Democrats go mindless on taxes

While local Democrats celebrate their near sweep in the recent election, their counterparts in Washington are proving the old Will Rogers line: “I am not a member of any organized political party. I am a Democrat.”

Congressional Democrats have made jokes of themselves by bashing their own president for cutting a necessary deal with Republicans to preserve tax cuts for the middle class and secure benefits for the unemployed in exchange for also temporarily extending tax cuts for the wealthy.

They get their butts kicked in the election and they respond by fighting with each other instead of the other side.

We should remember that President Barack Obama had to negotiate a compromise with Republicans only because Democratic lawmakers, who control both houses, couldn’t deliver the votes to support the bill they and Obama wanted to end the tax cuts for the wealthy.

If you don’t have the votes for the deal you want, you negotiate the best deal you can get, and that’s what Obama did. If the Democrats’ prospects improve, they can fight it again when the tax cuts expire in two years — and between now and then, they can do all the railing they want to hold Republicans accountable for pandering to the rich.

What’s the point of a protracted fight the Democrats can’t currently win that only sticks it to middle-class taxpayers and the unemployed? If the Democrats don’t have the votes now, winning the fight only diminishes come January when the GOP takes over the House and picks up seats in the Senate.

Since when is it weakness to pursue responsible compromise when you lack the votes to have it all your own way?

Our own Democratic Sens. Daniel Inouye and Daniel Akaka had it right when they said they’ll will support Obama’s compromise to help working families despite their strong reservations about extending tax cuts for the wealthy, which Inouye said will cause him to  “hold my nose.”

Akaka said, “Working families in Hawai‘i need our help to put food on the table. They will spend the money locally and help our economy. I simply cannot allow these middle-class tax cuts to expire or abandon the unemployed during these tough times.”

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30 Comments on “Democrats go mindless on taxes”

  1. JJ Kaha Says:

    Aaaaaaand now we are in possession of David Shapiro’s position, which is that the tax deal is a good one because Obama didn’t have the votes for the one he wanted.

    Is this what passes for political analysis these days?

  2. Michael Says:

    Local and Congressional Democrats. It does sound like different thinking. I can be grateful, at least Senator Inouye and Senator Akaka think, therefore they are. Local.

    Reminds me of what was said in The Last Samurai.
    “Too many mind:
    Mind the sword. Mind the people watch. Mind the enemy. Too many mind. No mind.”

    Mindless that no one remembers, United We Stand, Divided we fall. Dissention among the ranks. The enemy has won. Local and Congressional thinking. The People lose.

  3. Kolea Says:

    As one of the alleged “mindless” Democrats who is angry at both Obama and the Senate Democratic leadership over their mishandling of this issue, let me try to convince Dave that we are not as stupid as he implies.

    The battle over the extension of the Bush tax cuts SHOULD have been waged well before the mid-term elections. Say all the negative things you want about the GOP candidates, but one virtue they possess is Message Discipline. They receive their talking points on a regular basis and have become very good at turning any discussion into an opportunity to recite their canned answers. I call them “canned,” but these arguments have been carefully crafted by professional political public relations strategists, employing polling and focus groups, are recited by the Fox News and Clear Channel talk radio hosts, like Limbaugh and Beck. They ripple across the rightwing echo chamber, reaching the ears of every “dittohead” in America. In the absence of counter-arguments, they take hold in the minds of regular voters.

    They do not have to make sense or to represent good policy. They just have to be effective in the purpose for which they are intended: generate loyalty to GOP candidates, raise funds, raise morale, keep voters angry at Obama and the Dems in order to render the President ineffective and “illegitimate.”

    The key talking points all GOP candidates ran on in the midterms were :”No tax increases!” and “We must cut the Deficit!” No logically, there is a tension between those two propositions. One CAN craft a semi-stable explanation allowing them to coexist AND be kept in one’s mind simultaneously. But they lose their power when challenged. (Somewhat like the Tea Party slogan, “Keep the Government’s Hands Off my Medicare!”)

    Reliable polling showed a majority of Americans opposed the extension of the Bush tax cuts for those making over $250,000. Even among Republican voters, about half thought they should expire in favor of deficit reduction.

    Had the Dems made this a central public fight, “Drawn a line in the sand” over this issue, they would have won the public relations battle even if they were to lose the vote in congress. They would have reduced the “enthusiasm gap” among former Obama supporters who have lost their optimism about his repeated capitulations. They would have forced GOP candidates to deal with the conflict between pretending to be Deficit Hawks” while wanting to give deficit-busting tax cuts to millionaires. And they would have allowed the Republicans to paint themselves as more caring about millionaires during a recession than either middle-class families OR the deficit.

    I guess Dave missed the episode of West Wing where President Bartlett maneuvered the GOP into a trap of their own making? He called their bluff and let them filibuster on a bill where public opinion was against them. Obama had such an opportunity BEFORE the midterms and it still exists today. Let the Republicans filibuster and shut down government, putting the interests of millionaires above those of the rest of the country. If they are foolish enough to want to draw a public battleline on THAT basis, let the battle begin. Let it go up til Christmas eve and let families gathered around the dinner table or Christmas tree talk about it.

