagged as “starving the beast” — and block the government from playing a useful role in our economic lives. …
While this fast-moving reassignment of economic risk would be bad news in any period, it’s particularly harmful today. As the new century unfolds, we face prodigious economic challenges, many of which have helped to generate both greater inequalities and a higher degree of economic insecurity in our lives. But the dominant vision has failed to develop a hopeful, positive narrative about how these challenges can be met in a way as to uplift the majority.
Instead, messages such as “It’s your money” (the mantra of the first George W. Bush campaign in 2000), and frames such as “the ownership society,” stress an ever shrinking role for government and much more individual risk taking. Yet global competition, rising health costs, longer life spans with weaker pensions, less secure employment, and unprecedented inequalities of opportunity and wealth are calling for a much broader, more inclusive approach to helping all of us meet these challenges, one that taps government as well as market solutions.
Research shows that a mere 1 percent of small business owners make more than $1 million per year. Only about 5.4 million of the nation’s 20 million small businesses pay any wages at all. The Republican claim about wealthy small business job creators, it turns out, is based on a convenient and overly broad definition of “small” that includes partnerships and S-corporations, like hedge funds, accounting firms, law practices and other often big businesses.
So when they claim to be protecting small business from high-end taxes, Republicans are really talking about protecting big companies whose owners fall into the one-half of 1 percent of taxpayers who are millionaires or better. A surtax would certainly not hurt them.
House Speaker John Boehner claimed that “small-business people” make up more than half of those who would be hit by a tax increase on “millionaires.” Not really. Only 13 percent of those making over $1 million get even as much as one-fourth of that income from small business, according to government tax experts.
We wanted to talk to business owners who would be affected. So, NPR requested help from numerous Republican congressional offices, including House and Senate leadership. They were unable to produce a single millionaire job creator for us to interview.
So we went to the business groups that have been lobbying against the surtax. Again, three days after putting in a request, none of them was able to find someone for us to talk to. A group called the Tax Relief Coalition said the problem was finding someone willing to talk about their personal taxes on national radio.
Cosma Shalizi urges economists to stop doing what they are doing: Fitting large complex models to a small set of highly correlated time series data. Once you add enough variables, parameters, bells and whistles, your model can fit past data very well, and yet fail miserably in the future. Shalizi tells us how to separate the wheat from the chaff, how to compensate for overfitting and prevent models from memorizing noise. He introduces techniques from data mining and machine learning to economics -- this is new economic thinking.
As ThinkProgress has been reporting for some time, the corporate front group American Legislative Exchange Council (ALEC) has been colluding with the billionaire Koch brothers to privatize government and eliminate environmental regulations that interfere with profits.
GOP legislators in many states have given ALEC free reign to write anti-health care reform and anti-environment legislation. Now, ALEC is fighting to kill Environmental Protection Agency (EPA) rules limiting the sale of rat poisons that pose a serious health threat to children and the ecosystem.
Robert Pollin, James Heintz, Heidi Garrett-Peltier and Jeannette Wicks-Lim show that since 2009, U.S. commercial banks and large nonfinancial corporations have been carrying huge cash hoards and other liquid assets, totaling $1.4 trillion. Small businesses, by contrast, have been locked out of credit markets. The authors examine the impact on job creation of mobilizing these excess liquid assets into productive investments, finding that U.S. employment could expand by about 19 million jobs by the end of 2014, with unemployment falling below 5 percent. The paper discusses policies to transform these hoards into job-generating investments, both for the national economy and, specifically, the Los Angeles and Seattle regions.
By plane, train and bus, thousands of activists are converging on Washington, D.C. this week to “Take Back Our Capitol.” Though the pilgrimage borrows the some of the language of the Occupy protests, and includes a contingent of those activists, the crowd hails largely from nonprofits and political organizations.
"We came to tell members of Congress that they should represent the 99 percent not just corporations and the 1 percent," said Colleen Bugarske, 59, a volunteer from West Los Angeles with MoveOn.org, a national nonprofit political advocacy group.
