It's the policy of tax cuts, deregulation and shrinking government that's failing

With the release Friday of May's terrible jobs report (and let's not sugar coat anything-- 69,000 created is terrible, and the unemployment rate notched up a tenth as a result) Mitt Romney and other Republicans have been quick to say that it is proof that President Obama's policies are not working. Their solution is to (predictably) suggest cutting taxes on 'jobcreators' (meaning the very wealthy and corporations,) getting rid of regulations and slashing government spending.

Not so fast. Certainly the policies in place are failing to stimulate the economy, but let's take a look at the policies in place.

Let's begin with taxes. Federal taxes are now at their lowest rates since 1950. It's hard to remember that during the 1950's and 1960's, the top marginal rate got as high as 91% in the Internal Revenue Code of 1954. And there were far fewer loopholes than there are today, so 91% meant 91%. Contrary to what today's conservatives will tell you, this did not deter job creation at all, as the American economy boomed (for example, Ray Kroc bought a hamburger stand from the McDonald Brothers in 1955, fully aware that if he was successful in his plans to turn it into a national chain of fast food restaurants he would be taxed at 91%. He and others prospered anyway.) Conservatives love to claim that the Reagan tax cuts were responsible for an economic recovery in the 1980's. But the top marginal rate under Reagan was cut in 1981 to 50%. That was what was considered 'conservative' in those days. What we have now is a system of historically low tax rates (on everybody) and then we have enough loopholes so that last year more than twenty thousand billionaires and multi-millionaires paid no tax at all as did many of the most profitable corporations. In other words, we have created a tax system in which tax rates are historically low, and what tax is paid, is paid mainly by the middle class, not the very wealthy. So the GOP argument that cutting taxes on the very wealthy will spur jobs is FALSE. Both the official and actual tax rates on the very wealthy and corporations are ALREADY the lowest they've been in decades and they have not stimulated the economy. Cutting them further will not help any more than the past several years of very low taxes have helped. In fact, if I fault Obama here, it's that he bought into the tax cut argument. Recall that the Stimulus was 43% tax cuts (including a mixture of corporate and individual tax cuts) and that he has further cut payroll taxes, and agreed to an extension of the Bush tax cuts two years ago. Let's be clear. Cutting taxes on so-called 'job creators' has NOT created jobs (certainly not in America.) Mostly, they've stashed the cash in accounts someplace (it is no coincidence that offshore banking in places like Switzerland and the Cayman Islands has exploded since the Bush tax cuts were passed.)

What about regulation? It's certainly true that there are regulations out there that can stifle small businesses. Former Democratic presidential candidate George McGovern, after leaving the Senate, opened a Bed and Breakfast in South Dakota. He later said that he got overwhelmed by all the paperwork he had to deal with, and recognized most of it as stuff he had written, sponsored or voted for while in the Senate. As he notoriously told one interviewer, "If I realized what a pain in the neck it would be, I wouldn't have written half of that stuff." However, in getting rid of regulations or deciding not to write new ones, we want to be careful as well. Let's remember that it was the (bipartisan) vote in 1999 that repealed the Glass-Steagull act and opened the door to exactly the kind of wild speculation by the big banks in risky derivatives that led to the crash of 2008. Taxpayers are understandably irate at having to bail out these big banks after their own irresponsible behavior, especially since as long as the banks were making big money, it went to their own executives and investors, not to the taxpayers (historically low tax rates, remember?) Dodd-Frank is a start in the direction of regulating the banks, but even at that it was watered down by their lobbyists, ensuring that what happened in the early 2000's could potentially happen again. A part of the act which was removed in order to gain the vote of Senator Scott Brown (R-MA) and break a GOP filibuster, the so-called Volcker rule would prohibit banks from investing in hedge funds and private equity funds. This is exactly the kind of investing that got them into trouble in the first place. The CEO of J.P. Morgan Chase, Jamie Dimon, has argued against the Volcker rule and said that the rule could cost his bank $400 million, but then has said little since trading in a hedge fund cost his bank $2 billion, five times the amount he claims the Volcker rule would cost.

Certainly if a chain of interconnected large banks fail, it can destroy the economy for everyone. BUT EVEN WITH Dodd-Frank, and EVEN IF the Volcker rule is in effect, there would still be FAR LESS regulatory oversight than there was under Glass-Steagull. During the time that Glass-Steagull was in effect, between 1937 and 1999, recessions were far milder than they have been since then (even the 2001-2002 recession was much deeper than any other recent recessions before the current downturn.) So once again, conservatives have gotten their way with regulation of the banks. Suggesting more deregulation would be going in exactly the wrong direction.

What about other companies than banks? Certainly if most business fail whether because of lack of regulatory oversight or for some other reason they won't ruin the entire economy. No, but they can ruin a lot for a lot of people. For example, given the BP oil spill, does anyone suggest that we should relax regulations on offshore oil drilling (I'm not saying don't drill, but would 'deregulation' make sense here?) Regulations are generally written either to protect the safety of workers, to protect the environment or to protect the consumer. Which of these three should we protect less? Haven't we seen enough people die in mine disasters in the past few years? Don't we already have enough pollution? Do we want more unsafe products on the market?

Are there some regulations that could go because they are obsolete, unnecessary or needlessly burdensome? Of course. And we should remove unneeded regulation, but we should be sure it is unneeded first. If we don't the price will be paid in lives-- maybe even ours (Vioxx anyone?)

And what about government spending? Isn't the deficit dangerous to the economy? Shouldn't we learn from Europe? To a degree, yes. We do presently have a national debt that exceeds $15 trillion and our debt-to-GDP ratio is very high (though not a record; it was significantly higher in 1946.) However, it must first be noted that a deficit is caused when spending exceeds revenue (just like if you spend more than you make, you will end with a debt, that you will have to borrow to pay.) Republicans love to claim that we have spent our way into a record deficit. Doing so, however, ignores the effect of trillions of dollars less in tax collections (remember those historically low tax rates? That represents revenue not going to the government.) The truth is, that spending under the Obama administration has on average increased at 0.4% per year, the slowest since the Eisenhower administration. I even give the GOP Congress some credit for this, with their (at times unreasonable) insistence on spending cuts as the price for doing anything the past two years (not that we won't pay for it of course, but the price will be less accurate hurricane forecasts and tornado warnings a decade or more from now.) The reason why the deficit has grown so much over the past decade is because tax revenues coming into the government have dropped through the floor (historically low tax rates, remember?)

Well, what about cutting government spending as a means to stimulate the economy then? Unfortunately, as I explained last year, cutting spending in the middle of a recession has exactly the opposite effect. In fact, this is exactly what we SHOULD be learning from Europe. Greece, Spain, Portugal and Ireland have all implemented various types of austerity to combat the recession, which involves massive cuts in their public sector workforces. The European Central Bank and the IMF have helped bail them out, but on the condition they cut their govenrment spending so that they could pay back the loans. Only an unexpected (but entirely foreseeable) development happened-- the economies of the countries collapsed so fast that even with the cuts they are having trouble making the payments because with a collapsing economy less is being produced at all and so less can be collected in taxes no matter how high the rate is. For example, the Greek economy has shrunk by over 20% just this year. What about the U.S. economy? With May's report, it is a fact that over 600,000 public sector jobs have been lost during the Obama administration. This includes over 11,000 federal jobs and much larger cuts at the state and local levels. This is precisely the OPPOSITE of what would be called for in classical Keynesian economic theory. One can argue whether this is itself caused by the bad economy (since states have to operate on a balanced budget) or by a conscious GOP attempt to shrink government (the truth is probably some of both, and there are enough public sector job losses to be explained using both of these causes.) However, contrary to what conservatives will tell you, if the economy has not been stimulated, it is not because of government hiring, but rather the dumping of hundreds of thousands of teachers, police and other public sector workers into the job market. So what we see is the effect of government not hiring, but in fact doing the opposite and sandbagging any private sector driven improvement in the economy by adding to the number of unemployed people (with lower income and consumer spending to match.)

So is the economy not doing very well? Absolutely, the May jobs report makes it clear that it is not. And certainly the interconnectedness of global markets means that we are fools if we believe that problems in Europe or Asia won't eventually be reflected in the U.S. But don't let conservatives suggest that they can 'cure' it by cutting taxes, deregulation and cutting government spending. Because that's what we've been doing for YEARS, and where we are now is where it has taken us! MORE tax cuts, deregulation and cuts to government spending would be like trying to cure high cholesterol by eating cheeseburgers.

GOP gets rabbit ears on the Clint Eastwood Chrysler commercial

Republican Clint Eastwood is catching all kinds of grief for making a commercial for Chrysler saying that "It's time for the second half in America." Of course this aired during the Super Bowl, so the slogan was logical.