    There are WONDERFUL things about the education a lid gets at Punahou. But maybe if Barry Obama had gone to a public school instead of Punahou, he would have learned how to stand up to playground bullies. Once you become their punk, you will always be their punk. Here is an opportunity for Obama to demonstrate some backbone. Even if he were to lose the vote, he would gain newfound respect from the public, from his demoralized Democratic base and from his Republican opponents.

    Dave, you might disagree with what I have written here. But it is scarcely “mindless” for millions of Democrats to have come to these conclusions.

    (Heck, I suspect a heckuva lot of Republicans agree with my assessment of the politics, even as they disagree with me on tax policy).

  4. Kolea Says:

    In the fourth paragraph, I meant to write:

    “Now logically, there is a tension between those two propositions.”

  5. David Shapiro Says:

    Settle national policy with juvenile posturing about punks and Punahou? No thanks. If you want to argue politics and blame, keep in mind that in the Clinton-era government shutdowns, the Republicans got the blame because they were perceived as the ones who refused to compromise when they didn’t have the votes to have it all their way. If the middle-class tax cuts and unemployment benefits get deep-sixed because Democrats wouldn’t compromise, they’ll get blamed no matter how much they blather about the rich. That’s a better weapon in the next election. This election is already lost.

    I make a lot of jokes about the age of Inouye and Akaka, but a little mature judgment is a good thing sometimes.

  6. Kolea Says:

    Since Dave called my attention to what I had written about Punahou, let me clarify another typo in that section. I meant to write:

    There are WONDERFUL things about the education a kid gets at Punahou.”

    Somehow “kid” became “lid.” Was not intended as an allusion to Obama’s “Choom Gang” festivities.

    On the more serious point, I disagree with Dave’s attempts to write off concerns about Obama’s eagerness to compromise as “juvenile.” On issue after issue, Obama has followed the same pattern. He starts with what he has decided in advance is a reasonable position, acceptable to moderate Republicans. With healthcare reform, he actually drew the major points of his initial policies from REPUBLICAN proposals. Some had their origins as GOP counter-proposals to Hillary Clinton’s proposals in the early 90s. The rest was inspired by “Romneycare” advanced by Governor Mitt in Massachusetts.

    When his reasonable “opening bid” is rejected by the GOP (or the corporate lobbyists), he gives in. They have found that they can always get him to move towards their position if they retreat.

    On issues where he does not have public support, this may be reasonable. But on issues where he has strong public opinion on his side, he still “capitulates.”

    Dave may want to present this criticism as if it is juvenile or unrealistic, but it is widely-held among Democrats. Just because Inouye and Akaka have decided UNDER THE PRESENT circumstances that “holding their nose” and voting for the compromise is the “least bad option” available to them now, does not mean they are not frustrated by Obama’s weak leadership on these issues.

    Even for his own, immediate interests, Obama is at risk of being a one-term president. If he were to fail to be elected because he attempted bold initiatives without caring whether he would be re-elected, that would be noble! Hey, I read “Profiles in Courage” as a kid and it still has sway over my thinking as a an adult.

    But to lose the support of your base because they are disappointed in how timid you are, that is a disaster.

    The guy is brilliant, personable and extremely talented. But he is a weak leader and a poor negotiator. He appears more concerned about the standard of living of hedge fund managers than everyday working folks.

    Where is the AUDACITY” we were promised during the campaign? Where is the CHANGE?

    “Plus ça change, plus c’est la même chose.”

    Ooops, forgive the French. We Democrats are trained to dream in French. “The more things change, the more they remain the same.”

    Obama has had the opportunity to “rise to the occasion” afforded by our current crises (pl). He created high expectations among voters, but it is wrong to blame the voters for being unrealistic about what can be accomplished when we do not see him willing to fight for us. If he would demonstrate just a little “fight” against those FDR called the “economic royalists,” a lot of people, currently demoralized, would rally behind him.

    Here’s a more eloquent expression of my lament, in cartoon form:

  7. WooWoo Says:

    Kolea-

    You describe Obama as “extremely talented.” I’ve got to keep our beef going from the other day. What, besides getting elected, has he done to show that he is “extremely talented?”

  8. Kolea Says:

    WooWoo,

    I didn’t know we have an ongoing beef. As you know, I enjoy the friendly relationship that has (kinda) sprung up between us across the divide.

    Let me “honor” your comment by recognizing a bit of the truth in it, though I would present it a bit differently. Here’s an effort. Let me know:

    “Obama has demonstrated he has great skills suitable for running a campaign. He has yet to demonstrate mastery over the problems of governing.”

    How’s that? Does it work? Can we sing Kumbaya?