BILL MOYERS: You've no doubt figured out my bias by now. I've hardly kept it a secret. In this regard, I take my cue from the late Edward R. Murrow, the Moses of broadcast news.
Ed Murrow told his generation of journalists bias is okay as long as you don't try to hide it. So here, one more time, is mine: plutocracy and democracy don't mix. Plutocracy, the rule of the rich, political power controlled by the wealthy.
The conventions of our money supply are so arcane that explanation is daunting. Journalist William Greider once observed that the American process of money creation is “a powerful mystery to most citizens.” Indeed, he wrote, it is a mystery to most elected leaders, who tend to believe that the process is best “left to the experts, a forbidden area where politicians [are] not supposed to intrude.” In Secrets of the Temple: How the Federal Reserve Runs the Country, Greider quoted the head of the Federal Reserve Bank of New York, who went so far as to assert that “no President really understands these things.”
If that’s true, it’s nothing less than a major civic tragedy, one we should not allow to continue. Why should we tolerate a state of affairs in which people use economic jargon instead of giving an intelligible answer to the following conceptual questions: Where does modern money come from? And what does it consist of?
Former Speaker and current GOP presidential candidate Newt Gingrich might well have said that he wants to kill his personal physician because he didn’t like being told his blood pressure was too high.
But that’s the equivalent of what Gingrich did say during a recent debate, when he made it clear that the Congressional Budget Office has to be eliminated if health care reform is going to be repealed.
According to Gingrich, the CBO should be done away with because its analysis shows that, as enacted, health care reform reduces the federal budget deficit. This means that repealing it — as many in the GOP base to which Gingrich is appealing wants to do — will increase the deficit and, therefore, require spending cuts or revenue increases to offset the impact. That, of course, will make the repeal effort much harder and far less likely.
Gingrich's hypocrisy on the issue of work is unbelievable, given the fact that when he himself was a student, according to an interview , his stepmother gave to Gail Sheehy, quoted in a PBS Frontline story, " The Inner Quest of Newt Gingrich", during his college years, Newt called his father and stepfather to ask for financial help. His stepmother recalls that his exact words were
"I do not want to go to work. I want all my time for my studies.."
Not only that, but according to Dolores Adamson, Gingrich's district administrator from 1978 to 1983, his wife Jackie "put him all the way through school. All the way through the P.h.D...He didn't work."
The principal problem facing the US and Europe for the next few years is an output shortfall caused by a lack of demand. Nothing would increase the incomes of all citizens – poor, middle-class and rich – as much as an increase in demand and associated increases in incomes, living standards and confidence in institutions and the future.
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It would, however, be a serious mistake to suppose that our problems are only cyclical or amenable to macroeconomic solution. Just as the evolution from an agricultural to an industrial economy has far-reaching implications for almost all institutions, so too does the evolution from an industrial to a knowledge economy. Trends that pre-date the Great Recession will be with us long after any recovery.
The most important of these is the strong shift in the market reward for a small minority of citizens relative to the rewards available to most citizens. According to a recent Congressional Budget Office study, the incomes of the top 1 per cent of the US population, after adjusting for inflation, rose by 275 per cent from 1979 to 2007. At the same time, the income for the middle class grew by only 40 per cent. Even this dismal figure overstates the case of typical Americans, as the number unable to find work or who have abandoned the search has risen. In 1965, only 1 in 20 men between 25 and 54 was not working; by the end of this decade it will probably be 1 in 6, even if the full cyclical recovery is achieved.
How three decades of flawed economic thinking have helped to create record numbers of long-term unemployed and undermine America’s middle class.
Steven J. Davis, Senator McCain’s chief economics advisor during his presidential campaign, has written a political hit piece on the man that defeated his candidate. His co-authors were Scott R. Baker and Nicholas Bloom. For the sake of brevity I will refer to the authors as “the authors” or “Davis.” They published the piece in
Bloomberg The article purports to be a straight scientific piece, but it is a partisan screed relying on faux statistics created by Davis to support his views. Davis’ statistical methodology is not simply unscientific, it is embarrassingly bad.