But beyond that, it clearly tags with Chrysler's comeback. They are trying to sell cars, and their comeback story is a big part of their sales campaign.

I don't see what the big deal is about it, but some Republicans are upset about the commercial, claiming that it is really about President Obama's re-election campaign and alludes to a second term. That of course is hogwash; the commercial is about selling cars.

This kind of paranoid overreaction does however say a lot about the psyche of a lot of the Republicans who are blasting it. They know that President Obama took a big risk and bailed out Chrysler and General Motors. It has in fact been a smashing success. Unemployment in the city of Detroit has shot down from over 16% when he bailed out the two auto companies to about 9% today. The city is making a comeback, and the resurgent auto industry is the main reason why. Republicans, including Mitt Romney, criticized the President for the bailout at the time. So now that Detroit is back they can't avoid seeing the credit going to the President. Maybe they'd prefer that Chrysler and General Motors not show off their successes until after the election?

They also know that this has been a good week for the president. Following the January jobs report in which almost a quarter of a million net jobs were created, new polls by ABC News and Rasmussen both have Pesident Obama jumping out to a statistically significant lead against Mitt Romney.

Having gambled on the economy failing, and doing everyting they could to obstruct and not cooperate with the President and make it clear they were being uncooperative, the GOP is now on the verge of getting caught in a political no man's land.

So the truth is that Karl Rove, Mark Steyn and some of the other Republicans who have jumped all over Clint Eastwood about this, are spooked. If they hear in the phrase, "second half in America" an echo of Reagan's "morning in America," maybe it's less that the message was overtly political as it is that they know they are on the wrong side of an improving economy, and their negativism won't last until November.

Why I support President Obama without reservation in 2012

Lately, when I've criticized the Obama administration on specific issues where I've disagreed with policy (such as Afghanistan or the extension of the Patriot Act) there are those, especially on the left, who have asked why I still want to see him re-elected, whether it's because I duly admit to being a party hack or simply because he'd 'just be better than the Republicans.'

Although both of the above are true (I am an elected Democratic county party first vice chair, and have no doubt that any of the leading Republicans would continue all of the policies I dislike as well as do many other things I would't like) I am enthusiastically, and without reservation ready to work for the re-election of President Obama in 2012. He is the candidate most qualified to serve as President of the United States during the next four years.

Let me address three main topics as to why the President should be re-elected for another four years, and I will talk about the President here, not about why Republicans are bad.

1. The economy

2. Health care

3. The President's personal temperment and how it relates to the job.

THE ECONOMY

Let's start with the biggest issue, the economy. The criticism from the right about President Obama is two-fold. They argue that he has failed to fix the problems that they acknowlege that he inherited from the Bush administration, and they also argue that he has made things worse by running up the deficit with massive increases in government spending.

In regard to not fixing the problem, it is true that when President Obama was inaugurated, the unemployment rate was 7.8% and it is today 8.6%. However, at the time he was inaugurated the U.S. was teetering on the brink of a Depression. We were hemorrhaging 700,000 jobs per month with no end in sight. The President took a Keynesian approach and negotiated the Stimulus bill with Republicans. These negotiations resulted in a bill that was 43% tax cuts (while major elements of spending, such as on school construction were removed from the bill in order to gain GOP support.) Despite these concessions, the GOP followed Senate Minority Leader Mitch McConnell's "top priority to make President Obama a one-term President". Therefore the bill, heavily loaded with GOP-sponsored tax cuts as it was, received zero GOP votes in the House and only three in the Senate. Republicans like to claim they were right, and that the stimlulus was a tremendous waste of money that did not work. They cite an erroneous projection made by a staffer (made even before President Obama was inaugurated) that if the Stimulus was passed then unemployment would top out at 8% vs. 8.8% without the Stimulus (which it arguably had exceeded even before the Stimulus took effect.) That the recession was far deeper than even some of the President's economic advisors had foreseen is not the same thing as claiming that the Stimulus didn't work. In fact,
the non-partisan Congressional Budget Office has backed up the administration's claims regarding the impact of the Stimulus. So when Republicans claim it did not work, that is what it is-- a claim, not backed by data. It's difficult of course to prove something which did not happen would have, and it is true that the country got out in front of the situation more quickly (TARP) than in 1929, but it is certainly a reasonable conclusion that the Stimulus and other actions taken by the Federal government saved the nation from a Depression similar to the one in the 1930's. What the administration failed to do was take enough credit for the effects of the Stimulus. It was sent out to states with permission for the Governors to spend it as needed in their own states. Some Governors have given the Federal government the credit but others have claimed that there was some kind of economic miracle in their own state without crediting whatever portion of it was due to the stimulus (this means Rick Perry especially, though Jan Brewer here in Arizona is guilty of taking the money without saying thank you too.)

The recovery since then has been bumpy but it is on the upswing. The November 2011 jobs report marked the fifth consecutive month in which private sector job growth has exceeded 100,000. In fact, it would look even better if public sector jobs weren't being cut at a record pace (so if the recovery is slow, it's not a failure of Keynesian economics, but of anti-Keynesian economics of slashing government payrolls in the middle of a down economy.) The Stimulus then was a success, in that it helped the economy land as softly as possible at the bottom of a very deep hole, and we are now crawling out at a steady and gradually improving rate. I believe that as a steward of the economy, President Obama has indeed lived up to his ideals of 'hope.' Things are getting better slowly, but they are getting better and in most states unemployment has fallen substantially over the past year. President Obama does in fact deserve credit for turning the direction of the economy around, from 'declining' to 'growing.' He deserves a chance, having done so, to work on getting it all the way up to speed. The following graph of job gains/losses in the critical period before and after the Stimulus bill passed makes it very plain.



The other area where Republicans have been critical of the President's economic policy is in the area of spending and the deficit. It is true that the Stimulus bill cost $862 billion which was added to the national debt (though as described above, it was necessary because the Depression it was designed to prevent would have been far more deadly to the overall economy.) And the President has conceded that although the Stimulus (as well as TARP) was necessary spending, in the long run the deficit needs to be reduced. I believe that given his explanation for the initial round of spending (and his acknowlegement of why he did it) that's all the explanation that is needed. He spent when he felt it was necessary to spend, so there is no reason to believe he wouldn't cut when he felt it was necessary to cut.

FINALLY let's apply the metrics I used in this post from the day President Obama was inaugurated to see how his economic record is so far:

1. The stock market. The Dow closed at 8281.22 on its last close before Obama was inaugurated, and continued down on that day to close at 7479.09 (a sense of where things were headed.) Today it closed at 12,169.65. This is not only 50% higher than it was when the President took office, but even above the 10,587.60 it was at on January 20, 2001 when Bush was inaugurated. Anyone who says this is anything less than a success (albeit on the narrow metric of how the folks that invest in stocks are doing) clearly has an agenda of running down the President no matter what the numbers say. And sales of luxury items like yachts and luxury cars are doing extremely well this year, bearing this out. Of course, as we've seen though 30 years of 'trickle down' just because the 1% are doing well, does not mean that the 99% are. However it is also true that millions of ordinary Americans are seeing their retirement accounts, IRA's and pensions in much better shape than they were a couple of years ago because of the booming stock market.

2. The Euro exchange rate. When Bush was inaugurated the rate was that it cost $0.94 to buy one Euro. After the economy tanked with Bush in the White House that was $1.32 per Euro the day Obama was inaugurated. Today it is just under $1.31. I'm willing to concede that this is not good news. Essentially the dollar (which represents faith in the American economy) has made only a very small gain against the Euro, which of course we well know that the European economy is now in a severe crisis. The exchange rate had dipped as low as $1.16 per Euro when it looked like a Greek default could be imminent but it has recovered substantially.

3. Net job growth. During the eight years after Bush was inaugurated, we had a net total job growth of 3.8 million jobs. This works out to about 40,000 per month on average. It is true that more than 2 million jobs were lost during the first two years of the Bush administration, so if you take that away then you have a gain of about 6 million jobs in 72 months, or about 83,000 jobs per month after the initial recession (which Bush apologists like to blame Clinton for even though the only big piece of legislation that was passed during the first couple of months of the Bush administration were the tax cuts, which they claimed would spur growth but it did not.) HERE IS THE KEY: even though those who pump up Bush's number by blaming his first two years on Clinton like to fully credit the first year of job losses starting in 2009 to President Obama, as we can see from the chart above the rate of loss turned around almost immediately when the Stimulus was passed, and today, despite the GOP around the country forcing public-sector job CUTS the rate of net job growth (over 100,000 now for the past five months) is STILL substantially higher than the average for the Bush administration AFTER the first two years of recession (!) In fact, during the few occasions when the Bush economy WAS producing substantially more than 100,000 private sector jobs (remember it is still over 100,000 even with the public sector cuts subtracted out) Republicans were trumpeting the same kinds of numbers as a success! Now, I will grant that we need more job growth than this, but the President has gone from a loss of -700,000 jobs per month to +100,000 and going up, so clearly his record on the economy deserves a deeper look. Even in some of the highest unemployment regions, hiring has been picking up and the unemployment rate is lower than it was last year.