    BTW- I think if you go back, I think you will find that both of us thought his Nobel Peace Prize was undeserved. I mighta used more diplomatic language like “premature.”

    But we gotta stop this agreement. I am already being accused of being insufficiently loyal to the President by some of his more dreamy-eyed fans. You DO understand (I HOPE) that I want him to be a bolder, more progressive political leader? I was hoping for another FDR. So far, he reminds me more of Herbert Hoover. (Didn’t Hoover also win a Nobel?)

  9. WooWoo Says:

    Kolea-

    It was a joking beef. I enjoy our principled disagreements as well.

  10. Peter Kay Says:

    Kolea its funny how we always accuse the other side of “holding tight to their talking points” while we lament the disorganization of our party. And I’m speaking as a Republican.

    I give the Democrats more credit than you do. They had the chance to start this class warfare before the November elections but they also knew that if they have voted in a massive tax increase (on anyone) in the middle of a recession there would have been a shellacking of biblical proportions on 11/2 (heck, Djou might have even won).

    Obama made a very smart move. He is seen as shedding his leftist skin and moving toward the middle, which he absolutely must do (and I incorrectly predicted he wouldn’t), the GOP gave him a massive stimulus, deficits be damned, and he pivoted away from the 100% failure track record of Keyesian economics and moved to the 100% success track record of lowering taxes to stimulate the economy.

    If Obama is lucky, the new stimulus will kick in by 2012 and he can claim to save the economy. If the Republicans are smart and lucky, they will point to the failure of government spending (i.e. Obamanomics) and the success of tax cuts (Republicanomics), take over the Senate, and then roll up their tea party sleeves to hack away at the deficit.

    …while snowballs glisten on Waikiki beach…

  11. fdog Says:

    I agree with David Shapiro. The Democrats were way to quick in jumping out against the proposed compromise. It surprised me to see how the extremes of both parties immediately began objecting to the deal. Both Sanders on the left and DeMint on the right objected within a day of the announcement and the media talkers on the far ends of the spectrum also opposed it. On right wing radio, Hugh Hewitt and Mark Levin both expressed anger that the Tea Party activists had been betrayed by the “secret deal” that was done behind closed doors, and on the left, was that Keith Olbermann who compared Obama to Neville Chamberlain in his appeasement of the evil forces of the world? By jumping out to kill the agreement so swiftly rather than backing it and seeing if the Republicans would try to stop it, The Democrats have set themselves up for the blame if the economy is still sluggish next year. Had the Republicans killed the deal and in January the tax rates go up in all brackets and the estate tax goes to 55% on all over one million instead of 35% over five million, the Democrats could say “See? They were so intent on getting sweet deals for the super-rich that they don’t even care if tax rates for the poor and middle class go up.” Instead, they give Republicans in the same situation the opportunity to say “See? They don’t care about the poor and middle class, they were so intent on their class war against the rich that they raised taxes the rest of us.” They also sawed Obama off at the knees going into a two year stretch where his party will be a minority in the House and a slim majority in the Senate. It gives the Republicans an excuse to ignore Obama’s attempts at compromise and say “Why listen to him? He’s so weak, he can’t even deliver his own party.” Perhaps Obama partially brought it on himself by criticizing the Republicans in announcing the deal, possibly encouraging the Congressional Democrats to think that he really wanted them to block it. But it still looks like the Democrats harmed themselves and the President by opposing the deal so quickly.

  12. Kolea Says:

    fdog,

    I expect you would disagree with the Democratic criticisms of the compromise whether they came “quickly” or after a great deal of time. But let me dispose of your assertion the Dems were “too quick” in opposing the compromise.

    The fundamental arguments over how to improve the economy have been studied and argued for decades. Even as the SPECIFIC features of what were incorporated into this “compromise” came into sharper focus, they were seen months ago. So every member of congress has had plenty of time to have developed a position on whether to support extension of the Bush tax cuts in any variant: total opposition (as SOME deficit hawks did), extension only for those earning under $250K, or extending for everyone, including the wealthiest.

    The final “package” combined extension of the moratorium on the inheritance tax. How is that a “new” idea, unfamiliar to those paying attention? And the “concession” to the Dems was to tie this all to extension of unemployment benefits. Even that element was “on the table” for a few weeks.

    Not to be rude, but there was nothing “new” in all this. Nothing which has not been examined and studied as POLICY for years. The only “new” element was the specific political “theatrics,” and even those had been played out before, both during the Clinton administration in real life and, more memorably, on the TV screen on “West Wing.”

    I disagree with much of what Peter Kay has written above and am disappointed to watch his evolution from what I had perceived as a thoughtful guy to a Republican spokesmen. But he is correct in framing this as an ongoing argument over the best approach to towards economic recovery. These battle lines are not new, just as the elements of this compromise package are not new. I think your eyes and mind are being distracted by surface phenomena as images wash across the screen of the television set and over the frontpages of the newspaper.

    For those who have been paying attention, there is nothing new in this “deal.”

    As the man said, ““Plus ça change…yada, yada.”