The economic crisis of the 1970s, which heralded the end of a generation of U.S. economic dominance, helped their cause by laying bare the limitations of the New Deal order. The country's economic and social policy regime -- which relied heavily on the private provision of important social protections, such as pensions and health insurance -- may have been adequate for a globally dominant industrial economy that generated 30 years of widely shared growth and stable employment for millions of industrial workers. But in the 1970s, it began to prove thoroughly inadequate for an era of globalization, deindustrialization, and economic dislocation, as displaced workers found themselves unable to rely on the government for economic protection. This, in Hacker and Pierson's parlance, was policy drift on a massive scale.
Ascendant conservatives seized on this state of affairs to argue that the whole New Deal edifice of social protection, financial regulation, progressive taxation, and civil rights should be dismantled rather than reinforced. Beginning with the Carter administration, the expanding business lobby successfully defeated proposal after reform proposal and aggressively promoted an opening round of tax cuts and deregulation -- mere down payments on the frenzy to come.
Republican media strategist Roger Ailes launched Fox News Channel in 1996, ostensibly as a "fair and balanced" counterpoint to what he regarded as the liberal establishment media. But according to a remarkable document buried deep within the Richard Nixon Presidential Library, the intellectual forerunner for Fox News was a nakedly partisan 1970 plot by Ailes and other Nixon aides to circumvent the "prejudices of network news" and deliver "pro-administration" stories to heartland television viewers.
The Republican Governors Association met this week in Florida to give GOP state executives a chance to rejuvenate, strategize and team-build. But during a plenary session on Wednesday, one question kept coming up: How can Republicans do a better job of talking about Occupy Wall Street?
"I'm so scared of this anti-Wall Street effort. I'm frightened to death," said Frank Luntz, a Republican strategist and one of the nation's foremost experts on crafting the perfect political message. "They're having an impact on what the American people think of capitalism."
Luntz offered tips on how Republicans could discuss the grievances of the Occupiers, and help the governors better handle all these new questions from constituents about "income inequality" and "paying your fair share."
The notion of a well-running market is applicable to manufactured goods; different items are produced to be alike and can be evaluated by consumers. But the products of the finance and health industries are individualized and complex. The consumer cannot seriously evaluate them—a situation that economists call “asymmetric information.”
This casts light on the claim that the problem is one of personal ethics, of greed. After all, the search for improvement in technology, and consequently in the general standards of living, is motivated by greed. When the market system works properly, greed is tempered by competition. Hence, most of the gains from innovation and good service cannot be retained by the providers.
But in situations of asymmetric information, the forces of competition are weakened. The individual patient or financial client does not have access to all the relevant information. Indeed, when the information is sufficiently complex, it may be impossible to provide adequate information.
In these circumstances, greed becomes more relevant. There arises an obligation to present the relevant information as fully as possible, an obligation that has been violated in the financial industry. In the medical field, this challenge has to a considerable extent been met historically by standards of proper practice. These may involve revelation of all information, or at least the requirement that differences in information not be exploited.
It is clear that the financial industry is well behind the medical in this respect. A proper sense of responsibility has to be enforced by legislation, as it was in the 1930s. There has been some erosion in the law, for example under the Clinton administration, and in enforcement. The Dodd-Frank law is a step in the right direction, but the influence of the financial industry watered it down and created unnecessary complications.
It is not superfluous to argue that steepening the income tax progression, removing a number of blatant loopholes, such as the special treatment of capital gains, and reducing the exemption level for estates would add considerably to post-tax equality.
It is a tenet of American economic beliefs, and an article of faith for Republicans that is seldom contested by Democrats: If taxes are raised on the rich, job creation will stop.
Trouble is, sometimes the things that we know to be true are dead wrong. For the larger part of human history, for example, people were sure that the sun circles the Earth and that we are at the center of the universe. It doesn’t, and we aren’t. The conventional wisdom that the rich and businesses are our nation’s “job creators” is every bit as false.