4. Price of crude oil. This is the one where Obama takes the biggest hit. It was $34.20 when he took office and a barrel of Brent crude closed at $107.89 today. I was critical of Bush when crude oil prices hit $140 per barrel during his term. While some issues are clearly outside of the ability of the administration to do anything about (Arab spring, increased demand from China and India) it does push energy issues to the forefront. The Obama administration has invested in light rail, higher energy efficiency standards for automobiles and green energy. Those are all long term solutions and perhaps the biggest threat from a GOP Presidency is the threat that all of those things will be reversed and we will be back to the fossil fuel-dependent status quo on energy. That said, conservatives DO have a point that we have to feed our need for oil now. It will be interesting to see what happens with the Keystone pipeline now that it has turned into a political football. Its projected route is in fact unacceptable because it crosses some of the most sensitive regions of the aquifer which supplies the state of Nebraska with everything from drinking water to water needed for wildlife. The question is whether the route can be made environmentally safer. There is an eastern route which crosses only a small, and less sensitive portion of the aquifer. The administration must look for how, given that they will now have only a sixty day window to make that decision, they can mandate that the pipeline misses the aquifer, entirely if at all possible. Similarly, drilling is now resuming in the Gulf of Mexico, but the question is whether the safeguards are in place to prevent another spill. Sadly, there is no evidence that they are. And as we know, there is no plan in place about what to do if such a spill occurs. Maybe they should invent something that will stop it before they go back to deep sea drilling.

5. National debt. It increased under Bush from $5.8 trillion when he took office to $11.8 when he left. Yes, it has continued to increase under President Obama. However, this is one area where he makes perfect sense. There was an immediate crisis when he took office (the loss of more than 2/3 of a million jobs per month.) He did what he had to to stanch the job loss. Yes, it increased the deficit. He's fully owned up to the fact that it did, and is now saying he wants to look for ways to bring it back down in the future. Good. His opponents also like to point to the health care law as 'big spending.' Only that is not supported by the facts: The non-partisan CBO found that the PPACA actually REDUCES the deficit by $143 billion over ten years compared to if it had not been passed. Further, when the new GOP House came in the same CBO found that their attempt to repeal the law in its entirety, if it happened at the beginning of this year, would ADD almost a quarter of a trillion dollars to the deficit! So when a Republican uses 'health care' interchangeably with 'deficit spending' they show they haven't a clue what they are talking about.

HEALTH CARE

Nothing that has happened during Obama's first term is as controversial as the Patient Protection and Affordable Care Act (PPACA.) It is true that the final bill does not include a public option (as the President himself had wanted) and that it does include an individual mandate to purchase private insurance (which candidate Obama clearly stated his opposition to during the campaign, and which contrasted him with Hillary Clinton who favored an individual mandate.) Conceded, readily. Given unified GOP opposition, the President needed the votes of all sixty Democrats. That included Blanche Lincoln who stated flatly that she would never vote for anything containing the public option, and Independent Joe Lieberman (who represents a state that is famously the home of several large insurance companies) who was looking for any excuse at all to vote against the bill, even signing onto an agreement that included a Medicare buy in at 55 that he was on record as supporting but then backing out and refusing to back the plan. As we know too, Democrat Ben Nelson (whose state is home to the Mutual of Omaha insurance company) refused to vote for the plan until it included special treatment for Nebraska (the so-called "Cornhusker kickback.") So the plan we got was the plan that was necessary in light of unified opposition from the right and the need to placate, therefore, every single one of fifty-eight Democratic and two Independent Senators. Yes, getting it passed was ugly, but also yes, it did get passed.

Given that there is room for improvement, let's consider what it does do. It sets up exchanges so those who can't afford insurance will receive a subsidy to help them buy it. Maybe we would have preferred a public option (or even single payer if we could get it) but achieving universal coverage (though granted universal coverage that excludes undocumented immigrants, but that's a topic for a different discussion) is a good and firm step in the right direction. When it was passed, there were 51 million Americans without health insurance. Because of changes that have already gone into effect such as an end to pre-existing exlusions and recissions and allowing parents to continue to cover their kids while they are in college, that number has already gone down by two million despite the slow recovery in the economy. When the bill is fully implemented, there will no longer be two classes of people in the emergency room: those who are insured or can pay cash, vs. those who are uninsured and poor and generally have to wait far longer until the people in the first category have all been seen. THIS IS A GOOD THING and those, particularly liberals, who suggest otherwise because of some esoteric argument that the health care bill isn't 'better' are wilfully blind and probably have never been uninsured themselves or know what that means if you are sick or injured but stacked on the back rack waiting for hours on end or sometimes even days to be seen.

Further, the first President to propose and push for a national health care system was Teddy Roosevelt. He left office more than a century ago. That's how long we've been trying, and that's how long conservatives have blocked any kind of insurance reform. THE FACT THAT THIS GOT PASSED AT ALL is, in the words of Vice President Biden, a "BFD." Certainly an achievement for the President.

THE PRESIDENT'S PERSONALITY IS SUITED TO THE JOB

Let's end with the President's basic temperment. He's both thoughtful and careful in thinking through his response to crises and but also willing to be bold and accept the consequences and see things through once he's made a decision. This was first put on display just a couple of months into his term when Somali pirates kidnapped and held for ransom the captain of an American freighter. President Obama gave negotiaters the chance to act but finally when the captain's life was in danger he gave the order to the SEALS to rescue him and use lethal force if that was what it took. Then a couple of months later, when bankruptcy loomed for Chrysler and General Motors, President Obama used TARP funds to aggressively intervene and preserved the core of the American automotive industry, and under American ownership. The success of the two companies since then has vindicated his decision but at the time it was not clear at all that it was the right decision. We've since seen other similar reponses to a crisis (Libya*) or when an opportunity presented itself (bin Laden.) This mixture of coolness when considering options followed by boldness and resolve once it's time to act is exactly what we need in a Commander in Chief. I believe President Obama passes this test while the leading Republicans do not. Mitt Romney is undeniably cool, but his past history to equivocate on issues and (as we saw in the 2008 campaign) adjust his strategy reactively instead of keeping a steady course does not inspire confidence in how he would respond to a crisis. Newt Gingrich has a history of impulsive, 'fly by the seat of his pants' decisons. While his ability to improvise is certainly bold, one has to be concerned about whether he would make the same decision he would make if he took time out to think through his position. His statements on Libya earlier this year highlight this concern. On March 3, Gingrich criticized Obama for not intervening in Libya unilaterally. After Obama, with the backing of the U.N. and the Arab League, participated in a joint intervention with France, Britain and other nations, Gingrich flip-flopped and criticized the intervention. It's perhaps understandable in that as a GOP candidate Gingrich felt the need to criticize the President no matter what he did, but the sudden, whiplash reversal makes one wonder for how long Gingrich really thinks anything through before responding.

President Obama has both characteristics: coolness when it is time to think things through and make a calculated decision, then boldness when it is time to follow through on that decision and see it through, including all consequences and fallout that may result.

So yes, for these reasons I believe, despite my sometimes copious disagreements with the President, that he deserves to be re-elected.

*--I myself questioned the Libya intervention once it took longer than he predicted, but I do give him credit for keeping his commitment to not send any American ground forces and getting completely out once it was done.

Stimulus boosts income, consumer spending in May

According to the Financial Times, US incomes surge as stimulus kicks in.

Personal income in the US surged in May thanks to an infusion of government stimulus funds, while consumers raised their spending modestly as confidence about the state of the economy continues to improve.

However, most of the monthly rise was the result of Federal benefit transfers and lower taxes. Americans, still facing rising job cuts and falling home prices, have been hoarding most of the additional funds, lifting the savings rate to a 16-year high in May....

The sharp rise in spending was mainly due to benefits payments doled out through the American Recovery and Reinvestment Act of 2009, which provides one-time payments of $250 to people who receive social security funds, veterans’ benefits or railroad retirement income. Although disposable personal income, which factors out taxes, rose by 1.6 per cent in May, it increased by just 0.2 per cent without the stimulus benefits.