  13. Peter Kay Says:

    Thanks Kolea for your comments. I hope you recognize that just because I represent the “loyal opposition” that I can’t also be thoughtful. 🙂

  14. Kolea Says:

    Peter,

    I am glad you consider yourself a “LOYAL opposition.” There is a point at which the announced intentions of prominent Republicans to attempt to bring down the Obama administration approach disloyalty, not just to the president, but the national interest. Just to pre-empt any rebuttal regarding opposition to Bush from the left, I will stipulate that “nationalism” has less sway over me than it does (allegedly) over conservatives. Partly because, as a “local haole,” I identify more with Hawaii than with the US, and partly because once I expand my identification, I think of myself as a human being more than as an “American.”

    But yeah, I appreciate your thoughtfulness in these discussions.

  15. Michael Says:

    Expiration date 2012.

  16. ppcc Says:

    How can the Democrats demand that people who earn over $250K or $1 million per year pay even more in income taxes when many Democratic leaders (and Republicans) don’t even currently pay their current share of taxes to the gov’t. Obama’s Tim Geitner, Charlie Rangel, etc. the lists goes on. In Hawaii there are the Plueger family and the issue of opening up Swiss bank accounts other alleged money hiding schemes so as not to pay even their current share for taxes. Also if the super duper rich like Bill Gates, Warren Buffet, Ted Turner, etc. demand that the very rich pay more in taxes, as others have mentioned they are free to write a check for BILLIONS to the IRS in addition to what they are currently paying in taxes. Instead Gates, Buffet and others spend millions/billions on “world cause” foundations and not submit that money directly to the IRS. Talk about hypocrites cause they know if they just gave away their BILLIONS to the IRS the money would be wasted on useless projects like a train to nowhere to line the pocket of special interest and the super duper rich are smart enough to realize it is better for them to set up these non-profit foundation funds or organizations that can actually benefit people or countries who are truly in need.

  17. el guapo Says:

    ppcc Says:

    December 10, 2010 at 8:04 pm
    Also if the super duper rich like Bill Gates, Warren Buffet, Ted Turner, etc. demand that the very rich pay more in taxes, as others have mentioned they are free to write a check for BILLIONS to the IRS in addition to what they are currently paying in taxes. Instead Gates, Buffet and others spend millions/billions on “world cause” foundations and not submit that money directly to the IRS. Talk about hypocrites cause they know if they just gave away their BILLIONS to the IRS the money would be wasted on useless projects like a train to nowhere to line the pocket of special interest and the super duper rich are smart enough to realize it is better for them to set up these non-profit foundation funds or organizations that can actually benefit people or countries who are truly in need.

    Maybe having the super duper rich donate more is just what people like Buffett and Turner want. That doesn’t sound hypocritical to me, it sounds brilliant.

  18. Kolea Says:

    I was not going to continue this discussion, but I just came across this article, validating what I have said. Obama’s posture is BOTH bad economic policy AND bad politics. The Dems lost the midterms in large part because many ofg the people who flocked to vote for Obama in 2008, have been demoralized. Shapiro wants to ignore this “Enthusiasm Gap” because it goes directly against his thesis that political centrism is the highest form of political maturity.

    Peter Kay, chief strategist for GOP Hawaii (did I get the title coirrect, Peter) also likes it when Obama compromises on terms favorable to the GOP agenda. He also sees that as maturity. (Forgive me if I am not surprised). It was disastrous for the COngressional Democrats, but it is not working out well for Obama personally either:

    Polls Show Obama has Lowest Numbers of His Presidency

    “The biggest reason for Obama’s fall: a sharp drop in approval among Democrats and liberals, apparently unhappy with his moves toward the center since he led the party to landslide losses in November’s midterm elections. At the same time, he’s gained nothing among independents.

    “He’s having the worst of both worlds right now,” said Lee Miringoff, the director of the Marist Institute for Public Opinion at Marist College in New York, which conducted the national survey.

    Read more: http://www.mcclatchydc.com/2010/12/10/105105/poll-obamas-losing-support-romney.html#ixzz17vazu8Um

  19. Peter Kay Says:

    Kolea,

    I don’t disagree that Obama is in trouble but do you really believe that if he sided with his Progressive base on this issue (let a massive tax increase come Jan 1 on everyone) he would be better off?

    The core of Obama’s problem is that his campaign was a blank canvas on which everyone painted their hopes and dreams. The fantasy of campaigning is meeting the reality of legislation. The Left is really mad at themselves in realizing that the country is center-right and Obama is the focal point of their anger. The Center has discovered that Team Obama isn’t so moderate after all.

    The only place Obama can go is the center but even that doesn’t bode well as his hard Left will abandon him. I agree he does have the worst of both worlds but he’s really go no where else to go.

    From my bias: Obama would do best to embrace proven policies that have brought nations out from economic malaise (cut taxes, cut spending, free the market), let his extreme left fall into the ocean, and get re-elected.