Pity the poor conservatives. To a member, the house GOP voted against the stimulus and no Senator who is presently a Republican and comes from a state west of Maine voted for it. So it is clearly a Democratic bill, which means that Republicans are obliged to feel depressed every time a smivet of good news like this comes out.

What will conservatives do if the stimulus works?

This is now becoming President Obama's economy. The stimulus funds are now being poured into the economy, billions of stimulus dollars are being spent by state and local governments to pay people to do jobs in their communities that need to be done, and this week tens of millions of workers are going to start seeing federal stimulus dollars show up in their paychecks. It is the very model of Keynsian economic theory: when people are not spending their money in the private sector, massive government spending replaces it and provides the spark to re-ignite a sputtering or failing economy.

And don't look now but:

Walgreens today became just the latest American company to announce that expected profits will exceed expectations.

February retail sales picked up at the end of the month and were not as bad as expected.

After federal aid went to the banks and the stimulus bill passed mortgage applications increased and now we find that new housing starts jumped 22% in February. March may be even better.

Although prices have dropped by 15% since last year, we find out today that existing home sales have suddenly spiked upward 5%.

New jobless claims, after accelerating downward for months, have now stabilized over the past month at about 650,000. Still bad, but no longer getting worse.

Ford, the only U.S. automaker which did not receive bailout funds, announced this morning that it will even buy back some of its own debt.

There is still plenty of bad news out there, but my question is this:

Having invested so heavily in the failure of the Obama stimulus plan, what will the Obama-haters do if it works?

Already some are backtracking. As I mentioned on a post about a week ago, my Republican Senator Jon Kyl, who as minority whip worked as hard as he could to organize a filibuster to stop the stimulus, is now trying to fool his constituents into giving him some of the credit for it. Yeah, that's taking a position on principle.

But the record is clear. Republicans, dittoheads, conservatives, and many others hitched their wagons to the position, clearly articulated by Rush Limbaugh, that "I hope he fails."

Fine, take that position. And it is still early, it may be that at the end of the day the stimulus and subsequent government spending won't be enough to save the economy. But if it does work, then don't be like Senator Kyl and try to make people forget that you worked to prevent it.

Rush on Obama: "I hope he fails"

This is what Rush Limbaugh had to say today:

If I wanted Obama to succeed, I'd be happy the Republicans have laid down. And I would encouraging Republicans to lay down and support him. I don't want --what he'd talking about. What he's talking about is the absorption of as much of the private sector by the U.S. Government as possible. From the banking business, the mortgage industry, to the automobile business, to the healthcare-- I don't want the Government in charge of these things. I don't want this to work. So I'm thinking of replying to the guy, so, OK I'll send you a response, but I don't need four hundred words, I need four. I hope he fails.

Now, leaving aside his gross distortions of what the Obama plan is (it is NOT the Government taking over any of the above industries), we now have Rush actually hoping that it fails. If it were to fail of course, it would result in more people losing their jobs, more businesses going bankrupt and likely the end of the United States as the premier economic and political power in the world.

As much as I never liked George W. Bush, I never once wished he would fail. I often believed that he would fail, predicted that he would fail, expected that he would fail, chronicled his failures and criticized his failures (for they were legion), but never once did I DESIRE that he would fail. Because if the President fails it harms our country. In fact in a number of cases I predicted he would fail but openly expressed hope that I was wrong.

But this is a guy who is willing to directly suffer harm to the United States so he will have something to pin on the President. Disgusting and appalling.

January 20, 2001-- January 20, 2009. The record of the Bush economy.

One year ago I wrote a post entitled, seven years of the Bush economy.

Well, today it's time to update and close the book on it. Of course there are those who will point out that eight years ago today the economy was slowing down and heading towards a recession and they are right. But it is hardly like the economy that George Bush is handing the keys to, to Barack Obama is a model of stability. In fact if anything the numbers look much, much worse today than they did eight years ago. But so be it. Fairly or not, January 20th is more than just a symbolic date. It is the day in which total control over the Presidency passes in its completeness from one President to the next. And so, let's look at the same metrics we did a year ago: the stock market, the dollar/euro exchange rate, net job creation, the spot price of oil and the national debt.

The stock market closed on January 20, 2001 at 10,587.60. It's last close before January 20, 2009 is 8281.22. I will update this number tomorrow so we have consistency and post it as the final number for Bush (or start of Obama.) HERE IS THE UPDATE: IF I USED IT CONSISTENTLY WITH THE WAY I USED THE 1/20/01 CLOSE, IT WOULD BE 7949.09. BUT EVEN IF WE KEEP THE OLD NUMBER the stock market under Bush has fallen a net 22% over the past eight years. AND YES, IT DID NOW CLOSE AT 7949.09. FROM NOW ON IT'S OBAMA'S MARKET. If it's still below 8,000 by 2012 you are welcome to stuff this post back in my face. But I expect him to succeed and it will go up significantly from 7949.09 by then.

And 22% in eight years is enough that Bush apologists can't blame it on the 2002 recession, Clinton's economic policies or 9/11. The truth is, if you were heavily invested in the U.S. stock market in 2001, you probably have lost money. And the decision by Congress not to tie Social Security to the stock market looks to have been a very wise one. T-bonds may be boring, but they haven't lost money.

On January 20, 2001 it cost $.94 to buy one euro (in fact it got as low as eighty-three cents later on that summer.) Right now it costs $1.32 to buy one euro. True that this is better than the price of $1.45 that it was a year ago, but it is a fact that you would have made just better than a 40% profit over the past eight years if you had at the start of the Bush administration simply traded all your dollars in for euros and hidden the euros in your mattress. A lot better than losing 22 percent in the stock market.

Over the course of eight years, George W. Bush presided over the net creation of 3.8 million jobs. This averages out to less than 40,000 per month (vs. an average of over 200,000 per month over the preceding eight years.) Again, Bush apologists like to not count the loss of 2.8 million during the first two years of the Bush Presidency, and blame that on Clinton. But if it is then what would they say about current projections that the U.S. could lose even more than that many jobs over the next two years, and if it doesn't it will likely be due to government jobs created under the Obama stimulus plan? Again-- January 20 is the day of the handover. Any other date you choose to compare is arbitrary-- but then you take ownership of that much of the coming economy as well. Further, even using numbers from the truncated middle part of the Bush administration when we were not in a recession-- about 8.5 million created in four years, Bush still falls short of the monthly average over all eight years of the Clinton administration. No matter how you slice it, the Bush economy did very poorly in terms of job creation.

Price of crude oil: Was $25.98 per barrel eight years ago, and is $34.20 today. This is the one number where Bush is much better off today than he was last year. And if it had simply increased from $25.98 to $34.20 in eight years I'd be the first one to say the President Bush deserved credit for keeping oil prices under control. Only, he can't get credit for that since as recently as this summer it was pushing above $140 a barrel, and the resulting record gasoline prices delivered a hammer blow to an already soft economy over the summer. Further, much of the decline is credited to falling demand caused by the fact that millions fewer people are on the road going to work, because they don't have jobs to go to. The wild price gyrations have also played havoc with everything from the energy resale markets to automobile sales.

The national debt has increased from 5.8 trillion dollars to (including bailouts): 11.8 trillion dollars. In other words, it has more than doubled. Or in other words, Bush ran up more accumulated debt than every President combined from George Washington through his father (the reason I don't include Clinton in that is because the national debt actually experienced a slight decline under Clinton.)

Of course another dodge that Bush apologists often use is to argue that the President and his administration don't really have much effect on the economy. That is of course ridiculous. Even ignoring the fact that trillions of dollars in spending are controlled by the Government, some Government policies that influence the economy include tax policy, monetary policy, energy policy, trade policy, labor policy, regulatory policy and immigration policy. Funny to hear conservatives who scream about how bad tax increases, minimum wage hikes or pollution controls will be for the economy, suddenly switch gears when we are talking about Bush and saying that his policies had no effect on the economy. Clearly, they did, and clearly it was not the effect they had intended.

I did not include unemployment of course in the post a year ago and was (incorrectly) challenged on it. So I will mention it here: When Bush took office, the unemployment rate was 4.2% It is now pushing past seven percent. So Bush benefits by the fact that I didn't include it as one of my metrics.

The simple fact is that the Bush economy was spectacularly bad-- both from an historical perspective and when taken on its own. Of the five original metrics I used, only one-- crude oil prices-- looks good for Bush, and that only if you ignore the intervening history. And eight years is long enough that excuses aren't good enough. Any President can have a bad year or even a bad term, but this guy has owned most of the decade of the 2000's. And his economy has failed.

A Buffet (t) of choices when choosing a Treasury Secretary

I'd like to discuss the most important Obama cabinet appointment: Secretary of the Treasury.

There is no doubt that we are heading into trying economic times (that may be an understatement.) It seems that every day we get more news of economic disaster at home or abroad, and in the interconnected global markets it feels like we are in one neverending domino chain as markets crash all around the world and then feed into the next market crash. Over one million jobs have been lost just since January. Wages are flat or declining and both crime and bankruptcies are on the rise. Further, with trillions of dollars in Federal debt and no prospect of any real growth in the foreseeable future it looks like this situation will last for years.

Into this cauldron, there will come a new economic team (not completely new, of course-- Federal Reserve Chairman Ben Bernanke serves a staggered term so he will have to be included in any decisions that are made now.) The most important appointment that President-Elect Obama will make is that of Secretary of the Treasury. Whoever he picks will be the administration's point man (or woman) on the economy, and this economy is the biggest challenge that any incoming administration has faced in at least three quarters of a century. Armed for the challenge though the next Treasury Secretary will have been made flush with as much as a trillion dollars of taxpayer money to bail out some, but not enough to bail out all, of those whose ships are sinking. His or her job will be to try and keep the economy from sinking, and probably making some very tough decisions about where to put down a huge, but limited supply of chips.

I'd like to look at some who are rumored to be leading candidates.

During the campaign we heard the name of Warren Buffett, who both candidates lavished praise on and who is known to be a close economic advisor to Obama and endorsed him during the campaign. Buffett is an American legend, parlaying a $12,000 per year job as a stockbroker into one of the world's greatest fortunes. He has displayed an uncanny understanding of how markets work and rarely made a bad investment. During the present economic meltdown, Buffett did his part of stabilizing the banks by publically announcing that he was investing five billion dollars in Goldman Sachs, which stabilized the bank's share price and gave it some hard assets. There is no doubt that Obama will continue to seek Buffett's advice on economic issues. However I don't think that Obama will ask him to be Secretary of the Treasury, nor that Buffett wants the job. Buffett, who is 77, has largely given up day to day operation even of his own company (Berkshire Hathaway) in order to focus on his own extensive philanthropic pursuits and is far more likely to be used only as a resource or consultant than to be asked to manage the entire economy.

Another name that has been bandied about is Jamie Dimon, the CEO of Wall Street Bank JP Morgan Chase. Dimon has run the bank well, and it has avoided many, though not all, of the pitfalls that have befallen other banks (in fact earlier this year it was Chase that stepped in and swallowed up the assets of the defunct Washington Mutual.) One of Dimon's biggest assets, and one reason Obama seems to like him, is that Dimon isn't shy about telling the truth instead of sugar coating bad news. That quality was on full display this week as Dimon said that rising unemployment was likely to add to the number of delinquencies the bank (and other banks) could face, prompting banking analyst Richard Bove cut his price target on Dimon's bank from $45 per share to $37. I doubt if Obama will choose Dimon either though. Dimon's biggest liability may be where he works now. Many people blame Wall Street banks for getting us into this mess (though that is in fact a gross oversimplification, at best they were only a piece of a larger whole.) So choosing the CEO of a big Wall Street Bank might not go over well with the public, and just recently Barry L. Zubrow, the chief risk officer for JP Morgan Morgan had to answer questions about whether the bank was using government bailout money to acquire smaller banks instead of to give loans to customers. That may be a mess that the Obama administration doesn't want to step in.

Another name that some have mentioned as a possible Treasury Secretary is Timothy Geithner. Geithner is the President of the Federal Reserve Bank of New York. There is no doubt that Geithner has experience commensurate with the job, but on the other hand he has been a member of the Federal Reserve (and therefore was in on all the decisions they made) since 2003. This again suggests that while some people may be pushing for Geithner, Obama won't pick him. Like Dimon, Geithner can be blamed for helping create the current mess, and he doesn't even have the cover of a public record like Dimon has of sometimes bucking the trend to suggest that he would be willing to make the hard decisions that the next Treasury Secretary must be willing to make. Another knock on Geithner is that as a free marketeer and advocate of deregulation (at least he was when it had some advocates) he is unpopular with organized labor. There is no question that unions were a huge part of the Obama coalition and helped him hold together the working class white voters in states like Ohio and Pennsylvania this year. That doesn't automatically disqualify Geithner but realistically Obama won't want to begin his tenure by ticking off some of his most critical supporters.

If Obama wants experience in the post, he may turn to either of two former Clinton treasury secretaries: Robert Rubin or Lawrence Summers. Both served as treasury secretary during a time of economic prosperity and both have the advantage that they will come in already knowing the abilities and limitations of the position so that they can hit the ground running. My guess is that if Obama follows this path he is tempermentally more inclined to go with Summers, more of a low-key 'get things done' kind of guy instead of the sometimes outspoken Rubin. On the other hand, Summers made some sexist comments last year in his job as President of Harvard University. While he apologized for them it might be tough to swallow for some feminists if Summers were named to Treasury-- especially if someone other than Hillary Clinton becomes Secretary of State.

Another Clinton official who may get a look is Laura Tyson, who served as the chair of Bill Clinton's Council of Economic Advisors. Her advantage would also be that she served and advised during prosperous times, and has been away from both government and Wall Street (teaching economics at the University of California at Berkeley) while everything has been going to pot. If Tyson is selected then she would also be the first ever female Treasury Secretary (we've had two female treasurers, Francine Neff and Mary Ellen Withrow, but that is a lower level position often confused with the Secretary of the Treasury.)

If he instead opts for something out of the ordinary, there are a couple of possibilities out there that could shake things up a bit. One of these is Eric Schmidt, the CEO of Google. Certainly in today's rapidly changing and increasingly technological economy, Schmidt would fit right in with Obama's perspective on painting the future in broad brush strokes rather than doing what others have expected, tested and possibly found wanting. No one questions Schmidt's business acumen, and with Obama's belief in technology as a path to a better future it's no wonder that Schmidt's name has come up in some discussions about Treasury Secretary. Another name that I've seen once or twice and which would also confound the experts is Mitt Romney, who ran for President as a Republican earlier this year. After losing to John McCain in a bitter primary, Romney endorsed and worked for McCain and proved he could be a team player, and he did run a successful business. Obama has pledged to include Republicans in his cabinet, but I'd be surprised if he did so in such a high profile position-- that would also be a break with the past (Bill Clinton appointed Republican William Cohen as Secretary of Defense and George W. Bush appointed Democrat Norman Mineta as Transportation Secretary.) Obama might also run the risk of setting up a Republican known to have higher ambitions to run against him in 2012; if Romney were named and then the economy turned around and boomed then Romney would rightly or wrongly claim a lot of the credit. One other name has been mentioned-- Paul Volcker. Volcker has served as a chairman of the Federal Reserve-- between 1979 and 1987 (having been appointed by Carter and reappointed by Reagan.) Volcker is so old, he'd be new. On the other hand, he's also so old, he's old. In fact Volcker is even older than Warren Buffett.

To be honest, I've not got a clue as to who the President-Elect will choose. There are some very strong candidates, but each of them also comes with some drawbacks-- so there is no obvious choice. But who Obama picks may well give us an insight into exactly what his strategy is for dealing with the economy.

Obama: the safe alternative to McCain

John McCain's whole strategy has been based on essentially two elements-- the first is to try and suggest that for America to elect Barack Obama would be to take too big of a risk, and the second is to argue that McCain is a 'safe' alternative.

But I think that might be just a little bit backwards.

An article out yesterday in the New York Times (maybe why one of McCain's managers tried to stage a 'pre-emptive strike' against the Times) by accusing them of bias even before this article came out highlights John McCain's own gambling habits and more importantly ties to the gaming industry.

Senator John McCain was on a roll. In a room reserved for high-stakes gamblers at the Foxwoods Resort Casino in Connecticut, he tossed $100 chips around a hot craps table. When the marathon session ended around 2:30 a.m., the Arizona senator and his entourage emerged with thousands of dollars in winnings.

A lifelong gambler, Mr. McCain takes risks, both on and off the craps table. He was throwing dice that night not long after his failed 2000 presidential bid, in which he was skewered by the Republican Party’s evangelical base, opponents of gambling. Mr. McCain was betting at a casino he oversaw as a member of the Senate Indian Affairs Committee, and he was doing so with the lobbyist who represents that casino, according to three associates of Mr. McCain.

The visit had been arranged by the lobbyist, Scott Reed, who works for the Mashantucket Pequot, a tribe that has contributed heavily to Mr. McCain’s campaigns and built Foxwoods into the world’s second-largest casino. Joining them was Rick Davis, Mr. McCain’s current campaign manager. Their night of good fortune epitomized not just Mr. McCain’s affection for gambling, but also the close relationship he has built with the gambling industry and its lobbyists during his 25-year career in Congress....

in his current campaign, more than 40 fund-raisers and top advisers have lobbied or worked for an array of gambling interests — including tribal and Las Vegas casinos, lottery companies and online poker purveyors.