    ….as snowballs glisten in Waikiki…

  20. Michael Says:

    I would like to hear President Obama sing this song, if as well as Frank Sinatra. The words may mean differently.

    It would seem with a compromise, President Obama is asking for what is best for the People of America. It was his Way but now its not.
    Senator Inouye and Senator Akaka for the People of Hawaii.

  21. kolea Says:

    Peter,

    It may be unfair of me, writing semi-anonymously, to point this out, but I wonder if you have the freedom to think differently about the economics of the tax debate than the GOP leadership? Part of the reason I comment under a pseudonym is because I need that freedom.

    It is a ridiculous GOP talking point to refer to a tax cut for the wealthiest 2% as a “massive tax increase” in terms of public perception. The GOP has been SOMEWHAT successful with that refrain, but for 98% of the people, there would have been NO tax increase. And contrary to GOP efforts to persuade the 98% to think they have a stake in the tax cuts for the wealthy, the polls show most people disagree.

    It is fascinating, as a study in group psychology, to watch how you folks can “turn on a dime” from warning about “the DANGERS of the DEFICIT!” to now saying concern about the deficit can be deferred until after tax cuts for the rich “stimulate the economy.” And this despite empirical evidence that it is tax rates which are prevent investors from creating jobs.

    You, Dave and, for that matter, Barry Obama, might be happy believing it is only the “left” extreme which opposes the extension of these tax cuts, but the polls show broad support for that position. You folks may be able to win the presidency in 2012 if the GOP nominates Mitt Romney (will the Christians in your party allow that)? Or, uggh, if you nominate Jeb Bush. But if you push further right in the false confidence you gain from Obama’s shrinking support, you will probably overplay your hand as liberals rejoin the centrists in supporting Obama.

    Obama should be worried. But I can understand why you are content with these recent developments.

  22. kolea Says:

    Again I type faster than I should. I wrote:

    “And this despite empirical evidence that it is tax rates which are prevent investors from creating jobs.”

    I meant:

    “And this despite the lack of any empirical evidence that it is tax rates which are preventing investors from creating jobs.”

  23. Peter Kay Says:

    Kolea,

    This may come as a surprise but I am “allowed” to think freely. 😉

    I’ve spoken about my position about keeping the existing tax rates intact on peterkay.com but simply put, while a nuanced poll asking folks if it’s OK to raise taxes on someone else seems to indicate that it is, when you ask American’s if they think a tax increase on anyone is a good idea, their common sense comes out and they are strongly against it.

    Most reasonable people understand that foisting a massive tax increase on those who account for most of the hiring and job creation in this nation is a bad idea. Even worse is the estate tax which would actually have many companies folding up in order to pay cash for their hard assets.

    As to hypocritical cries in the defense of the deficits, this has been used by both sides of the aisle (whatever happened to Pelosi’s PayGo?).

    The narrative of “paying” for a “tax cut” is masterful spin from the Left. Since when does one pay for letting people keep their own money? When revenue goes down, do we wonder how to “pay for it” ? Of course not. We cut spending.

    There’s no way the Tea Party will let the next congress spend. Even Obama is signaling that this issue will be dealt with. All in good time.

  24. Kolea Says:

    Peter,

    High income people already have those tax cuts, yet they are not “creating jobs.” Look through the business section of todays paper and see what adice they are giving people on where to invest their money. OURSIDE THE COUNTRY! That’s where the profits are, not in creating jobs within the US. They say: “Buy Swiss francs!” Invest in developing economies or speculate in foreign currencies. I repeat, the Bush tax cuts are in effect now and they are NOT creating jobs.

    More and more wealth in the US is untethered from job creation within the US. You might, as an article of faith, assert that jobs are created by wealthy people. But I can argue a much stronger case that jobs are created when customers demand goods and services.

    And I can back up my claims with more empirical studies than you can. The evidence–not just in today’s paper– but in a lot of studies strongly suggest that extending unemployment benefits will result in more spending and more job creation than allowing wealthy people to keep a larger portion of their income. OK, so you will shift your argument from which is actually more stimulative and good for the overall economy, to a “moral” argument about “allowing people to keep their money.” apparently regardless of whether their “keeping their money” actually results in the creation of jobs. I say it does not. That government salaries to cops, border guards, school teachers and social workers leads to more consumer demand and the creation of jobs AND profits for small businesses than tax cuts for the wealthy. You can assert moral claims all you want to obscure that, but the actual facts about business behavior in this stagnant economy will not support the claim that continued tax cuts for the rich will lead to job creation.

    You think you can speak freely. “Freedom” is an interesting illusion. I have found it fascinating to watch as people’s beliefs bend to comport with their self-interest. You are responsible for advocating the GOP’s interests. You may be a “True Believer” in Eric Hoffer’s meaning of the term. Anonymous postings actually allow more freedom for your ideas to evolve as you confront the limitations of the “official line” of your party, of the corporation you work for or the industry you work in.