This is troubling to me on two levels.

The first is the matter of McCain's campaign rhetoric. Now, I know that the way the game is played in Washington is thought lobbyists who can raise millions of dollars to help a candidate-- if he gives them what they want-- or millions to defeat him if he goes against their interests. But Mr. 'straight talk' has staked a lot of his campaign by claiming to be a reformer, and in particular one who doesn't tie himself to lobbyists or special interests. Instead of being a hypocrite about it, why not just fess up, and say 'I've been a tool of the gaming industry for years?' The article even quotes a gaming industry expert who calls McCain, “One of the founding fathers of Indian gaming” Yeah, there are people who might have trouble with that one, but at least then McCain wouldn't be pretending to be something he's not, and that he never was.

The second way this is troubling to me is much more profound, however. Now, I recognize that there is nothing illegal about gambling in a casino, and many good and honest people do. But it also says something about a person's decision making process. And let's face it. The recent past, whether it be McCain's gamble that he could raise enough money fast enough in 2007 to support a $100 million political machine for the primary (a gamble which failed), his gamble that he could skip the Iowa caucuses and still chase down Mitt Romney for the Republican nomination (a gamble that succeeded, thanks to Mike Huckabee getting in Romney's way), his gamble to choose none of the VP candidates his campaign had been vetting for months and instead pick a little-known Governor or Alaska to run for VP (a gamble which looked like it succeeded early on but as time goes on appears more and more questionable), or his gamble last week to play chicken with the debate and try to get credit for the bailout package (a gamble which failed), it is clear from John McCain's decision making process that he likes to take chances, often acting impulsively.

It isn't hard to look for another individual who makes decisions the same way. And on virtually all of them, John McCain has stood right by his side and rolled the dice with him. That person of course is George W. Bush.

President Bush gambled by pushing forward with deregulation, including of banks and of the financial services industry. John McCain stood right there alongside of Bush.

President Bush gambled that we could pass trillions of dollars in tax cuts for the wealthy. It's true that John McCain voted against the first round of tax cuts, but now he stands right with Bush in wanting to make them permanent.

President Bush gambled that we could take time away from the Afghan war and the people who had killed 3,000 Americans on Sept. 11 to go invade another country, Iraq. John McCain stood with him on that decision.

President Bush gambled that the Iraq war would be short, easy and lead to a democracy that we could count on to help us find all those WMD that had to be stored in huge stockpiles all over Iraq. John McCain gambled on that right alongside of President Bush.

President Bush tried to gamble with our Social Security into a privatization scheme that would have tied it to financial markets. John McCain stood right there with Bush and gambled on that one too. Thank God that Barack Obama and Congress stood up and gave a resounding 'no' to that one. Imagine how much more quickly the financial 'iceberg' that Social Security faces would be coming at us if our Social Security was all wrapped up in the financial mess we see right in front of us.

The problem with gambling of course is as Kenny Rogers sang in the song, "The Gambler,"

You've got to know when to hold 'em,
Know when to fold 'em.
Know when to walk away,
And know when to run
You never count your money
When you're sittin' at the table,
There'll be time enough for counting,
When the dealin's done.

And for both George Bush and John McCain, their downfall is that second line. Have you ever seen either of them fold and admit to a mistake? Admit that maybe we need to do something differently than what they've been pushing? Well, yeah-- John McCain did change his position on the Bush tax cuts that got us here in the first place. Now he wants to keep them. Trust me, they really like guys like that in Vegas, ones who even when they have a winning hand, throw it away in exchange for a losing hand.

After eight years of a Gambler in the White House (and not a very good one, at that) I'm certain that WE can't take the roll the dice on another risk-taker, especially one who has shown he really doesn't play his cards very well.

Luckily we don't have to. There is a safe alternative. When Barack Obama makes a decision he doesn't gamble. The way he chose Biden is instructive. He collects all the information that he has available. He reads it and ponders what he has read (Obama even took a week off the campaign trail out in Hawaii so he could work throught this decision.) He puts his head together with his advisors (which now includes Biden, who as the chair of the Foreign Services Committee has a great deal of experience in the one area where Obama recognized that he might need some help.) Obama is also a man of faith, so I suspect he prays for help in making the right decision. Then he makes it. And once it is made, he sticks firmly to it. At the same time, he does learn by experience. So for example, this year he opposed a 'vacation' from the Federal gasoline tax (an idea that McCain supported,) relying on his experience from doing the same kind of thing in Illinois and observing that the tax cut failed to reduce gas prices in Illinois (the reason for why it doesn't work would involve a discussion of the mathematical/economic concept of a relatively inelastic equilibrium point on the supply and demand curve which is too complicated to explain here, but Obama gets it.)

With the country facing it's most difficult economic crisis since the 1930's, we need a deliberate and careful decision maker, and one who is forceful in carrying out decisions but also able to recognize what works and what doesn't.

What we can't afford is to gamble on another gambler.

McCain scheme to duck out of the debate Friday

John McCain has said he is suspending his campaign so he can rush to Washington and work on the bailout plan with Congressional leaders. He is also saying he wants to postpone the first Presidential debate, which is scheduled for Friday and has been scheduled for almost a year.

This is the same John McCain who has not bothered to show up for a Senate vote since April 8.

This is the same John McCain who has favored deregulation for years, a big part of why we have this crisis going on even as we speak.

This is the same John McCain who admitted earlier this year that he doesn't know very much about economics and said he needs to be 'educated' about it.

The truth of the matter is that McCain has been out there campaigning nearly every day while Senator Obama has spent some time off the campaign trail prepping for the debates. So McCain's offer is a lot like an unprepared student who realizes two days before the big exam that he hasn't been cracking the books, trying to figure out a way to get his test pushed back so he can catch up to the rest of the class.

An idea for Federal bailouts: let We the People keep 20%

For a change, it looks like George W. Bush did the right thing. Not that he had a lot of choice.

We came remarkably close earlier this week to a repeat of the events of 1929. Bush, whose legacy is already about as bad as it could be, along with his two biggest economic appointees-- Federal Reserve Chief Ben Bernanke and Treasury Secretary Henry Paulson, was faced with a stark choice between being Herbert Hoover or Franklin Roosevelt.

He and Bernanke and Paulson picked Roosevelt and moved to have the Federal Government aggressively intervene in the banking system to stave off a collapse. Things had gotten so bad at one point this week that investors were actually paying money to park their investments in safe treasury bonds, the first time since the great Depression that the effective interest rate on any kind of federal note had been negative.

A lot of pro-deregulation market oriented conservatives howled at the price tag of the federal bailout-- maybe as high as a trillion dollars. It joins the Iraq war and the medicare prescription drug handout to the pharmaceutical industry as trillion dollar debt busters that the Bush administration has given us. Unlike the first two however this one is absolutely necessary. Without it, well we'd be stuck in 1929 and all that that would augur for a very bleak future.

That isn't to say though that we should just let things go on as business as usual.

To start with, there is some outrage to go around. For instance, here are some golden parachute numbers, for CEO's of firms that failed monumentally:

Stanley O'Neill, Merrill Lynch: $161 million.

Jimmy Cayne, Bear Stearns: $61.3 million (plus another $4 million plus in J.P. Morgan stock, the company that ended up absorbing Bear Stearns.)

Michael Perry, IndyMac Bank: $37.5 million

Richard Fuld, Lehman Brothers: $22 million

Robert Willumstad (AIG July-Sept. 2008): $7 million
Martin Sullivan (AIG 2005-2008): $47 million

I'm sure I could run any bank into the ground as well as these guys did. Why can't I get that kind of cash?

Here is the good golden parachute news:

Daniel Mudd, Fannie Mae: $0
Richard Syron, Freddie Mac: $0.

Federal regulators, thanks to the hybrid nature of the companies to begin with, were able to ensure that Mudd's and Syron's golden parachutes failed to deploy. Chalk up two big wins for Federal control.

Beyond that, it is abundantly clear that the 'free market' that American conservatives like to sing about, really means that the rewards are private, but the risk is the responsiblity of all of us. Some hardcore ideologues on the right have been speaking out against the bailouts this week suggesting that we should just let the whole system fail and come crashing down. I guess they wouldn't have a problem with us going back to the 1930's when millions of ordinary people lived under bridges and ate boiled weeds for dinner but I do have a problem with that. Rather, I believe that since ultimately we as a society are on the hook for the long term stability of our economy anyway, and that the economy is tied to the stability of these banks, we should share in the rewards that come with this risk.