    But to each their own path. I will, obviously, publicly criticize Obama when I think he is wrong. Or the congressional Democrats. Heck, I have criticized Senator Inouye on this blog and I cannot think of a more powerful Democrat in Hawaii. I look forward for demonstrations of your “freedom” to do the same with leading GOP figures and dominant GOP policy positions.
    Or maybe your conception of “freedom” varies from mine.

  25. Peter Kay Says:

    Kolea,

    I respect the thoughtfulness of your posts. I believe our core difference comes down to this: You believe that taking money away from citizens and then spending it on programs it sees fit will grow/stimulate the economy. I believe that letting people keep and spend their own money will stimulate the economy far better.

    I’m not aware of a single instance, ever, where a country was able to spend its way out of a recession. Are you?

  26. Kolea Says:

    Peter,

    I am not sure we can have a productive discussion of economic policy if we reduce it to : “letting people keep and spend their own money will stimulate the economy” versus “spending our way out of a recession.” Neither of those formulas are very helpful, except as starting points.

    How and why do you think the US climbed out of the Great Depression? I am aware there is a popular book circulating among conservatives proclaiming the New Deal prolonged the Depression and that it took WWII to lift the economy again. But that just shifts the conversation. What was the war time economy stimulated by, if not by an even more massive explosion of government spending? It certainly wasn’t “the private sector” which created all that demand.

    COmparing the US economy with other national economies, can we draw some lessons? Which economies are doing well? In Europe, the Germans are doing very well, but oops, they did not launch massive layoffs and they have much stronger social programs and stronger bank regulation than the US.

    The Chinese have done quire well. In fact, their biggest economic problem is that they are stuck with some much of our debt. And while they have embraced a great deal of the more rapacious featurres of capitalism, they can scarcely be cited as an example of free market economics.

    Let’s turn to the actual behavior of the wealthiest people and see what that tells us about their propensity to “create jobs” in this economy. (I assume you agree that is fair question? Or must an objection about the sanctity of private property force us to not test any assertions about how productive great wealth is?

    It is clear that people do not want to invest in “job creating” activities in the US under the current economic conditions. It is not profitable. (Please don’t hurry to exclaim it is because of the difference in tax rates between 36% and 39%.)

    When the largest banks were bailed out with taxpayer money, very little of it trickled down to small business borrowers. Why is that? Here is a rough answer: there is very little consumer demand for the goods and services produced by US-based companies of any size. IF consumers have money, they shop at Walmart, Target and Costco, buying goods made in China, in order to stretch their dollars while maintaining the American Quest of “dying with the most toys.”

    A large portion of the money lent to the banks (at something like 0.25% interest?) was then lent BACK to the government by purchasing USG bonds, which were paying about 3% interest! That was a VERY profitable, no risk investment. So why would a bank get tied up with a mortgage in this uncertain real estate market?

    Such “loans” to the large banks were really just government-issued licenses to profit from a cozy relationship with the Federal Reserve. They pumped massive profits back into the banks, perhaps partly to avert the meltdown of the financial system and partly because these are their closest buddies. Maybe it was necessary. I have a hard time getting a clear sense of how the national Republicans feel about this. Except maybe Ron Paul.

    Was this atypical as a source of wealth in today’s economy? A few months ago, I saw a disturbing figure. Transactions in the financial services account for something like a third of the US GDP. OMG.

    Fox and Clear Channel, the main conduits for conservative “thinking” in today’s society, are full of ads advising people to “invest”! Yayyy! The virtues of small time capitalism, backbone of the economy! And where should they “invest”? They are being told to “BUY GOLD!” by the leading cheerleaders for “free market economics.” How many jobs does THAT create? I mean, besides Glenn Beck’s?

    Oh, but that is simply a rational response to the crisis caused by having a “socialist, crypto-Muslim, Bolshevik fascist” like Obama in charge of the economy. They are only betting AGAINST the health of the US economy while he is in control.

    Funny story. When Bush was first elected, I was talking with a successful small business friend of mine. The kind who really works and really employs other people. He was doing well but was unsure where to put his money. I suggested Bush would probably increase military spending and raise oil company profits, so if he could figure which companies were closest to Bush, he could probably do quite well. Or, that Bush’s actions would be clumsy enough to destabilize the world economy and dhe might want to simply invest in gold.

    We lost touch. When I saw him a couple of years ago, he thanked me. He had thought about our conversation and put a large chunk of his savings into gold and the value had gone up almost 3 times during the Bush years!

    If we are allowed to judge tax policy and competing “stimulus plans” by pragmatic criteria, I think the “stimulus effect” of all of these tax cuts at every income level are being over-rated. Prudent middle and working class people will use a large portion of their tax savings to pay off their credit cards in an effort to climb out of debt. (Banks get money at almost zero % interest and charge us 20-30% interest on credit cards? Nice scam! I LOVE the ways the rich get even richer. How “productive”! How “creative”!)