I don't necessarily mean through higher taxes either. Some are right that if you tax wealth then the wealthy will find and exploit loopholes to escape taxes. That's not a reason to give up on getting them to pay their fair share in taxes but it does mean that we can't expect to count on taxation of companies who can certainly employ enough lobbyists to create all the loopholes they need as the only answer here.

Nor does regulation provide the answer (though I do agree that we will need to take a look at tightening regulation). We already know that even as these institutions and banks were failing they employed armies of lobbyists and made millions of dollars in campaign contributions all over Washington so it's a fact that regulations can be skirted or rewritten over time (as institutional memories of why they were there in the first place fade).

And yeah, I'd love to see Washington ban corporate lobbyists but you and I both know that isn't going to happen anytime soon, or if it does there will be some loophole left open so they can still funnel money to candidates. So let's talk about practical solutions here, not pie-in-the-sky pledges to 'change Washington' as a way to prevent another crisis originating on Wall Street.

No, what I propose is very simple and straightforward. If the Federal Government is going to effectively back up institutions and banks that make risky decisions and then step in and absorb the fallout when the risks become reality, then we (collectively, as taxpayers) should share in the rewards. Let the Treasury Department hang onto a share-- say in the 10-20% range-- of stock in the company, and mandate that this stock remain under the control of the Federal government for at least 20 years after any bailout. That way if and when the company regains profitability then We the People will get a direct return on our 'investment' (made as it was under the darkest of circumstances.)

This may be criticized as 'socialistic' but let's face it-- the bailout and takeover of Freddie Mac, Fannie Mae and AIG are nothing else. Maintaining a 20% federal ownership of companies like these actually would achieve three goals: 1. it would over time pay us all back as a society so that we wouldn't just be paying out good money for bad, 2. it would help stabilize the share price as the company clawed its way back, and 3. while 20% isn't a majority and the major decisions would ultimately be left to the rest of the investors and the CEO they appoint, it's a big enough piece that the government would have a lot of input. Treasury Secretaries are by nature a cautious bunch so having a representative of the treasury department representing taxpayer interests in a corporate boardroom meeting might influence those decisions in a more cautious direction but clearly that isn't such a bad thing.

And then once 20 years are past, the treasury department could slowly release our shares onto the open market, using the profits to pay off our own national debt or to pay for other spending (possibly reducing the need to collect taxes from the rest of us.)

It isn't just John McCain who doesn't have a clue about the economy. Neither do the people advising him.

Today, Hewlett Packard announced another 24,000 job cuts, officially associated with its merger with Electronic Data Systems.

The job cuts however represent eight percent of HP's total workforce, suggesting that there are some intrinsic structural problems that are also being addressed. In fact, current CEO Frank Hurd has been very aggressive about cutting jobs since he was first hired in 2005.

While I might complain about Hurd's image as the new "Chainsaw Al" or point out that he is far from the only one doing it in these times (the unemployment rate has risen a full point since April) there is one thing that it also points out: the company that Hurd took over was unprofitable, bloated and badly in need of the overhaul he has brought to it.

And who did he replace? The answer is Carly Fiorina. Apparently she is at least partially responsible for the slow, lumbering company that Hurd has been riding herd on (and with some success, at that-- I'll give him credit for that.)

Hmmm. Not long ago the same Carly Fiorina stepped up to become John McCain's chief economic advisor, after Phil Gramm had to step down for saying that the bad economy was just in people's heads and that we had become a 'nation of whiners.'

Just today, John McCain said at a rally in Florida that the 'fundamentals of the economy are strong.' This on a day when the Dow fell 500 points and National Public Radio reported that the International Monetary Fund will be conducting a stability assessment of the United States economy, a 'privilege' usually reserved for third world debtor nations that are in danger of defaulting on their loans.

Well, remember that McCain admitted back during the primaries that he doesn't know very much about economics.

So who else can he get economic advice from? Palin? Whatever her strengths and weaknesses are, has anyone even from Fox News suggested that she knows anything at all about subprime mortgage defaults or has a clue about how to get people back to work?

Keep in mind that the standard Republican playbook of 'tax cuts for the wealthy, loosen regulation and let the market drive the economy' has been in force for eight years and it's clear that it doesn't work.

Electing McCain would be a disaster. Not only has he pretty much appropriated the Bush economic strategy as his own (apparently not being able to figure out a better one) but the people around him, even his economic advisors, seem to have no better a record on the economy than he does.

McCain still claiming the economy is 'fundamentally strong.'

John McCain today at a rally in Florida-- that's right, TODAY, said that he feels that "the fundamentals of our economy are strong."

Today was the day after Lehman Brothers bank failed and went to bankruptcy court, Merrill Lynch failed and avoided bankruptcy court only because they were bought out by Bank of America (which is itself taking a risk, having recently also bought out mortgage giant Countrywide) and AIG appears headed to bankruptcy court unless something happens fast.

Today was the day when the DOW dropped five hundred points.

Today was the day I heard a report on National Public Radio that the International Monetary Fund will be conducting a stability assessment on the U.S. economy, something which normally happens to developing countries that are on an unsustainable economic course.

Just in the past five months the unemployment rate has spiked upward by a full percentage point.

Strong fundamentals?

I guess if you consider $5 million a year to be the threshhold of 'rich,' the fundamentals are strong. I guess if your plan for tax cuts, market based reform and resistance to regulation is indistinguishable from what President Bush has done for the past seven years, the fundamentals are strong.

For anyone besides John McCain the fundamentals are just plain wrong.

unemployment figures highlight Bush-McCain economic failures.

Today we found out that unemployment in August shot up to 6.1%. This is up more than a full percentage point since April, representing literally millions of people out of work.

Job losses were widespread. Unlike in past months when they have been concentrated in manufacturing and construction, we are now seeing job losses in retail and other services. People are just buying what they have to and nothing more.

So what is John McCain's plan? For starters, he said nothing specific about it in his speech on Thursday. He pledged to cut taxes and cut spending. Yeah. Wasn't this the Bush approach? The Bush tax cuts (which McCain has flip-flopped on, going from opposing them when they were passed to now supporting their extension) achieved an enormous budget deficit which led to a weakening dollar, the subsidizing of companies to build new factories in Asia to which they sent American jobs, and reckless investment in the housing bubble which turned out to be built on sand and destroyed the savings and jobs of millions of Americans when it came crashing down.

He really doesn't plan to do anything about the economy, except the same things as Bush has.

We can't afford four more years of this kind of failed policy.

Comparing Hillary Clinton to John McCain-- and the contrast is stark.

I've decided to swear off of criticizing Hillary Clinton. That's because of not only the glee I've heard from the right every time a Democrat (especially Barack Obama) says something negative about her, but also because I want to remind readers of this blog that while Hillary Clinton is my last choice (for reasons I've enumerated several times recently) I also wrote several months ago why I will support her if she is the nominee. I won't go into the points I made in that post here (though I thought I made them very well,) but would like to instead compare side by side Hillary Clinton's major positions on issues linked here on her website with the same issues as viewed by current GOP frontrunner John McCain from his website, linked here.

On Iraq (since this issue has formed the root of why so many Democrats who consider ourselves progressive like myself are disappointed with Hillary):

Hillary Clinton: America is ready for a leader who will end the war in Iraq. Hillary's roadmap out of Iraq, the Iraq Troop Protection and Reduction Act of 2007, is a plan to end the war before the next president takes the oath of office. But if the Bush administration won't end the war, as president and commander in chief, Hillary will.

John McCain: John McCain believes that we must not fail in Iraq. Succeeding in the cause of helping the Iraqi people build a stable, secure, representative state is essential to achieving an enduring peace in a region of the world central to American prosperity and national security.

McCain is using exactly the same words as George Bush has been using for five years in this quote, and recently said it would be fine with him if America stayed in Iraq for a hundred years.

Health Care:

Hillary Clinton: America is ready for universal health care. Hillary has the vision and the experience to make it a reality. This is a battle Hillary has fought before -- and she has the scars to prove it. She knows better than anyone how to fight and build the political support to get the job done.

John McCain: His initial blurb said nothing substantive so I had to click on the 'read more,' where he gives the standard GOP lines about promoting competition and choice (which as we know is a red herring because hospitals provide practically no information about their price structures, certainly not in time to allow anyone to make an informed decision no matter how much research they do), tort reform, and some other blather. He does suggest developing a protocol for re-importation of drugs, but that is about the only thing he said that I somewhat could support. On the other hand he plans to revise the tax structure in a way that would in effect phase out employer-provided health insurance (which would leave people on their own and leave the people with the most health issues stuck without anyone who would sell them insurance at an affordable rate-- ironic coming from a cancer survivor.)