    Extending unemployment benefits will probably give much more “bang for the buck” as these folks will be more likely to try to sustain their normal lives, if at a reduced rate, buying necessities and circulating the money immediately. But the BEST use of the money, in terms of generating jobs and creating consumer demand to benefit small businesses, leading to further job creation, is to a “jobs program.” I am not advocating the creation of “make work” project digging ditches (though it may come to that). But, at a minimum, RETAINING government employees doing essential tasks which produce a public benefit, whether we are talking about teachers, firemen, cops, librarians, socail workers, office clerks, etc.

    The “Austerity” approach being advocated by Republicans and (too much, IMO) by Obama, is exactly the WRONG approach to take in a recession.

    Another highly useful way of spending federal dollars is through “infrastructure projects,” again a form of “jobs program.” If the projects serve a legitimate public need, it is a win-win way to get the economy going by pumping money into it that the private investors, for very logical reasons, are unwilling to do.

    NOTE: I do not believe the city’s Rail project satisfies these criteria. Yes, it would provide high-wage jobs, pumping money directly into the pockets of local working people and construction/engineering companies. That will be a benefit. But IF we are going to spend all that money, the project should also make sense. We can provide jobs on a wide variety of public projects. Some would provide more benefit than this “train.”

    Dave says I am mindless. I think I am “mindfull.” (What my mind is “full of,” I will leave to others). It appears hwe would rather dismiss a large swath of Democratic economic opinion with an eaasy insult than try to deal with the actual arguments and data. So I appreciate our exchanges. Hey wait, didn’t you just say Obama should let the left wing of the Democratic Party fall off into the sea?

    Let’s make a deal. We’ll let your party’s extreme right wing fall into the sea, too. Without the yahcts of the super rich to rescue them, they will inevitably drown. I have seen them. They are fat and out of shape. I, on the other hand, am a pretty good waterman. Depending on the break, I will look pretty good riding the waves. I dib the lefts! You can have the rights. (Actually, if I correctly recall the footage from Sandy Beach a few years ago, Obama is already taking the rights!)

  27. Peter Kay Says:

    Kolea I’m really disappointed that you have to stay incognito. I would love to have you as a guest on my show and debate the issue. There is much to mutually gain by a principled discussion of values.

    Your essay is formidable but the simple fact remains you believe government spends money better than people do. And you believe government spending will pull economies out of recession.

    Yet you can’t name a single instance. Not one. Regarding the FDR & the Depression, I will let Henry Morgenthau, architect of Social Security and the work programs speak for me:

    “We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong … somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. … I say after eight years of this Administration we have just as much unemployment as when we started. … And an enormous debt to boot.”

    FDR’s drunken spending spree and insane market controls prolonged the depression. The simple thing that brought us out of it was that after ww2, the entire modern world was in shambles except for our nation which also happened to have massive production capacity. The USA had a unique position in the 50s & 60s where we were the exclusive manufacturer of everything. We had a global monopoly on manufacturing because the rest of the world was blown to bits.

    If you ever change your mind (or perhaps figure out a way to electronically disguise your voice) please do let me know. I would be honored to have you as a guest.

  28. WooWoo Says:

    Kolea-

    You touched a little bit on a significant part of the problem this time around. This particular recession is stretching out so long because we have never been so leveraged. We are undergoing a deleveraging process, and neither tax cut nor stimulus project will make much of a difference; it’s gonna take a while.

    In late 2008, early on in the crisis, Harvard’s Marty Feldstein made a bold proposal that predictably went nowhere. He looked at the massive debt overhang and figured that it would take forever to deleverage, mainly because of underwater housing prices. He suggested that the government offer to bail out individual homeowners by taking over the loans, offering a low interest rate, and writing them down to the current value of the house. The catch was that the loan would become a non-dischargable debt owed to the federal government. Only way out is to pay it back or go six feet under. A fair offer, IMHO. Feldstein’s purpose was to speed up deleveraging and clear the market. I thought it was a great proposal.

    As far as unemployment insurance goes, it does maintain a certain level of aggregate demand, but it also contributes to wage stickiness. It prolongs the myth that we all have in our own heads that we are worth X amount of dollars per hour or per year.

    From a really big picture standpoint, humankind has reached an inflection point. Since the beginning of man, the challenge has always been a supply-side issue; not enough food, shelter, etc. We have reached the point where we can produce everything we need. People are starving in this world because we have distribution problems (primarily caused by political issues), not production problems. The question now becomes, who consumes all the stuff we make?

    Anyway, back to the topic at hand. Neither stimulus nor tax cut will have a significant effect on the economy over the next 1-2 years. So I say let’s let everybody spend their own money.