Economy:

Hillary has a plan to help people who need help right now. John McCain proposes corporate tax cuts.

Hillary: For freedom of reproductive choice, energy independence and improving public schools.

McCain: For slashing spending (he's been against 'pork' for years, even when it does a lot of good) and praises NCLB and school 'choice' (which is a term that is traditionally used by backers of vouchers for private school tuition). The only time he ever hinted that he might support the right to an abortion was when a reporter asked him during the 2000 campaign what he would do if his own daughter had an unwanted pregancy. But he has consistently been against the right to reproductive freedom for women he's not related to.

I began supporting Richardson, and since he dropped out I've been moving steadily towards supporting Obama. But these reasons make it clear that Hillary Clinton, despite being my last choice among Democrats, is far, far better than what we will have if John McCain is ever elected President.

And what if the GOP nominee is not John McCain? Well, it's hard to see how Rudy or Mike or Mitt would be any better.

Oh, and just in case you need one more reason why we have to come together behind the nominee, even if it is Hillary: Do you really want to gamble that Justice Stevens' fragile heart (though a noble heart it has been) will hold out for another four years?

Seven years of the Bush economy

Yesterday marked seven years since George W. Bush took office. And one year from today someone else will take over and inherit a far different country than the one that President Bush took over on January 20, 2001.

In Biblical times (and more recently as apprenticeships) seven years was the standard period of servitude, and after seven years it was long enough to assess whether someone had done a good job or a poor one.

I could do a very broad post, touching on everything from war to crime and academic performance, but I will limit this post to looking at that most basic of issue, the economy (which ultimately is what everything else sooner or later rides on).

The fact of the matter is that today, on the seventh anniversay of President Bush's inauguration, the Bush record on the economy is just not good. Some years have been better or worse but let's just look at the whole.

Taking a look at some numbers:

On January 20, 2001 the Dow stood at 10,587.60, so where it is today represents an average yearly growth rate of just over 2%. In other words, the average boring, conservative bond fund outperformed the market average.

Or better yet, invest in foreign funds:

On January 20, 2001 it cost $0.9400 to buy one euro. Today it costs $ 1.4482 to buy one euro.

George W. Bush has presided over the creation of a net eight million jobs in seven years. Which means he will have to create twelve million more just this year just to catch up with his predecessor. Put another way, if the economy adds 200,000 jobs in a month that is now considered good news, while it was considered a mediocre month during the Clinton years.

On January 20, 2001 the spot price for a barrel of crude was $25.98. That has practically quadrupled in seven years. And it is with the deepest irony that one remembers the response during the 2000 election season to criticism that George Bush and Dick Cheney were both oil men was that some on the right suggested that oil men would understand the industry and know how to keep down energy prices for the rest of us.

The national debt has increased from $5.8 trillion to almost nine trillion dollars.

It is true that Bush has one more year to serve. But that is not very promising, with the most optimistic outlook for this year being only that we avoid a recession.

There are times when a tax hike is needed, and this could be one of those times.

Republicans are flabbergasted that some Democrats are suggesting rolling the Bush tax cuts back to the Clinton rates, particularly on the wealthy. And this could be accomplished easily just by letting the expiration dates already written into the Bush tax cuts come and go without taking any action at all. In fact, some have even proposed specifically increasing taxes on the wealthy.

And why not?

The GOP has always proposed tax cuts, at least for the past couple of generations since I can remember. When the economy was booming and we had a surplus, they wanted tax cuts. When it was in a recession, they wanted tax cuts. When it was rebounding from the recession, they wanted tax cuts. Inflation? The answer was tax cuts. Unemployment? Tax cuts. Tight job market? Tax cuts. In fact for at least a generation, whatever condition the economy was in, the Republicans have always proposed tax cuts. Name the economic malady, and the GOP has exactly one answer for it, tax cuts. And when it happened that those tax cuts came the wealthy made out like bandits (surprise)?, the middle class got small amounts (myself, I got enough from the Bush tax cuts to fill the tank a couple of times) and the poor in many cases got nothing.

When taxes have been raised, either at the Federal level (i.e. the 'read my lips' tax hike of 1991 or the 1993 tax hike that was central to the Clinton economy) or at the state or local level (often to replace lost Federal revenues that were withheld in the wake of Federal tax cuts) those taxes tended to be raised 'across the board.' In other words, the net effect over the past couple of generations has been not to eliminate taxes, but rather to shift taxation from the wealthy onto the middle class and the poor.

What about the promises that lower taxes would help the economy? The argument goes something like this-- when wealthy individuals and businesses have more money then they can invest it, and the investment will create more jobs. And more jobs will mean more prosperity for everyone. How has that worked out?

Well, let's look at the record:

In another study that tells us something that we already know, the Bureau of Labor Statistics has confirmed that job growth under George W. Bush is pretty puny.

WASHINGTON (AP) -- The economy has cranked out fewer jobs under President Bush -- by millions -- than it had by the same point in the presidencies of Ronald Reagan and Bill Clinton...

Under Bush, the economy produced 3.7 million new jobs from January 2001 through December of last year based on nonfarm payroll figures collected by the Labor Department's Bureau of Labor Statistics.

Republicans try to blame Clinton of course:

Commerce Secretary Carlos Gutierrez counters, in an interview, "It's just a matter of timing and when we started getting out of the recession that the president inherited."

Let's torpedo that explanation right off the bat: In eight years Clinton's economy (including the 1993 tax rates) created 20 million jobs, for an average of 2.5 million per year. In the first two years of Bush's economy (which incidentally the economy did not show negative growth until after the first Bush tax cut was passed in March 2001) we lost 3 million jobs. So even if we assume that in the succeeding four years 6.7 million were created (replacing the three million lost plus the 3.7 million net gain) you have the creation of just under 1.7 million jobs per year. And that's being as generous as I can to Bush, starting him from the low point of the recession, both timewise and jobwise. Even with that, his economy still doesn't come close to Clinton.

What about the jobs that all that money flowing into large businesses created? Well, it did create them. Remember how the economy, though it was slowing, did not show negative job growth until after the March 2001 tax cuts? There is a simple explanation for this. The large corporations that got the bulk of the benefit from the tax cuts did use it to create jobs. In Asia-- where labor is cheaper than in America (funny how 'free marketeers' who backed the 2001 tax cuts on the basis of job creation didn't see that result coming). At the cost of a deficit, America helped finance the movement of millions of jobs out of the country. And most of that outsourcing occurred within those first two years of the Bush tax cuts as companies took full advantage of their new windfall and 'invested' it. The economy in Mumbai and Shanghai is much stronger for it today.

What about unemployment? Conservatives always like to cite the unemployment reports. It reached a low of 4.0 % during the last year of Clinton's term-- 2000, then went up to 6.0 % during 2003 and has since declined to 4.6%. Isn't that proof of hiring?

Sure, it is. But consider that during Clinton's first year of 1993, it averaged 6.9%. It dropped down to 4.0%, representing a decline of 2.9%. In the case of Bush, it has gone up a net of 0.6%. If you again look back to 2003, it has dropped by 1.4% in the succeeding four years-- so again, not as fast as it did under Clinton (though barely less) even if you give the Bush administration the complete benefit of the doubt and start measuring from the worst it got and just measure the decline). So even using what has lately been the favorite measure of conservatives, Bush still doesn't come off as good as Clinton.

This means at best the Bush tax rates have not done anything compared to what the higher Clinton tax rates did for the economy, and at worst, they have hurt the economy.

And the real irony is that by creating deficits they will require that we raise taxes in the future just to pay back. As interest rates rise, expect that interest payments on the national debt will again be a significant drag on our economy. And when that day comes, expect some statement about 'across the board sacrifice.' Translation is this: The debt was run up giving tax cuts to the rich while continuing to spend like mad, especially in the area of corporate welfare; but paying it back will require that the tax increases fall disproportionately on the middle class.

Meanwhile, we continue to pour hundreds of billions down an endless black hole in Iraq, fighting a war that while we have been told of 'sacrifice,' none of us, except of course for the military members fighting the war and their families, have had to actually worry about. This is the first time in history that taxes were not raised to finance a war, In fact, if the financial costs of the Iraq war (about $320,000,000,000.00 and counting) were distributed evenly among all current American citizens, we would each owe just over a thousand dollars in extra taxes. But the Bush administration has defined for most people the meaning of 'sacrifice' to mean putting a yellow ribbon decal on your vehicle, and some future generation will have to actually worry about the dollar cost of this war (compounded by that time by interest, of course.)

So I would posit that at this time, 1) the tax cuts we've had in the past have done nothing, and 2) right at the moment given the deficit and the cost of the war, increasing taxes makes a lot of sense.