    Kolea, I have very little problem with the idea of taxing the rich more if it could solve our problems. But it’s a sideshow. We are so deep in the hole that the only way out is for everybody to pay more. Which is why I am a big supporter of many of the proposals from the bipartisan deficit reduction committee. In particular, I think that the home mortgage interest deduction should be phased out. It’s a piece of special interest legislation that has become such a part of our culture that you would think it’s written in the constitution. In the long run, all it does is help realtors and mortgage brokers make more money. No other country has it, and for sure plenty of Canadians own their homes. 20-year phase out, 5% per year, and nobody will notice the difference. Home prices will adjust downwards, making housing more affordable for everybody. Only the realtors lose.

    What’s that? What about the poor homeowners who will see a decline in their investment? Exactly what I mean. It’s not an investment. It’s a roof over your head. Thinking of our homes as investments is what got us into this mess in the first place.

    As a member of the middle class that gets a significant, nay, ridiculous deduction for my mortgage interest, I would have to pay a lot more in taxes. I’m okay with that. I am willing to do my part to restore sanity and fiscal responsibility to our tax code… A tax code that is completely ridiculous and that both parties have ample responsibility for.

  29. Kolea Says:

    WooWoo,

    I appreciate your contributions here. Let me agree with a few points and push back on some others.

    Not that my opinion matters, but I am open to getting rid of the mortgage interest deduction. If we do, we should obviously phase it out slowly as you suggest. I agree it is a form of subsidy which has distorted the economy and people’s decisions on housing.

    But being “open” to that discussion does not mean I am fully convinced. Home ownership HAD provided a means for regular folks to build up equity and provide financial security. I strongly believe in the value of a broad middle class. I do not think this is because I grew up in the period which saw the greatest expansion of the middle-class, but undoubtedly it is related.

    We have seen how home equity went from being a source of economic stability to a cause of extreme INSTABILITY as a result of overdependence upon that equity allowed for consumer demand over the past three decades. Part of what angers me about SOME GOp arguments on this is they want to place the blame on young families who responded to this system of incentives for all the right reasons and bought a home their salaries could not sustain. Unless, as the dominant story went, home prices would “always” go up!

    IF we eliminate the home mortgage deduction, do we lose the positive function of home-ownership as a focus of building equity? Is that desirable? Does another focus for investment emerge? And, if so, does that provide more stability or is it also vulnerable to similar destabilizing shocks?

    FOlks might blithely respond that the stock market can serve that function. Or that folks will plow their savings into small businesses, but I would caution that such a response as “social policy” reflects even less due diligence than the decision to encourage home ownership. As you say, at least people will have a roof over their heads when they own a home. That buffers the hardships of an economic collapse more than if your stock portfolio turns to dust or your business goes under and you can no longer pay your rent.

  30. WooWoo Says:

    Kolea-

    I absolutely agree that the people were only responding to a warped system of incentives. And both parties deserve equal blame for having created this system over several decades. Let’s move forward and fix the problem.

    You said:
    “IF we eliminate the home mortgage deduction, do we lose the positive function of home-ownership as a focus of building equity? Is that desirable? Does another focus for investment emerge? And, if so, does that provide more stability or is it also vulnerable to similar destabilizing shocks?”

    Canada has no mortgage interest deduction (as far as I can tell, for that matter, no other country does) and home ownership is higher than in the US. People will still see the wisdom of owning their own home. What we will eliminate is the idea that it is also an investment vehicle. People spend lots of money on cars even though there are no tax benefits. You buy it only for the utility it gives you. Let’s let people return to buying houses for their usefulness, not for their financial returns.

    Why does the government need to provide an incentivized focus for saving? Individuals can choose their own way of doing it. A government incentive to choose one investment vehicle over another simply makes clear what lobbying group bought the most conress-critters (hat tip to you).

    As far as destabilizing shocks go, one man’s (or season’s) stability is another man’s trap. Another factor slowing down our recovery (although not as big as the debt burden overall) is that high rates of home ownership coupled with negative equity in homes means that labor mobility has been hampered. In previous recessions, many could move to where the jobs were. Today, you can’t move to Boston to get a job because your condo in florida is underwater to the tune of $50-100k. Physical movement of population in and of itself has a stimulative effect; human velocity begets monetary velocity begets macroeconomic velocity.

    Returning to the general taxation theme, the big picture of it is that the middle class will have to pay more. It has been the sacred cow of all sacred cows. Democratic rhetoric about the GOP being anti-middle class is bullpuck. The middle class is where all the votes are. All sides have been kissing up to the middle class. With a $1.1T deficit, the gap is $3B per day. If you were to confiscate ALL of the net worth of the 10 richest americans, you would cover the gap through the first quarter. I would estimate that you could cover the year’s deficit with about the top 100. So what about next year?

    The mythology about the American middle class is immense. We were simply lucky. The wars got fought over there, and in 1946 we had the only factories left. A whole generation got to live on easy street and the American psyche now thinks we are entitled. The strength of America was never its middle class workers. Its always been the immigrant worker and the immigrant entrepreneur. Those are the people that created the middle class. The middle class was not created through a government program. Many government programs were created to help the middle class (like the home mortgage deduction), but this was after the fact stuff.


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